"An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity", the commerce ministry had said in a statement at the time.
The Department of Industrial Policy and Promotion has announced that despite receiving requests to extend the 1 February 2019 deadline for Press Note 2 of 2018 (FDI Policy in e-Commerce), it will not extend the deadline.
Industry sources have said the new policy would raise compliance costs and force Amazon and Flipkart to review their business arrangements in the country.
Since FDI in e-commerce is only allowed in marketplace model and not inventory model, the new rules affect large companies such as Amazon and Flipkart. While we are sure that Amazon and Flipkart will find a way out of this and still turn a profit, Indian consumers should definitely brace themselves to feel a pinch, one way or the other.
"The company has no choice as they are fulfilling a compliance requirement, the customers will suffer", said one of the sources. Amazon also owns a minority stake in the parent companies of Cloudtail and Appario, even though it does not have a direct stake on either of the two sellers.
Clothing from Indian department store chain Shopper's Stop was also no longer available, as Amazon owns 5% of the company. "Our main issue and our main concern is trying to minimise the impact to our customers and sellers in India", he added. Consequently, numerous Amazon's private label products have already been taken off from the company's India website.
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The private labels Amazon India pulled out from the local website include clothing brand Symbol, home and kitchen essentials and dry grocery brand Solimo as well as all Amazon Basics products such as bags and luggage.
According to the new set of regulations imposed by the government, a seller who has some stake in the e-commerce company or any of its group of companies will not be allowed to see its products on an online platform.
Moreover, if the government disallows the two firms from holding equity in a manufacturer who then sells on their platform, it could violate the FDI norms for the manufacturing sector, creating a catch 22 situation.
Claiming victory on the non-extension of the deadline, the Confederation of All India Traders (CAIT) complimented the government for taking the bold move saying it is strong step to clean the highly vitiated e-commerce market of the country.
Over the last few weeks, both Amazon and Flipkart had been extensively lobbying - directly as well as through associations and trade bodies - with government officials seeking an extension in deadline.
"We remain committed to complying with all laws and regulations, we will", said Brian Olsavsky, the chief financial officer at Amazon.com.
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