The largest e-commerce site Amazon gets new rules to remove its key grocery service and remove a wide range of products such as sunglasses and floor cleaners.
In December last year, India modified foreign direct investment rules for its burgeoning e-commerce sector, which has drawn major bets from not only Amazon.com but also the likes of Walmart Inc, which last year bought a majority stake in homegrown e-commerce player Flipkart.
India’s new e-commerce investment rules bar online retailers from selling products via vendors in which they have an equity interest, and also from making deals with sellers to sell exclusively on their platforms.
Numerous items which are sold by Amazon vendors such as Cloudtail, in which Amazon holds an indirect equity stake, were no longer available on its India site. Amazon Pantry, a grocery service primarily managed by company affiliates, was also discontinued, though grocery products could be purchased individually.
Amazon Chief Financial Officer Brian Olsavsky said “Amazon, which saw record sales and profit during the holiday season, has forecast first-quarter sales below Wall Street estimates due to the uncertainty in India – one of its key growth markets. The situation in India is “a bit fluid right now,” but the country remains a good long-term opportunity.
The official said that the new rules were announced after complaints from small Indian traders who said the e-commerce giants used their control over inventory from affiliated vendors to create an unfair marketplace where they could offer discounts. Such arrangements will now be barred. Both Amazon and Walmart unsuccessfully lobbied against the latest rules and pushed for a delay in their implementation.
Industry sources have said the new rules will dent foreign investor sentiment and force the big online retailers to change their business structures, raising compliance costs. “The company has no choice as they are fulfilling a compliance requirement, the customers will suffer.”
The official also“It is very upsetting for foreign investors.” Both companies have bet heavily on India being a big growth driver: Amazon has committed to investing $5.5 billion there, while Walmart last year spent $16 billion on Flipkart.