Recently the government of India announced a new rule, which restricts e-commerce companies from selling and promoting products that are produced in the firms wherein the company has stakes or equity. The new foreign investment restrictions is expected to be implemented from February 1.
Flipkart is not happy with this announcement and has told the government that the company might have to face the risk of “significant customer disruption” is implemented by February. The e-commerce giant has requested for a delay of implementation of “new India rule”.
Recently, Flipkart Chief Executive Kalyan Krishnamurthy wrote a letter to the department of India’s Industries saying that the rules require the company to assess “all element” of its business operations.
In the letter Krishnamurthy wrote “"Redesigning numerous elements of our technology systems to ensure that we can validate and evidence our compliance, in such a compressed period of time, has caused us to divert significant resources."
Indian officials have said the government is unlikely to change the policy's implementation date. The industries department declined to comment for this article.
The announcement was a shock to Walmart who last year invested USD 16 billion in Flipkart and is the biggest ever deal, similarly Amazon has promised USD 5.5 Billion in Indian market. Industry experts say that the implementation of the policy might involve compliance cost and Amazon and Flipkart might be forced to review their business arrangements.
The ecommerce giants have started taking support from thousands of sellers to ensure the companies meet the regulations while at the same time requesting an extension. Flipkart is expected to take 5-6 months to process the “new India rule”.
The “new India rule” came into picture owing to the complains by small traders that large e-commerce companies are controlling inventory from affiliates and causing an unfair marketplace, allowing them to manipulate the product price and offer discounts on products. The new policy would have some exclusion though.
On an average there are around 400,000 sellers and hundreds of thousands of transactions happening on Amazon daily, and the company needs to understand the policy properly. Flipkart has 80,000 employees and the number of shipments and packages that move around daily are between 500,000-600,000 daily.
The new policy "imposes several new conditions, which we believe could potentially have undesirable impacts on the continued growth of e-commerce in India", Krishnamurthy wrote.