Retailers’ plans for Indian market thrown into disarray as newly implemented e-commerce regulations could cut market growth by up to 50% in 2019.
The government has tightened rules for the retail giants, which together account for 70% of India’s online retail market, after complaints from small shops and domestic sellers. As reported by Bloomberg, Amazon and Walmart’s Flipkart are now banned from negotiating exclusive arrangements with sellers, offering deep discounts or holding any business interest in online merchants on their websites.
Amazon’s shares slid as analysts demanded answers on the Indian market, on which Amazon has pinned high hopes for international expansion. Jeff Bezos has pledged to spend $5.5b there in pursuit of growth, but executives said that the effects of new e-commerce regulations in the country are still uncertain.
Amazon and Walmart will now have to rethink their strategy and potentially face stiffer competition from physical retailers or local rivals which may benefit from the new laws. The disruption comes after both companies invested billions on the market: as well as Amazon’s spending pledge, Walmart paid $16b to acquire control of Flipkart Online Services last summer.
Walmart and Amazon have both amassed vast inventories in companies in which they have business interests and had sought a four to six month extension to help offload those products. But a decision to go forward with the new rules on schedule was announced last week.
Thousands of products from Amazon’s leading vendor Cloudtail, a joint venture with Infosys billionaire co-founder Narayana Murthy, have been removed from the platform. Both retailers will have to draw up new contracts with thousands of merchants and brands, deleting wording such as “exclusive”, and may have to develop India-specific private labels, which the government allows. The new rules could see nearly half the products on Amazon.in removed.
Amazon and Flipkart will also have to cut back on cashback payments and discounts, as smaller sellers have accused the pair of predatory pricing practices. Behind-the-scenes and government-level lobbying is expected to continue.
Walmart’s and Amazon’s tactics have been controversial in a country where organised retail accounts for only about 10% of the market, which is dominated by small sellers and independent stores. The government’s decision on the e-commerce rules comes months ahead of a crucial general election.