SUMMARY
While Walmart had proposed acquiring govt-run estores, Amazon was pitching to upgrade the tech backend
Indian traders have repeatedly complained about steep discounts offered by online companies that smaller retailers can’t match.
India last revisited its FDI policies in 2018 and barred online marketplaces such as Flipkart and Amazon from selling products of companies where they hold stakes.
Walmart, which owns Indian ecommerce giant Flipkart, and Amazon India have both reportedly had bids to work with government-run rural estores turned down. While Walmart had proposed acquiring the estores, Amazon was pitching to upgrade the tech backend.
As per an Indian Express report, authorities rejected a proposal by ecommerce giant Walmart India to purchase the entire chain of 1.4 lakh ‘Grameen eStores’ run by the government’s Common Service Centres (CSC) initiative under the Digital India mission. The proposal was reportedly made in February this year, and a similar proposal by Amazon India was also rejected by the IT ministry, the report said.
Grameen eStores were introduced in April 2020 with the aim of delivering essential supplies in the rural and remote parts of the country by connecting them to wholesalers in urban areas through an ecommerce platform.
As per unnamed IT ministry officials quoted in the report, Amazon had offered to upgrade the apps and platforms offered by Grameen eStores, but the ministry was afraid of compromising the autonomy of these stores and “the freedom of the village level entrepreneur (VLE)”.
Ecommerce companies have faced off against the government over a number of policy issues, and the latest rejection is another sign of the government’s focus on promoting local entrepreneurship and small retailers. The government of India had last revisited its FDI policies in 2018 that put certain restrictions on online marketplaces. The Press Note 2 which notified the FDI rule changes in December 2018 stated that foreign ecommerce players are barred from selling products from sellers in which the companies have an equity stake.
In January 2021, the ministry of commerce and industry spokesperson Yogesh Baweja confirmed that the Indian government is looking to revise the FDI policy once again. Under pressure from sellers as well as bodies such as Confederation Of All-India Traders (CAIT) to investigate the marketplaces, the government is looking to introduce new regulatory rules once again targeting the seller companies instituted by ecommerce companies. The new policy, while not finalised, is expected to severely impact the likes of Amazon India and Flipkart, who have in recent years been hounded by regulatory changes. Besides the ecommerce policy, there are changes expected in the FDI policy as well as indicated by the draft.
The rules–likely to be notified soon–are expected to bar ecommerce firms to hold an indirect stake in a seller through its parent. This will prompt Amazon India and Walmart-owned Flipkart to effectively move away from the restructured holding patterns that had been instituted after the 2018 changes. The changes are likely to hurt Amazon the most as it holds indirect equity stakes in two of its biggest online sellers in India — Cloudtail and Appario Retail.”
Mukesh-Ambani led Reliance Retail, which owns ecommerce platforms like Ajio, JioMart, and now Urban Ladder, urged the Indian government to clarify the FDI guidelines as the complex legal structures had been used by some firms to bypass the rules. Reliance being a domestic player is not constrained by the FDI rules, which focus on foreign ecommerce companies like Amazon and Flipkart.
