- India’s 2018 FDI rules had a major impact on the e-commerce players.
- Amazon had to remove a plethora of products from its platform to comply with the new rules.
- The new FDI policy was aimed at safeguarding the interest of the local businesses against the global giants.
- Flipkart, the local Indian player is now owned by the American retail giant Walmart.
India is one of the major markets for the largest e-commerce in the world, Amazon. The company failed to execute its expansion plans in the largest consumer market in the world, China. Since its failure in China, the company was looking at the second largest consumer market in the world, i.e. India for huge growth potential.
At the end of the last quarter of 2018, the Indian government planned some significant changes in the Indian FDI rules. The new rules had a major impact on the e-commerce players’ policies as it barred the foreign brands to sell products from the vendors in which they have a stake. Amazon is one of the two leaders in the Indian e-commerce space. Flipkart, the local Indian player is now owned by the American retail giant Walmart after investing a whopping $16 billion. Amazon was not far behind as they pledged to invest over $5.5 billion into the thriving market.
Amazon’s dependence on India is very clear, as the global estimates have been shattered by the sudden changes in the Indian e-commerce rules. The net income of the company has increased by 63% in 2018 but the future is unstable. The growth is already below the estimates in the first quarter of 2019. The share price of Amazon fell by 5% after the news of the changes in the Indian FDI policy.
Amazon had to remove a plethora of products from its platform to comply with the new rules jotted down by the Indian government. Large vendors such as Cloudtail and Shoppers Stop have been barred from selling their products on Amazon’s platform as the American giant own certain portion of these vendor companies.
The Indian retail market is not very efficient at the moment but is extremely popular with the masses. People feel secure to visit a mom and pop store to physically verify, select and purchase products, which is not possible in online shopping. The huge business of offline retail was severely hit by the incoming online e-commerce players. The Indian government understood that the presence of offline retailers are necessary for a country with a population of over 1.3 billion where around 50% of its population is still not using the internet. The motive behind the new FDI policy was to safeguard the interest of the local businesses against the profits of the global giants and the government is fairly successful in that regards.
Apart from Amazon India’s e-commerce platform, the company is performing well in its web services. The Web Services by Amazon is its largest contributor to its annual revenue and is looking forward to a great deal of business in India and globally as well. However, the company is not looking at a bright future for its retail business in India with its major grocery stores being shut down.
Related Article:Amazon enters the Indian food and grocery delivery business
Indians, especially the ones living in the metro cities are turning towards online shopping for their daily grocery needs in recent times. Platforms such as Big Basket and Grofers are gaining immense popularity due to their good service and convenience for the users. Amazon was the largest player in the market in terms of funds and reach among the Indian populace. However, to comply with the new FDI policy, the company had to shut its grocery business down. It is trying to cope up with the situation by introducing a new service – Amazon Pay in the Indian market that has gained immense popularity since the government’s demonetization move. Amazon Pay can be used for shopping on the site, paying for Amazon Prime’s subscription, food ordering through Swiggy and many more activities. This is giving the company a sigh of relief amidst the chaos it is going through in India.