Effective February 1, online marketplaces - Walmart-backed Flipkart and Amazon - will have to undertake massive restructuring of their operations in India to ensure compliance.
We are disappointed that the government has decided to implement the regulation changes at such haste, but we are committed to doing everything we can to be compliant with the new rules," a Flipkart spokesperson said.
The spokesperson added that despite the significant work required to change its supply chains and systems, the company remains confident that it will continue to serve its customers and sellers well.
Asserting that policy should be created in a consultative, market-driven manner, Flipkart said it will continue to work with the government "to promote fair, pro-growth policies that will continue to develop this nascent sector".
Despite intense lobbying by the two giants, the Department for Promotion of Industry and Internal Trade (DPIIT) said it had "been decided, with the approval of the competent authority, not to extend the deadline" of February 1.
An Amazon spokesperson Thursday stated that the company will continue to engage with the government to seek clarifications and work towards minimising impact on its customers and sellers.
Small traders have, in the past, complained that deep discounts offered by e-commerce firms were hurting their business. Various trade bodies had also alleged that these entities were giving preferential treatment to certain sellers.
The new rules would require these online marketplaces to bring in massive changes in their business models.
One of the clauses states that the inventory of a vendor will be seen as controlled by a marketplace, if over 25 per cent of the vendor's purchases are from the marketplace entity, including the latter's wholesale unit.
Over the last few weeks, both Amazon and Flipkart had been extensively lobbying -- directly as well as through associations and trade bodies -- with government officials seeking an extension in deadline. They had also written to the government stating that they need more time to understand the details of the framework.
Batting for the players, the US-India Strategic Partnership Forum (USISPF) had dubbed the new e-commerce rules as "regressive" and said these changes would harm consumers, create unpredictability and have a negative impact on the growth of online retail in India.
According to a Crisil report, nearly 35-40 per cent of e-retail industry sales - amounting to Rs 35,000-40,000 crore - could be impacted due to the tightened policy.
However, smaller players like Snapdeal and ShopClues have welcomed the development, saying it will create a genuine and robust e-commerce sector in India.
According to sources, both Flipkart and Amazon were extremely hopeful that the government will soften its stand but given the magnitude of investments at stake, these companies had already started working on their plan B in case the deadline wasn't extended.
Amazon had committed an investment of over $5 billion, while Walmart made its biggest bet pumping in $16 billion for 77 per cent stake in Flipkart.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.