Report from Reuters
In Brief – India is considering a change in its novel foreign direct investment (FDI) rules for ecommerce companies to allow foreign-owned companies to operate as retail exporters for products made by Indian suppliers. Indian law prohibits foreign e-commerce companies from selling goods directly to consumers, allowing them only to operate as third-party marketplace platforms. The two largest online marketplace platforms in India are owned by US companies Amazon and Walmart. Amazon has lobbied the Indian government to ease the FDI rules to allow for its India-based business to engage in direct selling for exports, a proposal the Indian Directorate General of Foreign Trade appears willing to consider, with the regulator noting that less than 10% of small Indian businesses selling online domestically participate in ecommerce exports due to complex compliance requirements. The proposal that will be presented to the cabinet is to allow e-commerce platforms to operate a dedicated export entity that would manage export compliance. The Confederation of All India Traders, a trade group representing millions of bricks-and-mortar retailers, opposes the proposal and says it could be abused by foreign companies, giving them more control over supply chains, and allowing goods to potentially be diverted into the domestic market.
Context – India’s ecommerce FDI laws have had their biggest impact on Amazon. In other markets, Amazon, which started as a online retailer, has evolved into an ecommerce business that is both a giant direct retailer and also a marketplace. In India, it could only operate as a marketplace. While that once seemed a huge anomaly for Amazon, today marketplace sellers sell most of the goods on Amazon and those sales bring in huge commissions. Both Amazon and Walmart-owned Flipkart have faced accusations that they violate the FDI laws and operate as quasi-retailers with a few giant “sellers” serving as de facto wholesalers. In addition, the Competition Commission of India, the country’s antitrust authority, has found both marketplace platforms in violation of competition laws for giving those large-volume sellers unfair preferences over small retailers.