« Global Trade Talk

Do New Indian Gov’t Regulations Threaten Amazon?

By Alex Mutter

LiveMint reports that the Indian government has created new business regulations that have the potential to hit foreign retailers hard.

Amazon only launched its Kindle in India last month, but it might be short-lived.

The first of the new regulations states that single-brand and multi-brand retailers must, averaged across their first five years in India, acquire at minimum 30% of their supplies from Indian companies. After those first five years, retailers must meet that 30% minimum in all subsequent years.

Much more problematic is the second regulation, which bars any company with foreign investors from selling their products over the internet in India at all.

This effectively stops Amazon, or any other foreign e-commerce firm, from operating in the country, and it remains to be seen whether the Kindle Store, which launched in India only a month ago, will still be able to do business. Equally unclear is the fate of Junglee, Amazon’s Indian subsidiary. Though it does not technically sell anything by itself, it does act as something of a hub for connecting Indian consumers with products sold by Amazon.

Should these regulations hold, it will be interesting to see not only Amazon’s response but also how other companies with interest in the Indian e-book market, such as Kobo and B&N, approach the situation.

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  1. Vinutha Mallya
    Posted October 1, 2012 at 3:26 am | Permalink

    There is some misunderstanding in this piece that needs clearing up. Government of India has in fact paved the way for foreign retailers, by allowing unto 51% foreign direct investment (FDI) in multi-brand retail. But the federal government has allowed the states to choose if they want to allow FDI in retail in the respective states.

    The bad news is for retailers like Amazon, who have been vying hard to set up the Amazon India shop, because the new regulations do not allow foreign retailers investing in multi-brand retail to sell their products through e-commerce (online stores). Hence, the new legislation is not favourable to Amazon’s business model, but it is to Walmart’s.

    However, the Kindle India store (and any other e-book seller) is not affected by the new legislation, since it is a cross-border purchase for Indians (through Amazon.com, for which Indians pay a delivery fee of 0.99 cents per book downloaded). As was clarified in my story about Kindle India store, its only advantage is that Indians can now purchase Kindle editions by viewing the prices in Rupees and paying for ebooks in rupees.

    Similarly, Junglee.com is not affected because it is functioning as an aggregator and not a retailer. Although products of Amazon.com are viewable through Junglee, they will continue to be bought as before, by paying Dollar prices and importing of those goods from the US.

    Nonetheless, there are many grey areas that need to be clarified regarding the newly introduced legislation.

  2. Vincent
    Posted October 1, 2012 at 4:27 am | Permalink

    I smell greed and corruption. Protect your own market – when you has a base of cheap labour. To compete with other countries, you insist on a market share of incoming goods being manufactured at home.

    Less direct than taxes, and gets spin doctored into a preserving jobs at home.

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