Exclusive: India plans to change rules on foreign investments that could affect Amazon

NEW DELHI (Reuters) – India is considering revising its foreign investment rules for e-commerce, three sources and a government spokesperson told Reuters, a move that could force players, including Amazon.com Inc, to restructure their ties with some major sellers.

Government discussions coincide with an increasing number of complaints from Traditional Indian retailers, who for years have accused Amazon’s Flipkart and Walmart Inc of creating complex structures to circumvent federal rules, allegations denied by US companies.

India only allows foreign e-commerce operators to operate as a marketplace to connect buyers and sellers. It forbids them from hold stocks of goods and sell them directly on their platforms.

Amazon and Walmart’s Flipkart was last hit in December 2018 by investment rule changes that prevented foreign ecommerce players from offering products from sellers in which they have a shareholding.

Now, the government is considering adjusting some provisions to prevent such deals, even if the e-commerce company holds an indirect stake in a vendor through its parent company, three sources said. The sources asked not to be named because the discussions are private.

The changes could harm Amazon as it holds indirect stakes in two of its largest online sellers in India.

Amazon, Walmart, and Flipkart did not immediately respond to a request for comment.

Yogesh Baweja, the spokesman for the Ministry of Trade and Industry, which is working on the matter, confirmed to Reuters any changes will be announced through a so-called “press release”, which contains the rules on foreign direct investment. He did not provide details.

“It’s a work in progress,” said Baweja, adding that the last internal meeting on the subject took place about a month ago.

“Obviously Amazon is a major player, so any advice, any suggestion, any recommendation it makes, is also taken into consideration.”

Fringed ties

The 2018 rules forced Amazon and Flipkart to rework their business structures and tighten relations between India and the United States, as Washington said the change in policy favored local e-tailers over U.S. ones.

India’s e-commerce retail market is expected to grow to $ 200 billion annually by 2026, from $ 30 billion in 2019, according to estimates by the country’s investment promotion agency Invest India.

Home traders were unhappy with the growth. They see foreign e-commerce businesses as a threat to their livelihoods and accuse them of unfair business practices that use high discounts to aim for rapid growth. Companies deny that they are acting unfairly.

“The way the government thinks is that the markets are not doing what they should be doing. The government wants to tinker with the details of the policy, ”said one of the sources familiar with the policy change talks.

LIMITATION OF WHOLESALE TIES

Indian Commerce Minister Piyush Goyal has been critical of e-commerce companies in private meetings and told them to follow all laws in letter and spirit, Reuters previously reported.

In the face of growing complaints from traders and antitrust investigations, Goyal last year said that Amazon was not doing “a big favor to India” by making new investments.

Among other changes, the government is considering changes that would effectively ban online sales by a seller who buys goods. from the e-commerce entity or its group company, and then sells them on the entity’s websites, two of the sources said.

Under existing rules, a seller is free to purchase up to 25% of their inventory from wholesale the ecommerce entity or another unit and then sell them on the ecommerce website.

India’s e-commerce boom accelerated last year as the COVID-19 pandemic brought more shoppers online. Flipkart, in which Walmart invested $ 16 billion in 2018, and Amazon are among the top two players.

“E-commerce has already made its mark on the country, particularly during COVID-19,” said Baweja of the Ministry of Commerce. “They are set to grow and there should be a supportive environment, which is good for brick-and-mortar stores and e-commerce.”

Reportage by Aditya Kalra and Krishna Das in New Delhi; Additional reporting by Aftab Ahmed; Editing by Euan Rocha and Barbara Lewis