Controversial Indian E-Commerce Laws to Cost Sector US$46 Billion

April Davis By April Davis | 18 Jan 2019

The latest in the Indian government’s plans to hone in on marketplace practices in the region could see online sales take a $46 Billion hit in the next three years.

In the lead up to government elections in India, officials who are lobbying against foreign investors and online marketplaces could see the prosperous region lose an estimated $46 billion, PwC says.

In a draft analysis, global consultants have told Reuters the toughened e-commerce regulations, which are due to come into effect on February 1, could be detrimental for Amazon and Walmart-owned Flipkart, who have both already dropped billions in investments into the prosperous region.

From February 1, online marketplaces will not be able to sell products via companies they have equity interest in and will not be able to push sellers to sell exclusively on their platforms. Changes in regulations will also mean that private label goods and products sold directly by India’s key online players can no longer be promoted/featured to the detriment of goods sold from smaller third-party sellers.

The stricter regulations were first announced in December last year by Prime Minister, Narendra Modi’s government in the lead up to the general election in May. The party has reportedly introduced these new laws to appease small sellers in the region who feel threatened by global online retailers.

In PwC’s analysis, which is yet to be made public, the firm suggested that the policy could impact sales growth, tax collections and job creation. As a result, Amazon and Flipkart could be forced to re-think their strategies in India. However, PwC did tell Reuters that it’s not in a position to comment on company-specific issues.

It did, however, confirm that its private analysis determined the gross-merchandise value of goods sold online in the region could plummet by US$800 million from the current fiscal year’s expectations. Sales are also expected to drop below previous forecasts, losing US$45.2 billion between February 1, 2019 and 2022.

The implications of the Prime Minister’s policy is also expected to have negative repercussions on the general public and government, as PwC reportedly believes new legislation will reduce the number of jobs created by 1.1 million, reducing tax collections by US$6 billion.

In a report by The Economic Times earlier in the month, inside sources said that Flipkart and Amazon had joined forces to lobby the changes, requesting an extension of up to six months.

Satish Meena, a New Delhi-based forecast analyst at Forrester Research told The Economic Times that Amazon and Flipkart have a joint stake of more than $20 billion at risk in the region. “At least another $10 billion investment will be made by these two companies in the next few years and this is the leverage they’re trying to use.”

This comes after Walmart purchased a 77 percent  stake in Flipkart for US$16 billion in 2018, upping its investment to 81.3 percent later in the year. Amazon, on the other hand, failed to acquire a stake in Flipkart when shares were up for grabs but has been looking at increasing its own presence in the region to capitalise on both current and future earnings potential in what’s quickly becoming a key e-commerce market.

The Indian e-commerce market had been projected to be worth  US$200 billion by 2026.

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