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Online sales in India could drop $46 billion by 2022 as a result of its new foreign investment policies for its e-commerce division, which houses US tech giants like Amazon.com Inc. and Walmart Inc.-owned Flipkart Pvt. Ltd.

Data provided by a global consultant firm showed that the gross-merchandise value (GMV) of products sold online could fall $800 million from expectations in the current fiscal year that ends in March. The sales would then shrink significantly below earlier forecasts, cutting $45.2 billion in the next three years.

Sales are still expected to rise, although at a less robust rate than anticipated before the policy change.  

Online retailers regularly use GMV based on monthly online sales to gauge performance, as they usually generate revenue from the commissions they obtain from sellers.  

Should the companies choose to modify their business structures to meet the new rule, the move could negatively impact their online retail sales growth, tax collections, and job creation.

The analysis showed that by March 2022, the Indian rule might result in the creation of 1.1 million jobs, fewer than what may have been previously expected, and lead to a reduction in taxes collected of $6 billion.            

The draft analysis has not been released to the public, with the consultant group saying it does not endorse any of these assumptions or conclusions, nor have they conducted any independent study on this, adding that it does not comment on company specific issues as a matter of policy.

Following the news, an apex body of trading community of India stated that it disagree with the analysis, and that it would fight tooth and nail if the government made any changes to the e-commerce rule under pressure from US corporations.

Blindsiding Foreign Investors

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The e-commerce investment policy is the latest problem between India and the US multinationals. US businesses have in the past couple of years disputed a range of rules – from policies requiring tech companies to store more data locally to those curbing prices of imported medical device.   

Under the new rules, which were announced ahead of a May 2019 general election, e-commerce firms in India will not be able to sell goods through companies in which they have equity interest or urge retailers to sell exclusively on their platforms.

The restrictions were seen as an attempt by Prime Minister Narenda Modi’s government to ease concerns of millions of small traders and shopkeepers, who form a key voter base and stated that their business have been threatened by global online retailers.

Industry sources said the policy would impede or disrupt a few investment plans and push firms like Amazon and Flipkart to form new, more intricate business models.

Amazon has committed to investing $5.5 billion in India, while Walmart last year spent $16 billion to acquire Flipkart.

After one of the biggest foreign investments by Walmart, the government has again blindsided foreign investors, stated Pratibha Jain, a partner at an Indian law firm which advises e-commerce groups, adding that such policy moves made India a difficult place to do business.

Amazon and Flipkart have both requested an extension of the February 1 deadline, but a source at India’s commerce ministry stated that the government was unlikely to approve the extension.

The Seattle-based online retailer said it remains committed to be compliant to all local laws, although it has sought for a four-month extension.

The Bengaluru-based e-commerce company has asked the government for an extension of six months, a person with knowledge of matter said. Flipkart stated that it believed an extension is appropriate to ensure that all sections of the policy were clarified.

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