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A BIG ROADBLOCK FOR THE E-COMMERCE GIANTS,
HOMEGROWN FIRMS GO FULL THROTTLE



The amended guidelines on Foreign Direct Investment in the e-commerce sector have made India a difficult place to do business for the foreign industry giants.On December 26, 2018, the central government announced two major policy changes-There cannot be any equity participation by the marketplace or its group companies in a vendorThe inventory of a vendor cannot be controlled by the marketplace. That is to say, that more than 25% of the vendor’s purchases cannot be by the marketplace entity.These new FDI rules have been implemented on 1st February 2019. They have led to a widespread disruption in the online market. They negatively impact the exclusive deals, discounts and cash backs offered by the global competitors. USISPF president says, “Such policies are regressive in nature. They ultimately harm the consumers, who are kings in the retail market.”The new rules threaten huge investments made by global online retail giants- Amazon ( an investment of $5.5 billion) and Walmart ( an investment of $16 billion to purchase Flipkart) in India. They can derail investment plans and provoke them to create more complex business structures.In response to the new policy rollout on 1st February, many products disappeared from Amazon India’s site including Amazon Echo speakers, Amazon Basics products like chargers and batteries and products sold by Cloudtail in which Amazon has an indirect equity stake. The tighter rules also forced Flipkart to remove products from its website in an attempt to comply with the midnight deadline.According to a draft analysis by the global consultants PwC seen by Reuters, this new move could reduce online sales by $46 billion by 2022.However, these rules will benefit homegrown firms, including Ambani’s new venture. Reliance Industries has the potential to evolve into a local version of Amazon or Alibaba according to UBS.The new rules intend to create a more level playing field between small and large vendors on online marketplaces. However, they can lead to foreign investors seeing an unstable regulatory environment in India. It will be interesting to watch who wins this race.-Jaya

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