E-commerce companies in India raise concerns over new FDI regulations

India’s largest online marketplace Flipkart has requested the government that a broad, market-driven framework for the e-commerce industry should be put in place after consultations with the relevant stakeholders.

This request came a day after the central government announced changes in the foreign direct investment (FDI) policy for the e-commerce sector. As per reports, the central government took a series of actions to tighten the norms for e-commerce companies, such as Flipkart and Amazon, barring them from selling products of entities in which they have a stake. The altered norms of the FDI rules also restrict e-commerce companies from mandating any seller to sell products exclusively on their respective platforms.

According to a statement released by Flipkart, the e-commerce ecosystem has created thousands of jobs apart from fostering innovations in MSME manufacturing, supply chain, warehousing, packaging, and digital payments. The statement further said that the government policy changes will have long-term implications for the evolution of the promising sector and the whole ecosystem. It is important that a broad, market-driven framework through the right consultative process be put in place in order to drive the industry forward.

On the same issue, Amazon’s India unit said that “the company is still evaluating the policy changes. The new policy aims to restrict any kind of control on inventory by an e-commerce marketplace entity, thus impacting Flipkart and Amazon as they have structured their group companies in a way that would help retain control on pricing and inventory.”

On the change in policy, Satish Meena, Senior Forecast Analyst, Forrester Research, said that “For Amazon and Flipkart, this policy change brings massive challenges. They have to not only make changes into the business model and structure of how they are selling goods, but this will also affect the profitability due to limitations on private label products.” He added that “apart from this, the planned investment in the offline channel is going to be recalibrated after this change. All these will have an impact on how they scale up the business in India.”

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