Come Feb 1, the way Amazon, Flipkart do business in India will change

india

Updated: Jan 31, 2019 16:27 IST

Starting February 1, foreign-owned e-commerce services like Amazon and Flipkart will not be able to sell products of the companies in which they have stake and will also be barred from reaching deals with vendors to only sell on one platform, a move they have said will cause ‘significant customer disruption.’

To continue operating, Amazon and Walmart will now have to turn their sites in India into platforms for independent merchants.

The commerce and industry ministry order in December last followed complaints by small traders, who form a core support base of the ruling Bharatiya Janata Party (BJP), that the deep discounts offered by e-commerce firms are hurting their business.

Following the announcement of curbs, e-commerce companies wrote to the government seeking time to assesss the order. Walmart Inc’s online retailer Flipkart told the government the company faced the risk of “significant customer disruption” if the implementation of new curbs for e-commerce is not delayed by six months, Reuters reported.

In a letter to the industries department earlier this month, Flipkart Chief Executive Kalyan Krishnamurthy said the rules required the company to assess “all elements” of its business operations, according to a person privy to the communication.

“Redesigning numerous elements of our technology systems to ensure that we can validate and evidence our compliance, in such a compressed period of time, has caused us to divert significant resources,” Krishnamurthy wrote in the letter.

The policy move has jolted Walmart, which last year invested $16 billion in Flipkart in its biggest ever deal, and Amazon, which has committed $5.5 billion in India investments.

Industry sources have said the new policy would raise compliance costs and force Amazon and Flipkart to review their business arrangements in the country.

Flipkart and Amazon have both started working on approaching thousands of sellers on their platforms to ensure the companies comply with the regulations, three sources aware of the matter told Reuters.

Amazon told Reuters last week it had written to the government to seek an extension of four months. With more than 400,000 sellers and “hundreds of thousands of transactions” daily, Amazon said it needed the time to understand the policy.

Flipkart, in its letter, said the group has more than 80,000 employees and contractors and the number of shipments and packages which move daily were between 500,000 and 600,000.

The new policy “imposes several new conditions, which we believe could potentially have undesirable impacts on the continued growth of e-commerce in India”, Krishnamurthy wrote.

The company added that it wanted to work with the federal government to promote “pro-growth policies” which can help develop the e-commerce sector. Before the policy change, Morgan Stanley estimated India’s e-commerce market would grow 30 per cent a year to $200 billion in the 10 years up to 2027.

The Indian government is also considering extending the restrictions to domestic firms like Snapdeal and Paytm as well to avoid complaints that it is discriminating against online retailers based overseas, two officials aware of the development said.

The matter is under consideration at the highest level of the government as pressure mounts on it from two fronts — giant foreign investors and the governments of their country of origin, and millions of small domestic traders, who want curbs on all e-commerce entities, domestic as well as foreign, the officials at two different ministries said on condition of anonymity.