For Amazon, Flipkart, going set to get tougher in India

Changes in foreign investment rules for e-commerce on cards

Tweaking clause on equity

– Foreign e-commerce players are allowed to operate as a marketplace to connect buyers and sellers. It prohibits them from holding inventories of goods and directly selling them on their platforms

– Amazon and Flipkart were last hit in December 2018 by investment rule changes that barred foreign e-commerce players from offering products from sellers in which they have an equity stake

– Now, the government is considering adjusting some provisions to prevent those arrangements, even if the e-commerce firm holds an indirect stake in a seller through its parent

New Delhi, January 19

The government is considering revising its foreign investment rules for e-commerce, three sources and a government spokesman said, a move that could compel players, including Amazon.com Inc, to restructure their ties with some major sellers.

The government discussions coincide with a growing number of complaints from India’s bricks-and-mortar retailers, which have for years accused Amazon and Walmart Inc-controlled Flipkart of creating complex structures to bypass federal rules, allegations the US companies deny.

India only allows foreign e-commerce players to operate as a marketplace to connect buyers and sellers. It prohibits them from holding inventories of goods and directly selling them on their platforms.

Amazon and Walmart’s Flipkart were last hit in December 2018 by investment rule changes that barred foreign e-commerce players from offering products from sellers in which they have an equity stake.

Now, the government is considering adjusting some provisions to prevent those arrangements, even if the e-commerce firm holds an indirect stake in a seller through its parent, three sources said. The sources asked not to be named because the discussions are private.

The changes could hurt Amazon as it holds indirect equity stakes in two of its biggest online sellers in India.

Amazon said e-commerce created “huge job opportunities” and is a significant contributor to economic growth. “Any major alterations” to the policy will adversely impact small and medium-sized busineses, it said in an emailed statement.

Walmart and Flipkart did not immediately respond to a request for comment.

Yogesh Baweja, the spokesman for the Ministry of Commerce & Industry, which is working on the issue, confirmed any changes will be announced through a so-called “press note,” which contains foreign direct investment rules. He did not give details.

“It’s a work in progress,” Baweja said, adding an internal meeting on the subject last took place about a month ago.

“Of course Amazon’s a big player so whatever advice, whatever suggestions, whatever recommendations they make, they are also given due consideration.”

Frayed Ties

The 2018 rules forced Amazon and Flipkart to rework their business structures and soured relations between India and the US, as Washington said the policy change favoured local e-tailers over US ones.

India’s e-commerce retail market is seen growing to $200 billion a year by 2026, from $30 billion in 2019, the country’s investment promotion agency Invest India estimates.

Domestic traders have been unhappy about the growth. They see foreign e-commerce businesses as a threat to their livelihoods and accuse them of unfair business practices that use steep discounts to target rapid growth. The companies deny they are acting unfairly.

“The way the government is thinking is that marketplaces are not doing what they are supposed to do. The government wants to tinker with the nuts and bolts of the policy,” said one of the sources familiar with the talks on the policy changes.