With new FDI rules for e-commerce industry coming into effect from February 1, 2019, leading e-commerce giants such as Amazon India and Flipkart India, have started realigning their platforms to ensure compliance.
As per Department of Industrial Policy and Promotion’s (DIPP’s) revised FDI rules, online retailers are not allowed to sell products from vendors in which they hold an equity. The Government also prohibits e-retailers from getting into exclusive sale agreement. From now onwards, a vendor cannot procure more than 25% of products from group companies of the same marketplace where they intend to sell them.
Amazon India has removed a number of products under its in-house brands such as Amazon Basics, Solimo, and Symbol. In addition, products sold Cloudtail and Appario, where Amazon holds equity stake, have also been withdrawn.
As a matter of fact, almost half of the sales of Flipkart and Amazon come through their group companies. Post witnessing record sales during the festive season, Amazon had forecasted first-quarter sales below the Wall Street estimates. The reason cited by Amazon is uncertainty in India.
The impact on Walmart-owned Flipkart was, however, not very severe as it had already phased out WS Retail, a major vendor where it owned stake. Flipkart has now adopted a model under which it operates through controlled sellers. These are sellers that have most of their inventory sold to the group companies of the marketplace entity. By purchasing bulk of a seller’s products, a marketplace can control factors such as inventory, pricing and supply chain.
Speaking on the occasion, Chief Financial Officer of Amazon – Brian Olsavsky said, “The situation in India is a bit fluid right now, but the country remains a good long-term opportunity. The company’s main goal was to minimise the impact of the new rules on customers and sellers.”
Chief Corporate Affairs Officers, Flipkart India – Rajnish Kumar said, “We are disappointed the government acted in haste. But we are committed to doing everything we can to be compliant with the new rules.”
The new policy was announced after Confederation of All India Traders (CAIT), an association of small Indian traders, complained that leading e-commerce giants are using their control over inventory from affiliated vendors, creating an unfair marketplace where they can offer discounts.
However, both Amazon and Walmart lobbied against the latest rules and requested for delaying the implementation of revised guidelines. However, DIPP rejected the plea.
For the records, Amazon had earlier committed to investing U.S. $ 5.5 billion in India, while Walmart last year spent U.S. $ 16 billion on Flipkart. The return on these investments will definitely be impacted with this new change in the policy