In December, India revised its foreign direct investment (FDI) rules and introduced major changes that can greatly impact the functioning of the e-commerce section. Amazon and Walmart both are important players in India, with the latter holding the majority stake in Flipkart. The new rules went into effect on February 01, 2019, and the companies started making changes on their websites on January 31st to adhere to these new guidelines.
According to these new e-commerce rules, online retailers are now barred from selling products through vendors in whose companies they have an equity interest. In addition, they also cannot make deals with sellers to that makes them the exclusive retailer of the seller’s products. Due to these changes, a lot of products have started disappearing on the websites, creating a disruption both for the companies and the buyers. AmazonBasics products were removed from the website owing to these new rules, and clothes from Shopper’s Stop were absent from Amazon as well, since the latter holds a 5% stake in the clothing company; customers were shocked to find many items unavailable for purchase online.
India has been rightly recognised a key growth market especially in the e-commerce sector, attracting investments from behemoths such as Walmart. But, with these new rules, the order toppled: Amazon’s CFO Brian Olsavsky, released a statement saying that although the situation in India is “a bit fluid right now”, the country remained a good long-term opportunity. There are no two ways regarding this compliance, but companies definitely were not happy considering the problems these rules create for them; they now have to spend more time and money to ensure that there is minimum impact on the sellers and the customers, and the smooth functioning of the websites along with regular cash flow. Certainly, they will be able to come up with a solution for this, but until then, they are definitely stuck in a hard place which could end up having repercussions for the Indian market as well.
It is no news that these e-commerce giants rule the market with a chain of supply and demand that surpasses everyone else’s– they offer lucrative discounts, a variety that is hard to resist, and the comfort of shopping from one’s own home. Thus, with the increasing use of the internet, we find that most people prefer shopping online. This move was therefore likely the result of small Indian traders complaining about that with their influence, these e-commerce giants created a network of affiliated vendors, leading to an unfair marketplace where they were being forced to cut profit and match low prices. While this move made by the government is a step towards pleasing the small and indigenous traders (and securing their votes), it is also upsetting foreign investors. As mentioned earlier, they see a lot of potential in India, but with such steps the government is gambling their favour.
It remains to be seen how these new rules shape the market landscape and how the companies, sellers and buyers cope with them. The very fabric of e-commerce will be shaken with the implementation of these new rules, but, it is crucial that steps are taken so that India only goes forward from here. It has taken the country a lot of time to be at the position it is currently at, and destroying years of global market growth for one elections will prove to be detrimental for everyone. Instead of hurriedly passing bills, the government needs to ensure that its decisions are the best for all parties involved. Foreign direct investment forms a large chunk of India’s income, and playing with that steady flow to appease vote banks can prove to be wrong in hindsight. Of course, it is also the RBI and government’s responsibility to take care of the interests of the smaller parties involved and with this decision they have managed to do that.
Picture Courtesy- Vision Global BPO