New e-commerce rules jolt in India

Gladys Abbott
February 3, 2019

It will also hamper India's image as an FDI (Foreign Direct Investment) destination especially because it was just past year when Wallmart invested billions of dollars in Flipkart.

U.S. retail giant Walmart-backed Flipkart Friday said it is disappointed with the Indian government's decision to implement the changes in rules for e-commerce companies with foreign investment in "haste".

100% FDI (Foreign Direct Investment) is allowed in the market model.

India does not allow foreign investors to control and market their own inventory on their e-commerce platforms.

Online retailers argue that it's cumbersome for them to have visibility of a vendor's overall inventory, even though if a vendor procures from their wholesale units.

As a result, both Walmart-owned Flipkart and Amazon are scrambling to reconfigure ownership structures and re-jig some key vendor relationships and agreements before the rules come into effect on Friday. Amazon and Flipkart have already written to the government stating that they need more time to understand the details of the framework. This is because Cloudtail India itself is a joint venture company between and Catamaran Ventures, and the new rules prohibit vendor entities with equity interests from participating in sale activities.

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After weeks of lobbying with the erstwhile Department of Industrial Policy and Promotion (DIPP), NITI Aayog, finance ministry officials and Commerce Minister Suresh Prabhu, Amazon India and Flipkart lost the battle to traders and wholesalers who were vehemently against deadline extention.

In the build-up to the February 1 deadline, Amazon had sought a deferment of four months while Flipkart is said to have proposed a six-month extension.

Batting for the players, the US-India Strategic Partnership Forum (USISPF) had dubbed the new e-commerce rules as "regressive" and said these changes would harm consumers, create unpredictability and have a negative impact on the growth of online retail in India.

This creates a barrier for India's Shopper's Stop to sell on Amazon India, as Amazon's investment arm has a minority stake in the department store chain. That means the retail giant is barred from hawking items under its own label, as well as those made available from local sellers that the company has invested in.

"By the letter of the regulation it will not be considered to be an entity in which Amazon has an equity stake, but if the government is wanting to implement the spirit of this rule they might say this doesn't cut it", one of the sources said.

Under the changes, which went into effect on February 1, e-commerce outfits in India will not be able to sell products via companies in which they have an equity interest or push vendors to sell exclusively using their portal. While the brands that were sold exclusively on the site are still unavailable for purchase, others like Echo that are also sold by third parties have returned.

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