India’s plan to change FDI rules may hit Amazon, Flipkart

India is considering revising its foreign investment rules for e-commerce, a move that could compel players, including Amazon, to restructure their ties with some major sellers. The discussions coincide with a growing number of complaints from India's bricks-and-mortar retailers, which have for years accused Amazon and Walmart-controlled Flipkart of creating complex structures to bypass federal rules.

India only allows foreign e-commerce players to operate as a marketplace to connect buyers and sellers. It prohibits them from holding inventories of goods and directly selling them on their platforms.

Amazon and Flipkart were last hit in December 2018 by investment rule changes that barred foreign e-commerce players from offering products from sellers in which they have an equity stake.

Now, the government is considering adjusting some provisions to prevent those arrangements, even if the e-commerce firm holds an indirect stake in a seller through its parent. The changes could hurt Amazon as it holds indirect equity stakes in two of its biggest online sellers in India.

According to a statement given by Amazon, e-commerce created huge job opportunities and is a significant contributor to economic growth. Any major alterations to the policy will adversely impact small- and medium-sized businesses. India's e-commerce retail market is seen growing to $200 billion a year by 2026, from $30 billion in 2019, the country's investment promotion agency Invest India estimates.

Among other changes, the government is considering changes that would effectively prohibit online sales by a seller who purchases goods from the e-commerce entity or its group firm, and then sells them on the entity's websites. Under existing rules, a seller is free to buy up to 25 per cent of its inventory from the e-commerce entity's wholesale or another unit and then sell them on the e-commerce website.