Amazon and Flipkart face headwinds in India as new foreign investment restrictions come into effect

"The new FDI restrictions, which will come into effect from February 1, states that "An entity having equity participation by e-commerce marketplace entity or its group companies or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity." This means that investment plans by Amazon and Walmart-owned Flipkart could be delayed or derailed as the Indian government seeks to appease millions of small traders and shopkeepers in the country who have been affected by e-commerce. Amazon has invested more than $5.5 billion in India, while Walmart acquired Flipkart in 2018 for $16bn. Under the new rules, local fashion brands owned by Bollywood stars like Saif Ali Khan (House of Pataudi), Hrithik Roshan (HRX), Deepika Padukone (All About You) and Alia Bhatt (Alia Bhatt For Jabong), could potentially have to stop selling their products on Flipkart-owned fashion platforms like Myntra and Jabong, which also hold stakes in these brands."

"According to Reuters, a PwC report estimates the new rules could reduce e-commerce sales in the country by $46bn by 2022, a reduction of 1.1m jobs previously estimated and of $6bn fewer taxes collected. In response to the new laws, Amazon has said it is "committed to being compliant to all local laws" and asked the government for an extension of four months, while Flipkart has sought a six-month extension."

New FDI rules prevent entities with equity participation by e-commerce marketplaces or with inventory controlled by such group companies from selling on those marketplaces. Major investors such as Amazon and Walmart-owned Flipkart face potential delays or derailment of investments and listings tied to marketplace stakes. Celebrity-owned local fashion labels that have marketplace investment could be forced off marketplace-owned fashion platforms. A PwC estimate forecasts up to $46bn lower e-commerce sales by 2022, a loss of 1.1m jobs and $6bn less in tax revenue. Both Amazon and Flipkart have requested multi-month regulatory extensions.

Read at The Drum