The government’s decision not to extend the February 1 deadline for online marketplaces to comply with FDI norms will force e-commerce giants like Walmart-backed Flipkart and Amazon to undertake massive restructuring of their operations in India to comply with the new rules.
“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 minimise the impact on our customers and sellers,” an Amazon spokesperson said.
Flipkart, however, did not respond to an emailed query.
In December, the government had announced new regulations – under Press Note 2 – that would bar online marketplaces with foreign investments from selling products of the companies where they hold stakes and ban exclusive marketing arrangements.
Over the last few weeks, both Amazon and Flipkart had been extensively lobbying — directly as well as through associations and trade bodies — with government officials seek an extension in deadline. They had also written to the government stating that they need more time to understand the details of the framework.
The Department for Promotion of Industry and Internal Trade (DPIIT) Thursday said it had received some representations seeking extension of the deadline. “After due consideration, it has been decided, with the approval of the competent authority, not to extend the deadline,” it said in a statement.
However, smaller players like Snapdeal and ShopClues have welcomed the development, saying it will create a genuine and robust e-commerce sector in India.
“Adherence to rule of law will allow India to create a genuine and robust e-commerce sector, which will ensure lasting gains for both buyers and sellers,” a Snapdeal spokesperson said.
Sanjay Sethi, CEO and co-founder of ShopClues, said this is a “win for the micro, small and medium enterprises community in the country, moving them on step closer to a level-playing field”.
“It also sends strong message to the violators that legal jugglery, exploiting loops holes and in general disregard for the law will have to stop now. Today, millions of MSMEs can breathe a sigh of relief,” he added.
According to sources, both Flipkart and Amazon were extremely hopeful that the government will soften its stand.
However, given the magnitude of investments at stake, the companies had already started working on their plan B in case the deadline wasn’t extended, multiple industry executives said.
One of the senior executives said work was already on to restructure exclusive partnerships and taking care of other aspects so as to ensure compliance.
Teams from these two e-commerce giants had been engaging extensively with government officials to explain to them the overhaul required in business models to ensure compliance with the new rules.
They had also flagged concerns around some provisions, including one that states that the inventory of a vendor will be seen as controlled by a marketplace, if over 25 per cent of the vendor’s purchases are from the marketplace entity, including the latter’s wholesale unit.
The companies had also highlighted that they have committed billions of dollars to the Indian market and that these investments could be at risk.
Amazon had committed an investment of over USD 5 billion, while Walmart made its biggest bet pumping in USD 16 billion for 77 per cent stake in Flipkart.
On the other hand, smaller e-commerce firms like Snapdeal and ShopClues as well as offline retailers had urged the government to not give into pressure from US companies and authorities.
Traders’ body Confederation of All India Traders (CAIT) had warned the government of a national campaign with a political fallout, in case of deferment in the deadline.
Interestingly, Commerce minister Suresh Prabhu, on Wednesday, had said the government will release the new e-commerce policy soon which is awaiting approval from the DIPP.
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