Vendors wait for customers at footwear stalls in the suburb of Bandra in Mumbai. (Photographer: Karen Dias/Bloomberg)

Amazon, Walmart Face Pinch in Key Market on India Business Rules

(Bloomberg) -- India has tightened rules regarding how foreign e-commerce platforms are allowed to sell goods in one of the fastest growing online markets, a potential blow to companies like Amazon.com Inc. and Walmart Inc.’s Flipkart.

Online marketplaces must treat all vendors equally by providing the same terms, the trade ministry said Wednesday. In practice this means barring e-commerce companies from forcing a seller to feature products exclusively on their platforms, and limiting ownership or control over the marketplace’s inventory,

This could mean that platforms such as Amazon and Walmart may not offer their own goods -- such as the Echo smart speaker -- at heavy discounts, and be forced to allow rivals the opportunity to sell previously proprietary products.

Amazon and Flipkart will make presentations before India’s finance and commerce ministries to contest the new rules, local news channel BTVI said in a Twitter post, citing unidentified people.

The rules could be a major blow for U.S. platforms, who have attempted to crack India’s consumer market. Amazon lost an estimated $3 billion on its international efforts last year, and analysts believe most of that was in India.

Walmart in May spent $16 billion to acquire Amazon’s primary rival in India, online retailer Flipkart. China’s Alibaba Group Holding Ltd. has a stake in the country’s largest online grocer, BigBasket, and an investment in popular online retailer called Paytm E-commerce Pvt.

Currently, India’s regulation means that foreign investors are prohibited from running online platforms directly, barring them from selling anything other than food directly to consumers.

Foreign investors have circumnavigated this rule by investing in joint ventures with local businesses, and everything on Amazon.in marketplace is listed by an independent seller.

The new rules are an attempt to stop foreign companies using the existing loophole. Foreign investors that have an equity stake in a platform will also not be permitted to sell their products on it.

The new rules, effective Feb. 1., will help Prime Minister Narendra Modi’s Bharatiya Janata Party win support of local traders — a key voting bloc for the party that suffered defeats in provincial elections this month. The south Asian nation is key to global retailers as it has a billion plus population but only a few million of them own smartphones, offering them the opportunity of exponential growth in online consumption.

“It’s a big achievement after a long struggle,” Praveen Khandelwal, secretary general of Confederation of All India Traders, said in a statement. “If it is implemented in proper spirit, malpractices and predatory pricing policy and deep discounting of e-commerce players will be a matter of past.”

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