Amazon's plan to foray into retail food sector may be scuttled by govt's tightening of e-commerce rules

  • The government tightened e-commerce rules last year

  • Govt bans online firms from entering into exclusive agreements with sellers

  • In 2018, Amazon had proposed $500 million investment in retailing of food products in India.

The government’s latest foreign direct investment (FDI) guidelines have scuttled Amazon's foray into the retail food sector, according to media reports. Incidentally, American e-commerce major Amazon is the only foreign retailer to have committed investment of $500 million in the food retail segment.

In 2018, the government had approved Amazon's proposed $500 million investment in retailing of food products in India.

Last month, the government banned e-commerce companies such as Amazon.com and Walmart-owned Flipkart Group from selling products from companies in which they have an equity interest.

In a statement, the government also said that the companies will be prevented from entering into exclusive agreements with sellers. The new rules will be applicable from 1 February.

“An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity,” the commerce ministry said in a statement.

As per the government's revised guideline for e-commerce, Amazon’s food-only retail business will have to stop selling on Amazon.in, a report in the Economic Times said.  The e-commerce giant's plans to acquire a stake in Future Retail may also be delayed, the report said.

 Amazons plan to foray into retail food sector may be scuttled by govts tightening of e-commerce rules

Representational image. Reuters

According to the government's revised guidelines, e-commerce companies can make bulk purchases through their wholesale units or other group companies that in turn sell the products to select sellers, such as their affiliates or other companies with which they have agreements.

Those sellers can then sell the products to other companies or direct to consumers, often at attractively low prices.

The new regulations follow complaints from Indian retailers and traders, who say the giant e-commerce companies are using their control over inventory from their affiliates, and through exclusive sales agreements, to create an unfair marketplace that allows them to sell some products at very low prices.

The All India Online Vendors Association (AIOVA) in October filed a petition with the anti-trust body Competition Commission of India (CCI) alleging that Amazon favours merchants that it partly owns, such as Cloudtail and Appario. The lobby group filed a similar petition against Flipkart in May, alleging the violation of competition rules through preferential treatment for select sellers.

The government notification also said that the cash back that customers get as an incentive while online shopping should not be based on whether the product was purchased from an affiliate of the platform or not.

The new rules said that services provided to vendors on an e-commerce platform and by that entity’s affiliates should be done so at arm’s length and in a fair and non-discriminatory manner.

The new rules will appease small traders and farmers who fear that US companies are making a back door entry into India’s retail market and could squeeze out small corner shops that dominate Indian retailing.

With PTI inputs

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Updated Date: Jan 15, 2019 12:01:56 IST