Amazon forced to pull products in India as new rules bite

The logo of India's e-commerce firm Flipkart is seen in this illustration

India late previous year modified foreign direct investment (FDI) rules for its burgeoning e-commerce sector that has attracted Walmart Inc and Amazon.com Inc, creating new hurdles for both global retail giants.

Amazon and Walmart's Flipkart are now banned from cutting exclusive arrangements with sellers, offering deep discounts or holding any business interest in online merchants on their websites. According to a CRISIL report, almost 35-40 per cent of e-retail industry sales amounting to Rs 40,000 crore could be impacted due to the tightened policy. On Wednesday, the Department of Industrial Policy and Promotion (DIPP) was also renamed as the Department for Promotion of Industry and Internal Trade.

The new rules also stipulate that an e-commerce marketplace, as well as any companies the marketplace has equity stakes in, should provide services such as fulfillment, logistics and payments to all sellers on the platform in a fair manner.

The firms are reportedly said to have started working on their "Plan B" in case the deadline wasn't extended.

Amazon's shares slid as analysts pushed the company for answers on India, a market the e-commerce titan regards as the best frontier for global expansion.

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Both companies have bet heavily on India being a big growth driver: Amazon has committed to investing $5.5 billion there, while Walmart a year ago spent $16 billion on Flipkart. However, it will continue to look to engage with the government to seek clarifications that help us decide its future course of action as well as minimize the impact on its customers and sellers.

The new rules, meant to close loopholes in the regulations, state that if any seller purchases more than 25 per cent of its inventory from the wholesale units or other group companies of an e-commerce firm that runs an online marketplace, then that vendor's inventory will be deemed to be controlled by the e-commerce company.

Mint reported on 29 December that the threat of job losses in the supply-chain network has emerged as a major concern following the announcement of new FDI guidelines that seek to tighten rules for e-commerce companies. The adoption of such business models might bring into light the loopholes.

The decision not to extend the deadline has been welcomed by traders' bodies and home grown platforms such as Snapdeal and ShopClues, which have been campaigning vigorously for this outcome. "The only affected parties have been large-format retail stores, if at all, while smaller retailers and stores have continued to thrive", said Anand Lunia, general partner at India Quotient, a venture capital firm. Smaller e-commerce firms like Snapdeal and ShopClues as well as offline retailers have also written to Commerce Ministry, urging the government to not give into pressure from United States companies and authorities.

It also aims to benefit smaller e-commerce players who can not compete with e-commerce players.

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