FDI rules come into effect: What will it cost to Amazon, Walmart-led Flipkart businesses

The revised FDI rule for e-commerce firms has kicked in today. And the initial impact has been witnessed on e-commerce marketplaces including US e-tailer Amazon and Walmart-led Flipkart, who have been pulling down all product listings from its preferred sellers.

Both the e-tailers businesses are likely to be affected by over 40-50 per cent with the implementation of new FDI norms, which bars e-commerce companies that are backed by foreign investments from selling products through affiliated companies to restrictions on pricing and discounts that they can offer.

On Thursday night, Amazon India took down an array of items from its website including Echo speakers, batteries and floor cleaners. Products such as Kindle e-readers and Fire Stick when searched shown Unavailable on its India site.

The e-tailer also removed items sold by vendors such as Cloudtail, Appario Retail, and store chain Shopper's Stop.

On the sudden change of rules, Chief Financial Officer at Amazon said that it would impact price, selection, and convenience for its customers as well as sellers.

Whereas Flipkart, which had already moved away from its in-house retailer WS Retail, had fewer changes to make in comparison to its rival. It has to go under major changes in supply chains and systems side.

Ways left for compensation

As per the legal experts, though these firms still can look out to compensate losses through private labels. At present, the law if marketplaces have equity in an entity, that entity cannot sell on your platform. It has no specific law for Manufacturer.

And govt can't suddenly violate manufacturing sector by not allowing Flipkart or Amazon to hold equity in. It may take time for govt to come out with clarification on the same.

At present, Amazon private label brands include Symbol, Mix, Solimo, Amazon Basics among few others. Whereas Flipkart counts SmartBuy, MarQ and Perfect Homes as their private in-house brands.

E-comm lobby failed 

Both Amazon and Walmart-led Flipkart had lobbied against the latest rules and pushed for a delay in their implementation. CEO of Flipkart, Kalyan Krishnamurthy to Indian industry department, demanded a 6-month long extension in the deadline. The regulations will cause severe customer disruption in case the deadline wasn’t extended, he said in a letter.

In last December, the govt had modified FDI rules for its booming e-commerce sector. It barred e-tailers from selling products via vendors in which they have equity, and from allowing sellers to sell exclusively on their platforms. It also prohibits vendors from buying more than 25 per cent from group companies of online platforms.

All taken into account, the sudden change in the FDI policy for e-commerce is most likely hit expansion plans of foreign firms and investment inflow in the country. The FDI rules may cost India $46 billion in the coming years, as per PwC.

During all this new FDI row, if it has made anyone happy- it is small traders, who fought for creating a level field in the segment. For consumers, who are now used to the convenience of cashback and discounts given by e-tailers, reality will take some time to sink in.

Much like for e-tailers in India.