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Indian policy update bittersweet result for Amazon and Flipkart

Wed 30 Mar 2016


The Indian government has updated regulation related to foreign direct investment (FDI) which could result in a huge strategy shift in the country’s e-commerce scene.

The announcement, made yesterday by the Indian Department of Industrial Policy and Promotion (DIPP), explained that a regulatory update now allows 100% investment from overseas parties in B2C e-commerce.

This is the first time FDI rules have been formally recognised for the billion-dollar market, and follows building pressure from legal authorities and media groups to formalise regulation.

India has long held a strict stance against foreign investments in its retail space – 100% FDI is not permitted for brick-and-mortar stores. Apple for example is only allowed to operate in the B2B sector, and has no independent retail footprint, instead licensing other stores to sell its goods.

FDI was also previously banned for retail online, but the latest DIPP announcement points to a relaxing of these barriers for marketplace sites.

New conditions do apply however. No single vendor on an e-commerce marketplace is allowed to account for over 25% of total sales. This term could present a challenge for platforms such as Amazon and Flipkart, whose largest Indian retailers currently record upwards of this cap.

In the interest of fair competition, the new rules also stipulate that ‘E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain [a] level playing field.’

This clause could work against the culture among big Indian players of publishing promotional offers and discounts to attract sellers and end users. The DIPP hopes that this latest action will place a renewed focus on fair play and improving customer experience.

The new measures, which are effective immediately, have been received positively by Snapdeal CEO Kunal Bahl, who tweeted: ‘Great to see the guidelines around FDI in ecomm marketplaces. Glad the govt recognises and supports an industry transforming India.’

Rajnish Wahi, Snapdeal senior vice president of corporate affairs and communications, also commented: ‘True marketplaces like Snapdeal have democratized commerce, providing millions of businesses a platform to sell beyond their geographic boundaries. It is a comprehensive announcement which will pave the way for accelerated growth of the sector in India.’

Flipkart is yet to provide comment, while Amazon is said to be still looking at the policy details.


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