Amazon, Flipkart hit by Modi govt’s refusal to extend deadline for new e-commerce rules

A worker uses a forklift to remove a pallet of goods from a storage rack in an aisle at the Amazon Inc. fulfillment center in Bengaluru (representative image) | Ruhani Kaur/Bloomberg

Amazon, Flipkart have amassed vast inventories and had sought a four- to six-month extension to help offload those products.

Bengaluru: Amazon.com Inc. and Walmart Inc. suffered a blow in India, the next frontier of e-commerce, when the government rejected requests to defer a deadline requiring online retailers to comply with tighter new rules starting on Friday.

That means Amazon and Walmart-owned Flipkart, India’s two largest online retailers who dominate the market, won’t be able to sell the products of companies in which they have business interests, drastically reducing the categories and goods offered to shoppers.

The regulations unveiled at the end of December also ban online retailers from allowing companies to sell products exclusively on either platform. This prevents them from cutting deals to tout items like new smartphones or affordable televisions that couldn’t be sold offline or through competitors. The stringent rules also forbid online retailers from influencing prices, a step that could mean the end of heavy discounts offered to lure new buyers online.

Such strategies by global companies have been controversial in a country where organized retail accounts for only about 10 percent of a market dominated by small sellers and mom-and-pop stores. The government’s decision on the e-commerce rules comes months ahead of a crucial general election. Small traders have traditionally been part of a support base for the ruling Bharatiya Janata Party.

Amazon and Walmart have huge stakes in India. Amazon has already pledged to invest more than $5.5 billion in the country, and Walmart spent $16 billion last year to acquire homegrown startup, Flipkart Online Services Pvt.

The two online retailers have amassed vast inventories in companies in which they have business interests and had sought a four- to six-month extension to help offload those products. The decision to go forward with the new rules on schedule was announced Thursday evening in a statement from India’s Department of Industrial Policy & Promotion.

Now, the products will have to be taken off the e-commerce platforms overnight.

“While we remain committed to complying with all laws and regulations, we will continue to look to engage with the government to seek clarifications that help us decide out future course of action as well as minimize the impact on our customers and sellers,” Amazon said in a statement Thursday evening.

Morgan Stanley analysts estimate that Amazon will have $6.5 billion in sales in India in 2019, representing 2.3 percent of the company’s total revenue. Even if Amazon’s India business stopped growing in 2019, which Morgan Stanley says would be an extreme result, it would only slow Amazon’s overall revenue growth by about half a percent for the year.

Flipkart didn’t respond to calls seeking comment. It had earlier warned in a letter of “significant customer disruption” and is also said to have told the government that such a move would stunt the growth of e-commerce in India. -Bloomberg