The government discussions coincide with a growing number of
complaints from India’s brick-and-mortar retailers, which have for years
accused Amazon and Walmart Inc-controlled Flipkart of creating complex
structures to bypass federal rules, allegations the U.S. companies deny.
India only allows foreign e-commerce players to operate as a
marketplace to connect buyers and sellers. It prohibits them from holding
inventories of goods and directly selling them on their platforms.
Amazon and Walmart’s Flipkart were last hit in Dec. 2018 by
investment rule changes that barred foreign e-commerce players from offering
products from sellers in which they have an equity stake.
Now, the government is considering adjusting some provisions
to prevent those arrangements, even if the e-commerce firm holds an indirect
stake in a seller through its parent, three sources said. The sources asked not
to be named because the discussions are private.
The changes could hurt Amazon as it holds indirect equity
stakes in two of its biggest online sellers in India.
Amazon, Walmart and Flipkart did not immediately respond to
a request for comment.
Yogesh Baweja, the spokesman for the Ministry of Commerce
& Industry, which is working on the issue, confirmed to Reuters any changes
will be announced through a so-called “press note,” which contains foreign
direct investment rules. He did not give any details.
“It’s a work in progress,” Baweja said, adding an internal
meeting on the subject last took place about a month ago.
“Of course Amazon’s a big player so whatever advice,
whatever suggestions, whatever recommendations they make, they are also given
due consideration.”
FRAYED TIES
The 2018 rules forced Amazon and Flipkart to rework their
business structures and soured relations between India and the United States,
as Washington said the policy change favoured local e-tailers over U.S. ones.
India’s e-commerce retail market is seen growing to $200
billion a year by 2026, from $30 billion in 2019, the country’s investment
promotion agency Invest India estimates.
Domestic traders have been unhappy about the growth. They
see foreign e-commerce businesses as a threat to their livelihoods and accuse
them of unfair business practices that use steep discounts to target rapid
growth. The companies deny they are acting unfairly.
“The way the government is thinking is that marketplaces are
not doing what they are supposed to do. The government wants to tinker with the
nuts and bolts of the policy,” said one of the sources who is familiar with the
talks on the policy changes.
LIMITING WHOLESALE TIES
India’s trade minister Piyush Goyal has been critical of
e-commerce companies in private meetings and told them to follow all laws in
letter and spirit, Reuters has previously reported.
In the face of growing trader complaints and an antitrust
investigation, Goyal last year said Amazon was not doing “a great favour to
India” by making fresh investments.
Among other changes, the government is considering changes
that would effectively prohibit online sales by a seller who purchases goods
from the e-commerce entity or its group firm, and then sells them on the
entity’s websites, two of the sources said.
Under existing rules, a seller is free to buy up to 25% of
its inventory from the e-commerce entity’s wholesale or another unit and then
sell them on the e-commerce website.
A boom in e-commerce in India accelerated last year when the
COVID-19 pandemic drove more shoppers online. Flipkart, in which Walmart
invested $16 billion in 2018, and Amazon are among the top two players.
“Ecommerce has already made its mark for itself in the
country, particularly during COVID-19,” Commerce Ministry’s Baweja said. “They
are bound to grow and a conducive environment should be there, which is good
for the brick-and-mortar as well as e-commerce.” -Reuters