FDI Ecommerce Circular: Amazon, Flipkart Tread Carefully; Sellers Stay Doubtful

Amazon India and Flipkart have given muted reactions to the proposed changes in the ecommerce policy released on Wednesday (December 26) by the Ministry of Commerce and Industry, while online sellers said that ecommerce companies will find loopholes in the new rules just as they had done with the ecommerce rules set in 2016.

The changes to the ecommerce FDI policy targets deep discounts being offered by large online marketplaces as well as tightening up the laws for exclusive products being sold on these ecommerce players. The circular is set to come into effect from February 1, 2019.

Walmart-owned Flipkart had reportedly said on Thursday that the ecommerce ecosystem had generated thousands of jobs and fostered innovation in MSME manufacturing, supply chain, warehousing, packaging and digital payments.
“Government policy changes will have long-term implications for the evolution of the promising sector and the whole ecosystem,” the homegrown ecommerce company said. “It is important that a broad, market-driven framework through the right consultative process be put in place in order to drive the industry forward.”

Global ecommerce player Amazon and Flipkart may be the most affected by the new draft as both operate as online marketplaces partnering with large online vendors such as Cloud Retail, Appario and WS Retail.

Amazon has also reiterated its commitment to India, saying, “With more than 400K  small and medium businesses on our marketplace enabling customer choice to buy anything online, we remain committed to a long-term investment in our vision of transforming how India buys and sells and generating significant direct and indirect employment.”

“We have always operated in compliance with the laws of the land and are evaluating the new guidelines to engage as necessary with the Government to gain clarity so that we remain true to our commitment,” the company added.

Meanwhile, online vendors have welcomed the government’s initiative but doubt that the changes in FDI policy will be effective in addressing their problems. Online sellers organisations such as CAIT, AIOVA, SJM etc have also supported the government circular curbing deep discounts and the indirect investments for their large vendors.

“Previous policy in 2016 mentioned that platform has to maintain level playing field. New policy mentions the same. Meanwhile, the government is saying there were loopholes. Some companies will find loopholes in the new policy and again sellers will be at a disadvantage,” AIOVA told Inc42.

Reports have surfaced that Amazon India and Flipkart are sitting on inventories worth $286.6 Mn- $358.36 Mn (INR 2,000 Cr – INR 2,500 Cr) each, which they will have to sell off or dispose of before the circular comes into effect on February 1, 2019. These large volumes of inventory that are secured in advance are pushed by the seller entities such as Cloudtail, RetailNet, etc that work closely with the ecommerce platforms.

With new draft ecommerce policy is only a few weeks away, the changes in FDI rules may be the bigger trouble for these companies as they may have to make changes to their business models and also face its impact on their profitability due to the new limitations put on them.

[The development was reported by ET.]