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New India E-Commerce Rule Undermines Expansion of Foreign Companies Like Amazon and Walmart

India is a vital market for online sales for existing and emerging retailers, as illustrated by Walmart and Amazon’s battle to buy Flipcart, the country’s biggest e-commerce player.

But plans for foreign companies to start or expand online sales in the world’s second most populous country have run into new legal hurdles with India issuing further restrictions on e-commerce businesses, the Wall Street Journal reported.

Existing rules are already tough. Non-Indian companies haven’t been allowed to hold their own inventory to sell and ship to consumers. Instead, they must work through third-party marketplaces. Additionally, to improve competitive positions, big companies must exclusively partner with providers in specific areas, like apparel or electronics.

While such arrangements have given foreign businesses access to India’s market, it’s been at the cost of sharing profits with these third-party companies. As a result. such affiliated sellers have controlled about 80% of all e-commerce retail in India, according to the Economic Times.

The new rules further strengthen third-party affiliate positions.

Now, big foreign firms will no longer be able to treat the third parties, such as RetailNet, Super-ComNet, and OmniTech Retail, as effective extensions of their businesses. “Inventory of a vendor will be deemed to be controlled by [an] e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies,” the new regulation reads, according to the Economic Times.

There’s also an impact on companies that partner exclusively with a foreign company, such as Walmart and Amazon. These affiliates will have to diversify their businesses by Feb. 1, 2019, so that no outlet is responsible for more than a quarter of their sales.