E-commerce giants Amazon and Flipkart may be hurt as India is considering revising its foreign investment rules for e-commerce, amid increasing complaints from India’s bricks-and-mortar retailers. This move that could compel players, including Amazon.com Inc, to restructure their ties with a few major sellers in the market.
Complainants have, for years, accused Amazon and Walmart Inc-controlled Flipkart of creating complex structures to bypass federal rules. However, the the US companies deny these allegations. Domestic traders also see foreign e-commerce businesses as a threat to their livelihoods and accuse them of unfair business practices, like using steep discounts to rapidly target buyers. The companies deny they are acting unfairly.
India only permits foreign e-commerce players to operate as a marketplace to connect sellers and buyers. It prohibits foreign e-commerce companies from holding inventories of goods and directly selling them on their platforms. Amazon and Walmart’s Flipkart were adversely hit in December 2018 when investment rule changes barred foreign e-commerce players from offering products from sellers in which they have an equity stake.
Currently, it is believed that the government is considering adjusting a few of the provisions, to prevent e-commerce players from offering products from sellers in which they have an indirect stake. The proposed changes, if approved, could hurt Amazon as it holds indirect equity stakes in two of its biggest online sellers in India.
Policy changes in 2018 affected India-US relations
The 2018 rules forced Amazon and Flipkart to rework their business structures. It also soured relations between India and the United States, as Washington said the policy change favoured local e-tailers over U.S. ones. India’s e-commerce retail market is estimated to grow from $30 billion in 2019 to a whopping $200 billion a year by 2026, according to the investment promotion agency Invest India. The COVID-19 pandemic also drove more shoppers online.
India’s Commerce and Industry Minister Piyush Goyal has been critical of e-commerce companies. In the face of growing trader complaints and an antitrust investigation, Piyush Goyal last year said that Amazon was not doing a great favour to India by making fresh investments.
The government may also be considering changes that would effectively prohibit online sales by a seller who purchases goods from the e-commerce entity or its group firm, and then sells them on the entity’s websites. Under existing rules, a seller is free to buy up to 25% of its inventory from the e-commerce entity’s wholesale or another unit and then sell them on the e-commerce website.