Investment rule changes may hit Amazon

E-com firms could revamp ties with major sellers if govt. implements proposal

India is considering revising its foreign investment rules for e-commerce, three sources and a government spokesman told Reuters, a move that could compel players, including Inc., to restructure ties with some major sellers.

The government discussions coincide with a growing number of complaints from India’s bricks-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 December 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, the sources said. The changes could hurt Amazon as it holds indirect equity stakes in two of its biggest online sellers in India.

‘Adverse impact’

Amazon said e-commerce created ‘huge job opportunities’ and is a significant contributor to economic growth. ‘Any major alterations’ to the policy will adversely impact small and medium-sized businesses, it said in a statement.

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 details.

India’s e-commerce retail market is seen growing to $200 billion a year by 2026, from $30 billion in 2019, investment promotion agency Invest India estimates.

Among other changes, the government is considering changes that would 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% ofits inventory from the e-commerce entity’s wholesale or anotherunit and then sell them on the e-commerce website.

A boom in e-commerce in India accelerated last year when theCOVID-19 pandemic drove more shoppers online. Flipkart, in whichWalmart invested $16 billion in 2018, and Amazon are among thetop two players.

“E-commerce has already made its mark for itself in thecountry, particularly during COVID-19,” Commerce Ministry’sBaweja said. “They are bound to grow and a conducive environmentshould be there, which is good for the brick-and-mortar as wellas e-commerce.”(Reporting by Aditya Kalra and Krishna Das in New Delhi;Additional reporting by Aftab Ahmed; Editing by Euan Rocha andBarbara Lewis)

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