Govt declines extension to new e-commerce FDI norms

Govt declines extension to new e-commerce FDI norms

As the revised FDI laws force Flipkart and Amazon to cede control of inventory sold on their platforms, the two firms could look at compensating for loss this with an increased focus on private labels, something which could have the added benefit of yielding higher margins.

Flipkart CEO Kalyan Krishnamurthy warned last month that it faced "significant customer disruption" if the new rules were implemented from February 1.

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 fulfilment, logistics and payments to all sellers on the platform in a fair manner.

An Amazon spokesperson Thursday stated that the company will continue to engage with the government to seek clarifications and work towards minimizing the impact on its customers and sellers.

From yesterday midnight, Amazon started removing products that were exclusively sold through Cloudtail and Appario Retail both of which had equity investment from Amazon.

Traders and rivals say companies such as Amazon and Flipkart have been violating the spirit of these rules by creating proxy sellers or vendors in which they have direct or indirect stakes, allowing firms to give deep discounts that upset off-line trade. Businesses either owned fully or in part by the ecommerce platform are also barred from selling products on those sites.

On Friday, Flipkart said it was disappointed the government had made a decision to implement the regulations in haste, adding, however, that it would do everything to be compliant.

During its earnings call for the fourth quarter of 2018, the US-based online retailer remained tight-lipped on its India strategy in light of the February 1 deadline for compliance with foreign direct investment (FDI) in online retail.

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Another executive said these companies have highlighted that they have committed billions of dollars to the Indian market and that these investments could be at risk.

Industry experts pointed out that many partnerships between these e-commerce giants and their sellers are being tweaked to ensure that the online marketplaces are in compliance with the new rules. The LG V40 ThinQ, which was also launched in India as an exclusive, is no longer available either.

Meanwhile AIOVA, which represents over 3,500 sellers on India's top ecommerce firms, told Inc42, "Government should realise their work doesnt stop at policy making but also requires enforcement".

Both Amazon, and Walmart's Flipkart, had extensively lobbied against the latest rules and pushed for a delay in their implementation, but India late on Thursday said the deadline was going to stand.

The new regulation replaces a rule that said an e-commerce firm could not permit one vendor's retail sales to overshoot 25 percent of the overall sales of the marketplace by value in a fiscal year.

Some products began to disappear from Amazon India, including Echo speakers, Presto home cleaning goods, and other AmazonBasics products.

Both companies have bet heavily on India being a big growth driver: Amazon has committed to investing $5.5 billion (roughly Rs. 3,92,000 crores) there, while Walmart a year ago spent $16 billion (roughly Rs. 11,14,000 crores) on Flipkart.

It was not immediately clear what were the changes on Flipkart's website. Emails sent to Amazon didn't elicit a response, while Flipkart declined to comment.

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