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India's new foreign investment restrictions will, from Feb. 1,
bar e-commerce companies from selling products from firms in
which they have an equity interest and also ban them from
reaching deals with sellers to only sell on one platform.
In a letter to India's industries department earlier this month,
Flipkart Chief Executive Kalyan Krishnamurthy said the rules
required the company to assess "all elements" of its business
operations, according to a person privy to the communication.
"Redesigning numerous elements of our technology systems to
ensure that we can validate and evidence our compliance, in such
a compressed period of time, has caused us to divert significant
resources," Krishnamurthy wrote in the letter. The new curbs
were only announced on Dec. 26.
He also said the regulations could cause "significant customer
disruption" if the deadline for compliance wasn't extended. He
asked for a six-month delay.
The contents of Flipkart's letter have not been previously
reported. Flipkart declined to comment.
Indian officials have said the government is unlikely to change
the policy's implementation date. The industries department
declined to comment for this article.
The policy move has jolted Walmart, which last year invested $16
billion in Flipkart in its biggest ever deal, and Amazon, which
has committed $5.5 billion in India investments.
Industry sources have said the new policy would raise compliance
costs and force Amazon and Flipkart to review their business
arrangements in the country.
Flipkart and Amazon have both started working on approaching
thousands of sellers on their platforms to ensure the companies
comply with the regulations, three sources aware of the matter
said, even as they seek a deadline extension.
For Flipkart, the process would take five-to-six months, said
one of the sources, who told Reuters: "the company is right now
focusing on working with sellers (for compliance), all rest is
on the back burner".
UNFAIR MARKETPLACE?
India's small traders had complained that large e-commerce
companies used their control over inventory from their
affiliates to create an unfair marketplace that allowed them to
offer deep discounts on some products. Such arrangements would
be barred under the new policy.
Amazon told Reuters last week it had written to the Indian
government to seek an extension of four months. With more than
400,000 sellers and "hundreds of thousands of transactions"
daily, Amazon said it needed the time to understand the policy.
Flipkart, in its letter, said the group has more than 80,000
employees and contractors and the number of shipments and
packages which move daily were between 500,000 and 600,000.
The new policy "imposes several new conditions, which we believe
could potentially have undesirable impacts on the continued
growth of e-commerce in India", Krishnamurthy wrote.
The company added that it wanted to work with the federal
government to promote "pro-growth policies" which can help
develop the e-commerce sector. Before the policy change, Morgan
Stanley estimated India's e-commerce market would grow 30
percent a year to $200 billion in the 10 years up to 2027.
The U.S. government has been concerned and earlier this month
told Indian officials to protect Walmart and Amazon's
investments in the country, citing "good relations" between the
two countries, Reuters reported on Thursday.
(Additional reporting by Nivedita Bhattacharjee in Bengaluru and
Aftab Ahmad in New Delhi; Editing by Martin Howell and
Muralikumar Anantharaman)
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