India’s new rules for foreign e-commerce platforms may be designed to protect local companies from Amazon.com Inc. and Walmart Inc., but consumers are likely to suffer the collateral damage.
Online marketplaces must treat all vendors equally by providing the same terms, India’s trade ministry said Wednesday. In practice, this means barring e-commerce companies from forcing a seller to feature products exclusively on their platforms, and limiting ownership or control over the marketplace’s inventory. The government says the changes will promote fair trade and curb foreign companies’ influence in setting domestic prices.
This could mean that platforms offered by e-commerce giants such as Amazon and Walmart’s Flipkart may be prohibited from offering their own goods -- such as the Echo smart speaker -- at heavy discounts, while allowing rivals the opportunity to sell previously proprietary products.
“Consumers in India will most likely bear the brunt of these changes and be negatively impacted,” said Jennifer Bartashus, a retail industry analyst for Bloomberg Intelligence. “Prices will go up as discounts evaporate, and product options and availability may contract as e-commerce marketplaces strive to remain compliant with the new rules.”
Amazon and Flipkart will make presentations before India’s finance and commerce ministries to contest the new rules, local news channel BTVI said in a Twitter post, citing unidentified people.
The rules could be a blow for the U.S. companies, which are attempting to crack India’s consumer market and capture its growth potential. Amazon lost an estimated $3 billion on its international efforts last year, and analysts believe most of that was in India.
Walmart in May spent $16 billion to acquire Amazon’s primary rival in India, online retailer Flipkart. China’s Alibaba Group Holding Ltd. has a stake in the country’s largest online grocer, BigBasket, and an investment in popular online retailer called Paytm E-commerce Pvt.
Currently, India’s regulation means that foreign investors are prohibited from running online platforms directly, barring them from selling anything other than food directly to consumers.
Foreign investors have circumnavigated this rule by investing in joint ventures with local businesses, and everything on the Amazon.in marketplace is listed by an independent seller.
The new rules are an attempt to stop foreign companies using the existing loophole. Foreign investors that have an equity stake in a platform will also not be permitted to sell their products on it.
The new rules, effective Feb. 1., could help Prime Minister Narendra Modi’s Bharatiya Janata Party win support of local traders — a key voting bloc for the party that suffered defeats in provincial elections this month. The south Asian nation is key to global retailers as it has a billion plus population but only a few million of them own smartphones, offering them the opportunity of exponential growth in online consumption.
“It’s a big achievement after a long struggle,” Praveen Khandelwal, secretary general of Confederation of All India Traders, said in a statement. “If it is implemented in proper spirit, malpractices and predatory pricing policy and deep discounting of e-commerce players will be a matter of past.”