New E-Commerce Rules Force Amazon India to Remove Many Products

The new e-commerce rules in India that came into effect recently have caused widespread disruption in the e-commerce business, in particular with Amazon, forcing it to take down an array of items from its India website.

In December, the government of India has modified its foreign direct investment (FDI) rules for its growing e-commerce sector, which has bought set back not only for Amazon.com but also for the Walmart Inc, which has bought a majority stake in homegrown e-commerce player Flipkart last year.

The new e-commerce investment rules bar online retailers from selling products via vendors in which they have an equity interest and also stops from making any deals with sellers to sell exclusively on their platforms.

Therefore numerous items sold by vendors like Cloud tail, in which Amazon holds an indirect equity stake, are no longer available on the Amazon India site. In the apparel sector too the effect is visible as Indian departmental store chain Shopper’s Stop was also no longer available, as Amazon owns 5 percent stake of the company. Amazon’s own range of Echo speakers, its home cleaning goods and other basics products such as chargers and batteries had also been removed from the website.

Amazon and Walmart had lobbied together against the latest rules by the government of India and pushed for a delay in their implementation, but India made it clear that the deadline stood.

Speaking to media, Amazon Chief Financial Officer Brian Olsavsky said the situation in India is ‘a bit fluid right now’, but the country remains a good long-term opportunity. The company’s main goal is to minimize the impact of the new e-commerce rules on customers and sellers, he also added.

The US government has also urged India to protect the investments of the two American retailers. Both companies have invested heavily in India, as it's a big growth driver. Amazon has committed to investing $5.5 billion in the country, while Walmart last year spent $16 billion on Flipkart.

But in the run-up of the general election, which is due by May this year, the present government under the leadership of Prime Minister Narendra Modi is seen as keen to appease small traders. Many small traders have complained that the e-commerce giants use their buying power and control over inventory from affiliated vendors to create an unfair marketplace. Such arrangements will be barred under the new policy.

The new rules will no doubt force the big e-sellers to change their business structures in India and will raise the compliance costs too. But for now, it is not clear how long the disruption on Amazon is going to last.