FDI shock for Flipkart, Amazon as govt says no to deadline extension

  • The decision not to delay the e-commerce norms was taken after 'due consideration', Department of Industrial Policy and Promotion said
  • Flipkart and Amazon, are expected to bear the brunt of the new regulations, which come into effect on Friday

Bengaluru: The government snuffed out any hopes of deferring the implementation of new foreign investment rules in e-commerce, dealing a huge blow to Flipkart and Amazon India that have been lobbying furiously to get the new regulations postponed or scrapped entirely.

“The department had received some representations to extend the deadline of February 1, 2019 to comply with the conditions contained in the Press Note 2 of 2018 series on FDI (foreign direct investment) policy in e-commerce issued by the department. After due consideration, it has been decided, with the approval of the competent authority, not to extend the above deadline," the department of industrial policy and promotion said in a statement on Thursday.

India’s largest e-commerce firms, Flipkart and Amazon, are expected to bear the brunt of the new regulations, which come into effect on Friday. Both companies had been scrambling to get the new rules postponed or scrapped entirely as part of a last-ditch effort.

Earlier this week, Flipkart CEO Kalyan Krishnamurthy wrote to the government that the company faces the risk of “significant customer disruption" if the implementation of new curbs for e-commerce is not delayed by at least six months, according to a Reuters report. According to executives at Amazon who requested anonymity, the company is mulling a number of options, including slowing the pace of its investments in India.

Once the new rules come into effect, Flipkart, Amazon India and other retailers such as Flipkart-owned fashion portal Myntra are expected to be the worst hit.

Mint reported on 29 December that the threat of job losses in the supply-chain network has emerged as a major concern following the announcement of new FDI guidelines that seek to tighten rules for e-commerce companies. Amazon India, for example, may have to sell its stake in sellers such as Cloudtail and Appario, which form a majority of Amazon’s sales in India, once the new rules are implemented.

“Investors have poured in billions of dollars into this sector. At a time when India is positioning itself as an attractive FDI destination, frequent changes in the regulatory framework, without a consultative process, will not build confidence," said Ashish Sharma, managing director and CEO of InnoVen Capital India, a venture debt firm.

“I hope that the government will follow a more consultative process, taking inputs from all stakeholders before any new rules are implemented. A rushed implementation would adversely impact millions of consumers, sellers and people who are employed in e-commerce companies," added Sharma.

In December, the government proposed stricter guidelines that govern FDI in e-commerce firms, barring exclusive tie-ups between e-commerce firms that follow the “marketplace model" and vendors using their platform, among other things. In a marketplace model, the e-commerce firm is not allowed to directly or indirectly influence the sale price of goods or services, and is required to offer a level playing field to all vendors.

“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 our future course of action as well as minimize the impact on our customers and sellers," said an Amazon India spokeswoman in a text message to Mint.

Flipkart did not immediately respond to emails and calls seeking comment.

“Now that we have the benefit of hindsight, we can clearly see that smaller retailers haven’t been affected by the advent of FDI in e-commerce. The only affected parties have been large-format retail stores, if at all, while smaller retailers and stores have continued to thrive," said Anand Lunia, general partner at India Quotient, a venture capital firm. “While the new policy might not be rolled back anytime soon, it has to go away eventually because, otherwise, the country stands to lose big time."

Asit Ranjan Mishra in New Delhi contributed to this story .

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