New e-commerce rules in India may hit Amazon and Flipkart

Indian protesters denouncing a deal between US retail giant Walmart and Indian online firm Flipkart in New Delhi on May 12. The government will stop e-commerce firms from selling goods of companies in which they hold an equity stake from Feb 1.
Indian protesters denouncing a deal between US retail giant Walmart and Indian online firm Flipkart in New Delhi on May 12. The government will stop e-commerce firms from selling goods of companies in which they hold an equity stake from Feb 1.PHOTO: AGENCE FRANCE-PRESSE

Changes designed to level playing field will also hurt consumers

A new set of rules, supposedly aimed at levelling the e-commerce playing field in India, could hurt giants like Amazon and Walmart-owned Flipkart and even consumers who are routinely offered flash sales, said industry experts.

The government on Wednesday announced that e-commerce firms cannot sell products of companies in which they have equity stakes or management control. It also prohibited e-commerce firms from entering into an agreement for the exclusive sale of products.

The changes were largely aimed at foreign-owned e-commerce giants Amazon and Flipkart, which often struck exclusive deals with mobile phone companies like One Plus or Xiaomi to launch their products on their online platforms.

According to the government, the changes were made to clarify the Foreign Direct Investment policy in the e-commerce sector - under which these players are supposed to act as marketplaces connecting buyers and sellers instead of having any equity stakes in companies whose products they sell.

The changes kick in from Feb 1.

"I see it hurting e-commerce - its volume and value. The e-commerce companies' business plans will be affected,'' said brand consultant Harish Bijoor. "It sends negative vibes into the global market. We can't keep changing our rules... What are we signalling to investors? ''

India's e-commerce sector is estimated to be worth US$35 billion (S$48 billion) and that amount is expected to exceed US$100 billion by 2022, according to a report by industry body Nasscom and PwC India.

The report also noted that the sector could create more than one million jobs by 2023.

Amazon and Flipkart are the two biggest online retailers in India, offering products from clothing to electronic items.

In May this year, US firm Walmart paid US$16 billion for a majority stake in Flipkart, an e-commerce website founded in 2007 by Mr Sachin Bansal and Mr Binny Bansal.

The entry of the American giants has unnerved thousands of small, local traders, who said that the massive discounts were putting them out of business. They have also accused the foreign firms of predatory pricing. The All India Online Vendors Association filed a complaint with the Competition Commission of India against Amazon and Flipkart this year.

Small traders welcomed the changes. "It's a big achievement after a long struggle. If it is implemented in a proper spirit, malpractices and predatory pricing policy and deep discounting of e-commerce players will be a matter of the past,'' said Mr Praveen Khandelwal of the Confederation of All India Traders in a statement.

At least one online retailer, Snapdeal, also welcomed the policy tweak. Its chief executive officer Kunal Bahl said that the move would "help create a level playing field for all sellers".

The timing of the decision is also seen as a way to placate traders ahead of general elections next year. Traders are an important support base for Prime Minister Narendra Modi's Bharatiya Janata Party, which suffered a loss in three crucial state elections and is expected to reach out to its core supporters in the run-up to the elections.

"This has more of political overtones than anything else,'' said Mr Subodh Prasad Deo, a partner at law firm Saikrishna and Associates and former additional director-general at the Competition Commission of India. "The objective of all law is to benefit consumers. If they are benefiting through subsidies (attractive offers), we should encourage it.''

Amazon said "it was evaluating the circular'' while there was no statement from Flipkart.

Meanwhile, consumers are expected to be the biggest losers with the policy tweak expected to ramp up costs for the foreign-owned retailers, which managed to give discounts through affiliated companies that bought in bulk and could afford to give deep discounts.

"As a consumer, I want discounts and cashback. The government needs to realise which is the bigger constituency - traders or consumers,'' tweeted Mr Abhay Singh on social media platform Twitter.

A version of this article appeared in the print edition of The Straits Times on December 28, 2018, with the headline 'New e-commerce rules in India may hit Amazon and Flipkart'. Print Edition | Subscribe