There are many reasons. Biggest is competition works wonders for consumers.

Secondly, It creates an environment where a lot can be learn't from others.

The current environment for start ups in India is in large part due to inspiration, effect and to an extent competition from the silicon valley.

a solution? I don't think there is a problem to solve. I do think allowing FDI in e-commerce can only help the Indian consumer (not to mention the economy, because it will result in more hiring, more exit options for e-commerce startups etc)