The companies have until the end of the month to comply with the new restrictions, which were announced in December. Though the change was implemented to help India's small retailers, it is not sitting well with two of the country’s biggest outside investors, which have argued that the Jan. 31 deadline will cause huge disruption to their businesses.
“A sudden change in rules is not helpful,” said Mukesh Aghi, president of the U.S.-India Strategic Partnership Forum (USISPF), according to Financial Times (FT). “It sends a message to groups that the environment is not transparent.”
While India made sure to protect small retailers when it opened the country to foreign capital in the 1990s, it wasn't as clear with its rules when eCommerce came into play. As a result, Amazon and Flipkart were able to use their billions to boost their growth. While Amazon formed a joint venture to sell products, Flipkart, which was bought by Walmart last year, used its leverage to supply sellers through a wholesale distributor, Flipkart India.
“We were flabbergasted all the while at the blatant violations of the FDI policy,” said Sanjay Sethi, chief executive of ShopClues, one of the largest rivals to the dominant duo. “We started doubting ourselves — are we not interpreting these rules correctly?”
However, the new rules are changing the game, saying that no seller on foreign-funded online marketplaces can source more than 25 percent of its inventory from a wholesaler on the site. In addition, no seller can do business on a marketplace if any of its equity is owned by the marketplace or by any of its “group companies.”
“The government is saying: ‘You’re a marketplace, so behave like a marketplace,’” said Rajiv Chugh, a partner at EY.
In the meantime, Amazon said it had “always operated in compliance with the laws of the land” and was “evaluating the new guidelines to engage as necessary with the government to gain clarity so that we remain true to our commitment.” Flipkart is hopeful it will "be able to work with the government to promote fair, pro-growth policies that will continue to develop this nascent sector,” and that it would “ensure our compliance with all Indian laws.”