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Gloomy days ahead for Amazon, Flipkart as new e-commerce rules come into effect on Feb 1

Analysts said the rule would have a major impact on the business models built up over the the last five years by the US giants

Saturday December 29, 2018 2:26 PM, ummid.com News Network

New E Commerce Rules

New Delhi: Traditional traders and local players rejoiced on Thursday at new e-commerce rules imposed by the Indian government on global giants such as Amazon and Walmart owned Flipkart which analysts said could force them to rethink their Indian operations.

The new rules, which come into force on Feb. 1, e-commerce companies are banned from selling products from firms in which they have a stake. They are also forbidden from entering into exclusive deals with sellers. The latest move will particularly hit Amazon, which has invested billions of dollars in its India operation, and Flipkart, which was taken over this year by another US giant, Walmart, AFP reported.

The government acted in response to complaints from brick and mortar retailers that e-commerce giants were unfairly selling products at discount prices. Indian law already prevents foreign-owned companies from selling directly on their internet sites.

So the e-commerce companies have been buying in bulk and then selling the products to favored vendors. These then resell the products at discount on the e-commerce sites who legally remain intermediaries.

Walmart, which in May bought a 77 percent stake in Indian company Flipkart for $16 billion and Amazon will be worst hit by the new rules. Neither has made a public reaction. According to a rough estimates, both Amazon India and Flipkart are sitting on inventories worth Rs 2,000-2,500 crore each.

Analysts said the rule would have a major impact on the business models built up over the the last five years by the US giants as they make inroads in India’s growing market.

“Amazon, Walmart and other players with their India investments will have to rethink their business strategies. Consumers will face the brunt and prices will go up while available options will go down,” Satish Meena from Forrester Research told AFP.

Snapdeal, one of India’s biggest Internet shopping sites, on the other welcome the new rules saying the changes would enable a level playing field for all sellers.

“Marketplaces are meant for genuine, independent sellers, many of whom are MSMEs (Micro, small and medium enterprises),” Snapdeal founder Kunal Bahl said on Twitter.

The Confederation of All India traders (CAIT) also said the new policy would end discounting wars between e-retailers.

It would also check big companies from using “the policy of exclusivity, predatory pricing and deep discounting” to their advantage, CAIT secretary Praveen Khandelwal said.

Meanwhile, leading American industry advocacy groups have said that such a move would have a long-term negative impact on the foreign direct investment as well as consumers.

“The new e-commerce restrictions announced by the government of India on December 26 are a cause for concern. While we are still trying to understand the full implications, we fear that these restrictions will have a far-reaching negative impact both on US investments and on Indian consumers,” said Nisha Desai Biswal, president of US India Chambers of Commerce (USAIC), a wing of the US Chambers of Commerce.

The Indian government has in the past two years sought to strengthen home-grown enterprises against foreign competition. It has told credit card companies such as Visa, American Express and Mastercard that all information on Indians must be stored on India-based computers.

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