MUMBAI • In the heart of New Delhi's largest wholesale bazaar, merchants who normally compete with one another have united against a common enemy.

"Amazon, Flipkart!" one merchant after another shouts into a microphone from a small stage in Sadar Bazaar. Some 50 other shopkeepers gathered around shout back in unison: "Go back! Go back!"

The sit-in, which created more chaos than usual among the rickshaws, motorcycles and ox-carts plying the market road, was one of as many as 700 protests against Amazon.com and Walmart - owner of local e-commerce leader Flipkart - that organisers say took place at bazaars across India recently.

India's shopkeepers are mobilising against the global e-commerce giants, alleging they are engaged in predatory pricing in violation of new rules meant to protect local businesses. At stake is the future of retailing in a country with 1.3 billion consumers, where Walmart and Amazon have sunk billions of dollars trying to crack the market and capture its growth potential.

"Amazon and Flipkart are a second version of the East India Company," said Mr Praveen Khandelwal, national secretary of the Confederation of All India Traders, referring to the British trading house whose arrival in India kicked off nearly 200 years of colonial rule. "The motive of Amazon and Flipkart is not to do business, but to monopolise and control."

India's government in October announced an investigation into the allegations of predatory pricing. Amazon and Walmart said last week their operations comply with Indian laws, and that they act only as a third-party marketplace.

The conflict comes amid a broader global backlash against the breakneck expansion of tech firms.

Representing about 70 million small merchants who collectively control almost 90 per cent of India's retail trade, India's shopkeepers' union has shown itself to be a strong political force. The traders are an important part of the voter base of Prime Minister Narendra Modi's Bharatiya Janata Party (BJP).

"For a government, especially a government of the BJP, which has the support of small businessmen, it may not be prudent or politically advisable to totally ignore such demands," said political scientist Sandeep Shastri of Jain University in Bangalore. "They would have to be seen taking some steps at least."

The union's power is a significant reason why the government has placed such onerous restrictions on foreign retailers - including a minimum US$100 million (S$137 million) investment and strict local sourcing rules. Due to the hurdles, the likes of Walmart and Carrefour have all but given up on opening their eponymous stores in India.

The shopkeepers won a key victory against the foreign e-commerce players last year when the government tightened regulations on how the platforms are allowed to sell goods. The rules, aimed at creating a level playing field on pricing, forced Amazon and Flipkart to pull thousands of items from their virtual shelves and restructure large parts of their local operations.

The changes, coming after Walmart announced its acquisition of Flipkart, threw the foreign firms into chaos and prompted analysts to question their India investments. With Amazon shut out of China and Walmart's e-commerce performance in the United States decidedly mixed, both firms have settled on India as key to growth.

Amazon chief executive Jeff Bezos has pledged to spend US$5.5 billion to win India, while Walmart's US$16 billion Flipkart deal was the retailer's biggest.

Now the shopkeepers are alleging that Amazon and Flipkart are circumventing the rules with predatory pricing and deep discounting, demanding that the government shut down the firms' online marketplaces until they are in compliance.

Amazon said its sellers have complete discretion on what price to sell their products. Flipkart said it provides sellers with data to help them determine what product offerings will sell best at what price, but business decisions are ultimately the sellers' to make.

The flash point for the latest escalation was Diwali, a Hindu festival that was occasion for a gift-giving bonanza akin to Christmas. This year's festival in October came amid a slowdown in consumer spending that has hit everyone from carmakers to shampoo sellers.

But while the shopkeepers' union said its members saw as much as a 60 per cent fall in Diwali sales, Amazon and Flipkart managed to report record revenue from the six-day festival. The union argued that the online holiday deals must be in violation of the new rules, prompting Commerce Minister Piyush Goyal to announce an investigation.

"E-commerce companies have no right to offer discounts or adopt predatory prices," he said.

"Selling products cheaper and (causing) the retail sector to incur losses is not allowed."

Another government official said policymakers are looking at setting up a dedicated e-commerce regulator. A Commerce and Industry Ministry spokesman did not respond to an e-mail seeking comment.

Shopkeeper Vinod Kumar, 35, who sells women's cosmetics in the Delhi bazaar, is looking for relief. Standing by his small stall, he picks up a bottle of a rosewater-based hair product. He sells it for 40 rupees (80 Singapore cents), but says customers can get it from Amazon or Flipkart for 30 rupees, with delivery right to their homes.

"If everything is available online, why would anyone come here to face the heat and the crowds?" he said, adding that if the situation continues, he may go out of business, as many other shops already have.

Overall data shows sales at traditional mom-and-pop shops are still growing. Though these stores have seen a fall in their share of total retail sales since 2014 as e-commerce and organised retail chains grab market share, the consumer market is expanding at such a pace that absolute spending at such shops rose nearly 60 per cent, said consultancy Technopak Advisors.

That pace of absolute growth is projected to slow to 50 per cent over the next five years.

That may be cold comfort to Mr Muhammad Yusuf, 72, who runs a jewellery shop at the Delhi bazaar. He says he is unable to match the prices online, has cut his staff from six to two, and is in danger of not being able to pay rent.

BLOOMBERG