Amazon and Walmart have been dealt a big blow in India, one of their most important markets, as the local government tightens rules regarding how foreign e-commerce platforms sell goods and conduct business in the country.
Under the current laws, foreign-owned e-commerce companies are not allowed to sell directly to customers (in other words, to operate under an inventory-based model of e-commerce). Instead, they can only provide a marketplace that acts as “an information technology platform” and serves as a facilitator between “buyer and seller.”
To bypass this restriction, both Amazon and Flipkart, which sold a majority stake to Walmart last year, have acquired stakes in some of the biggest third-party sellers in the country. For instance, Amazon owns stake in parent companies of Cloudtail India and Appario Retail, while Flipkart until recently controlled WS Retail, the largest seller on its platform.
In late December, the Indian government revised the policies to close the loophole. The policies, which go into effect tomorrow, prohibit Amazon and Flipkart from selling goods from companies in which they have a stake. The two companies were hoping the Department of Industrial Policy and Promotion, the government agency that issued the revised policies, would extend the February 1 deadline. But efforts to gain more time were unsuccessful. (At around 6:50 p.m. local time – 8.20 a.m. Pacific, the government said it won’t be extending the deadline.)
“The Department had received some representations to extend the deadline of February 1, 2019 to comply with the conditions contained in the Press Note 2 of 2018 series on FDI Policy in e-Commerce issued by the Department. After due consideration, it has been decided, with the approval of the competent authority, not to extend the above deadline,” the government said in a statement today.
As a result of this, both Amazon and Flipkart are preparing to comply with the new policies, which, among other changes, means that hundreds of thousands of goods, including Amazon’s own Kindle and Echo speaker lineup, will suddenly disappear from the online sites, multiple people familiar with the companies’ thinking have said. Amazon and Flipkart have explored various options in recent weeks, including holding talks with government officials, and have alerted their merchant partners to ensure they are ready to comply with the new policies, sources said.
Commenting on DIPP’s notification, an Amazon India spokesperson told VentureBeat, “While we remain committed to complying with all laws and regulations, we will continue to look to engage with the government to seek clarifications that help us decide our future course of action, as well as minimize the impact on our customers and sellers.” Flipkart did not respond to a request for comment. But in recent weeks, the company has warned the government that these new policies would cause “significant customer disruption.”
