What do the new e-commerce rules in India mean for Amazon?

5 Feb 2019

Amazon logo. Image: ericbvd/Depositphotos

New e-commerce legislation in India has come into force, which could have major consequences for foreign retailers, including Amazon and Walmart.

Last Friday (1 February), the government in India implemented clarifications of new e-commerce regulations for retail giants including Amazon and Walmart-owned Flipkart.

The Financial Times reports that while the regulations permit full foreign ownership of ‘single brand’ retailers such as IKEA,  restrictions are in place with ‘multibrand’ stores such as supermarkets from outside India.

In 2016 these rules were clarified, stating that foreign-backed firms could run marketplaces that connect independent sellers to customers, but could not hold inventory or sell goods themselves.

Criticism of Amazon and its ilk from small businesses

The latest changes around the e-commerce rules from the government came about following vocal concerns from small businesses that make up the bulk of the Indian retail market. Domestic businesses have often called for stricter regulations over the years.

The rules essentially prevent online retailers from selling items through vendors if they hold an equity stake in said vendors. They also bar retailers from striking deals to sell exclusively on their platform. Due to this element of the regulation, AmazonBasics and Amazon Echo speakers are among the products that have been pulled from the company’s Indian site.

Prior to the 1 February enforcement of the newly implemented rules, international e-commerce firms had found some workarounds. Amazon took a 49pc stake in Cloudtail India, a firm that is now the largest seller on its Indian marketplace, while Flipkart set up a wholesale distributor specifically for the country.

Consultant Arvind Singhal of Technopak told Bloomberg: “It will be at least six to eight months before they [Amazon and Flipkart] are able to find workarounds and restore listings.” The retailers will need to go back to the drawing board, deleting wording such as ‘exclusive’ from contracts, as well as potentially having to create India-specific private labels.

Brian Olsavsky, Amazon’s chief financial officer, said that the “situation in India is a bit fluid right now” but added that India remains a good opportunity for the long term.

Could Walmart make an exit?

According to Business Insider India, Walmart could exit from Flipkart due to the new regulations. Morgan Stanley said in a report that an exit by Walmart could be likely now that the Indian e-commerce landscape was becoming “more complicated”.

A Walmart spokesperson said: “Despite the recent changes in regulations, we remain optimistic about the e-commerce opportunity in India given the size of the market, the low penetration of e-commerce in the retail channel and the pace at which it is growing.

“As Walmart scales in India, the company will continue to partner to create sustained economic growth across agriculture, food and retail. Future investments will support national initiatives and will bring sustainable benefits to the country.”

Amazon logo. Image: ericbvd/Depositphotos

Ellen Tannam was a journalist with Silicon Republic, covering all manner of business and tech subjects