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India Urged Not to Tighten Foreign Investment Rules for E-Commerce


A US lobby group which represents firms including and Walmart has urged India not to tighten foreign investment rules for e-commerce companies again, according to a letter seen by Reuters.

India is considering revising the rules after traders in the country accused Amazon’s Indian division and Walmart’s Flipkart of creating complex structures to bypass investment regulations, Reuters reported this month.

The US companies deny any wrongdoing.

India only allows foreign e-commerce players to operate as a marketplace to connect buyers and sellers but local traders say the US giants promote select sellers and offer deep discounts, which hurts business for smaller local retailers.

In 2018, India changed its foreign direct investment (FDI) rules to deter foreign firms offering products from sellers in which they have an equity stake.

The government is now considering tightening those rules again to include sellers in which a foreign e-commerce firm holds an indirect stake through its parent, Reuters reported.

Such a change could hurt Amazon as it holds indirect stakes in two of its biggest online sellers in India, Cloudtail and Appario.

Citing the Reuters story in a January 28 letter, the US-India Business Council (USIBC), part of the US Chamber of Commerce, urged the Indian government not to make any more material restrictive changes to e-commerce investment rules.

“Any further changes in FDI rules would limit e-commerce firms from leveraging their scale,” USIBC said in the letter seen by Reuters.

USIBC also asked India’s Department for Promotion of Industry and Internal Trade (DPIIT) to engage in substantive consultation with companies on e-commerce regulation.

USIBC and DPIIT did not respond to a request for comment.

The government is also considering prohibiting online sales by a seller who, for example, purchases goods from an e-commerce entity’s wholesale unit, or any of its group firms, and then sells them on the entity’s websites, Reuters has reported.

The 2018 rule changes soured relations between India and the United States, as Washington said the policy changes favoured local e-commerce retailers over US companies.

Industry sources told Reuters on Friday that the prospects of such frequent policy changes in India have alarmed Amazon, which has committed $6.5 billion (roughly Rs. 47,389 crores) in investments in India, and Walmart, which invested $16 billion (roughly Rs. 1,16,651 crores) in Flipkart in 2018.

The USIBC letter said “investments require reasonable policy predictability and fair treatment”.

“USIBC is concerned that material changes to the FDI policy creates uncertainty and impacts investor confidence, as well as business continuity of existing investments,” it said.

Amazon declined to comment on the USIBC letter. Walmart and Flipkart did not respond to requests for comment.

After the Reuters story was published last week, a group representing millions of brick-and-mortar retailers in India said it has received government assurances that policy changes were in the offing.

© Thomson Reuters 2021

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