February 18, 2019

Here’s why Amazon can’t sell its own products in India right now

02 February 2019, 06:56 | Hattie Nash

The logo of India's e-commerce firm Flipkart is seen in this illustration

The logo of India's e-commerce firm Flipkart is seen in this illustration

This is because Cloudtail India itself is a joint venture company between and Catamaran Ventures, and the new rules prohibit vendor entities with equity interests from participating in sale activities.

Suneeth Katarki, founding partner at IndusLaw said that if the government follows the guidelines for traditional manufacturers, Flipkart and Amazon could indeed be allowed to do this.

E-commerce players may also be forced to give up the word "exclusive" when they launch products such as smartphones on their platforms, as the rules mandate that an online retailer can not push vendors to "sell any product exclusively on its platform only". Moreover, delayed deliveries as a result of fewer vendors for the same product can impact customer experience significantly, pointed out K Vaitheeswaran, co-founder of India's first e-commerce company Fabmart.

Both Amazon and Walmart had lobbied against the latest rules and pushed for a delay in their implementation, but India late on Thursday said the deadline stood.

It means that Amazon and Flipkart can only operate the marketplace model in India.

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Online shoppers can expect a curtailed range, which could be smaller by as much as 60 per cent and much higher prices (as sellers will not be able to pass on the benefits of wholesale sourcing from companies in which e-commerce players have invested).

The U.S. government has also urged India to protect the investments of the two American retailers, Reuters reported last week.

But Indian Prime Minister Narendra Modi's administration is seen as keen to appease small traders in the run-up to a general election due by May.

The DIPP press note on the FDI norms said: "An entity having equity participation by e-commerce marketplace entity or group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity".

Such arrangements will be barred under the new policy.

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Another executive said these companies have highlighted that they have committed billions of dollars to the Indian market and that these investments could be at risk.

According to CRISIL Ratings, these rules will cause both Amazon and Walmart-owned Flipkart revenue losses amounting to 40 percent by 2020 - about $5 billion each.

The policy move has jolted Walmart, which a year ago invested $16 billion in Flipkart in its biggest ever deal, and Amazon, which has committed $5.5 billion in India investments.

Industry sources have said the new rules will force the big e-sellers to change their business structures, and will raise compliance costs. Amazon's range of Echo smart speakers, meanwhile, are only available through third-party sellers on the site, and majority are scheduled to ship weeks from now. Amazon reportedly told the DIPP that it would be hard for the company to comply with the rules by February 1 as it involves extensive overhauling of its business model and systems.

Amazon India told Reuters it was "committed to remaining compliant to all the laws of the land", adding that all sellers make their own independent decisions of what to list and when [2].

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The impact of the changes on Flipkart was not clear.

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