Amazon’s food retail subsidiary in India will get stuck with the new FDI rules, which will not allow it to retail products via Amazon.in
India had allowed 100% overseas subsidiaries for food retail of local produce through offline and online channels to help farmers as well as create jobs. But only Amazon agreed to invest US$ 500 million, aiming to sell via both brick and mortar stores and e-commerce.
But now even Amazon’s investment seems to be going down into the abyss with the recent changes in e-commerce rules. These rules will eventually imply that Amazon’s food retail business ARIPL will not be able to sell on Amazon.in from February 1, 2019. And so far, Amazon was only using the e-commerce route, as it has not opened any physical retail stores.
According to the new rules, platforms funded through FDI cannot sell products from entities where they have equity relationships. They are not allowed to control inventory or enter into exclusive sales agreements and have to be fair while providing services like warehousing, logistics and advertising to their sellers.
An Amazon spokesperson commented, “We remain committed to invest in India in a way that can work with the government’s vision towards the farmer and agricultural community but at present, we are still evaluating the Press Note 2 guidelines.”
The equity rule will also impact Amazon’s proposal to acquire 9.5% stake in Kishore Biyani’s Future Retail as the Future group is also a seller on Amazon’s platform. It had proposed to acquire stake in Future Retail via the FPI route, similar to its acquisition of 5% stake in Shoppers Stop for Rs 180 crore. An individual FPI is allowed to hold up to 10% stake in an Indian entity.
Amazon’s acquisition of stake in More supermarkets from Aditya Birla Retail with co-investor Samara Capital is already being scrutinised by the Competition Commission of India (CCI). The CCI has asked Samara Capital to provide information on how the deal ties in with the government’s revised FDI e-commerce policy.
Amazon has already announced the Great Indian Sale with deals across a wide range of products well in advance of the February 1 deadline, since it cannot do deep discounts either when the new rules come into force. The 4-day sale is expected to kickstart this weekend and offer deals across a variety of products including smartphones, consumer electronics, fashion, home and kitchen, etc. The rules have also put Amazon in a fix as it is sitting on around Rs 2,000 crore of inventory from entities where it has equity participation, which it will be unable to sell after February 1.
The policy changes are viewed as a belated attempt by the Modi government to please small traders unhappy with the business practices of e-commerce firms like Amazon and Flipkart. While the abrupt changes may or may not help the BJP in the elections, they are expected to have a long term impact FDI.