FDI shock for Flipkart, Amazon as govt says no to deadline extension

Government To Not Extend February 1 Deadline For E-Commerce Norms

Government To Not Extend February 1 Deadline For E-Commerce Norms

In December, the government had announced new regulations - under Press Note 2 - that would bar online marketplaces with foreign investments from selling products of the companies where they hold stakes and ban exclusive marketing arrangements.

The wait period for Echo speakers is now running anywhere between a fortnight to over a month. "The company has no choice, they are fulfilling a compliance requirement, and the customers will suffer". If so, Amazon, Walmart and other foreign businesses looking to expand in the country will have to change their business structures in order to be in compliance with the new rules.

US retailer Walmart has told Indian officials that its local Flipkart business faces the risk of significant disruption if stricter rules governing foreign investment in e-commerce are not delayed by six months, Reuters reported on January 29 citing an unnamed source.

Amazon, Flipkart have amassed vast inventories and had sought a four- to six-month extension to help offload those products.

One of the clauses in the press note states that the inventory of a vendor will be seen as controlled by a marketplace, if over 25 per cent of the vendor's purchases are from the marketplace entity, including the latter's wholesale unit. "After due consideration, it has been decided, with the approval of the competent authority, not to extend the above deadline", a release put up by the Department of Industrial Policy & Promotion (DIPP) on its website on Thursday said.

"We remain committed to complying with all laws and regulations, we will", said Brian Olsavsky, the chief financial officer at Amazon.com.

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E-commerce platform, with their deep pockets and deeper discounts, were hurting brick-and-mortar retail, so to create a level playing field, the government went for these regulations. Various trade bodies had also alleged that these entities were giving preferential treatment to certain sellers.

It is Black Friday for Amazon India and Walmart-owned Flipkart as the way they conduct business has changed forever. The person added that there are "complexities" that need to be addressed and doing so will require more time.

There's also speculation that the government did this for Reliance Industries Limited (RIL) owned by Mukesh Ambani, as Reliance Retail and Reliance Jio, together will launch a new e-commerce portal soon. According to a Crisil report, almost 35-40 per cent of e-retail industry sales - amounting to Rs 35,000-40,000 crore - could be hit due to the tightened norms.

Both companies have bet heavily on India being a big growth driver: Amazon has committed to investing $5.5 billion there, while Walmart a year ago spent $16 billion on Flipkart.

It will also hamper India's image as an FDI (Foreign Direct Investment) destination especially because it was just a year ago when Wallmart invested billions of dollars in Flipkart.

Clothing from Indian department store chain Shopper's Stop was also no longer available, as Amazon owns 5% of the company.

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