Published: Sat, February 02, 2019
Markets | By Otis Pena

FDI in e-commerce: Flipkart miffed with government for not extending deadline

FDI in e-commerce: Flipkart miffed with government for not extending deadline

Exclusive deals with the sellers, in compliance with new norms, will also be discontinued, the sources said.

Sources in both Flipkart and Amazon.in said that they expected the government to postpone the deadline as they needed more time to restructure their entire operations.

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.

An Amazon spokesperson Thursday stated that the company will continue to engage with the government to seek clarifications and work towards minimizing the impact on its customers and sellers.

Hours before the February 1 deadline on Thursday, numerous items sold by sellers, such as Cloudtail, in which Amazon holds an indirect equity stake, were no more available on the website.

The U.S. government has also urged India to protect the investments of the two American retailers, Reuters reported last week [1].

"The company has no choice, they are fulfilling a compliance requirement. customers will suffer", said one of the sources.

This creates a barrier for India's Shopper's Stop to sell on Amazon India, as Amazon's investment arm has a minority stake in the department store chain.

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But Indian Prime Minister Narendra Modi's administration stood firm as the move was widely seen as one to appease small traders in the run-up to a general election due by May.

Such arrangements will be barred under the new policy.

The new norms are a blow to both Walmart, which entered the country last year by investing $16 billion for a 77% stake in Flipkart, and Amazon, which has invested over $5.5 billion in the country over the last five years, as they will now have to change their business structures and reconsider strategies for entities in which they have a stake. "Since Press Note 2 of 2018 envisages substantial internal restructuring to ensure that the sellers on such portals are disconnected from the e-commerce entity or its group firms, firms who may have not revisited their group structures in the hopes of an extension will now be in non-compliance", said Atul Pandey, partner at Khaitan & Co. Given the magnitude of investments at stake, the companies are also keeping their plan B ready in case the deadline isn't extended.

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.

Amazon's own range of Presto-branded home cleaning goods and other Amazon Basics products such as chargers and batteries vanished from its website late on Thursday.

Amazon India told Reuters it was "committed to remaining compliant to all the laws of the land", adding that all sellers make their own independent decisions of what to list and when. Amazon reportedly told the DIPP that it would be hard for the company to comply with the rules by February 1 as it involves extensive overhauling of its business model and systems.

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

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