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Amazon sees Indian laws adversely impacting its business

03 November 2014

US e-commerce major Amazon Inc sees some of India's laws as obstacles to making a big push into the world's fastest-growing online shopping market in the country. The ecommerce giant says 'substantial uncertainties' in interpretation of Indian laws, could impact its business in the country.

Amazon said it faced similar constraints in the other major emerging economy, China, which too has similar rules.

"There are substantial uncertainties on the interpretation of China and India's laws, and is possible the government will take a view contrary to ours," Amazon said in a regulatory filing with the US Securities and Exchange Commission (SEC).

"Our Chinese and Indian businesses and operations may be unable to continue to operate if we or our affiliates are unable to access sufficient funding or if China enforces contractual relationships with respect to the management and control of such businesses," Amazon said.

The problem with Amazon is that it has to comply with Indian and Chinese laws elsewhere as well as any violation of the laws in its international activities existing or future would invite fines and other financial penalties, or even a revocation of its licences and being forced to shut.

In India, the government also restricts ownership or control of Indian companies by foreign entities involved in online multi-brand retail trading activities.

In fact, commerce minister Nirmala Sitaraman had warned against foreign firms' moves for backdoor entry into India's multi-brand retailing through e-commerce ventures where they are not allowed to make direct sales so far (See: Better without FDI in multi-brand retail trade: commerce minister).

Amazon, like its domestic rivals Flipkart and Snapdeal, operates under a marketplace model, where it offers its platform to sellers across the country. "For, we provide certain marketing tools and logistics services to third-party sellers to enable them to sell online and deliver to customers. Though we believe these structures and activities comply with existing laws, they involve unique risks," Amazon added.

Amazon, which last year launched its marketplace in India - one of its fastest-growing markets and was on track to touch $1 billion in gross sales, is also facing tax issues with local authorities in Karnataka (E-commerce giant Amazon runs into regulatory trouble in Karnatak). 

Amazon, however, is still planning to expand its infrastructure in India with its second 'fulfilment' centre in Gujarat as part of its $2-billion investment plan in the country.

The e-tailer has approached the Gujarat government with plans to set up the centre next year and the firm is expected to start engaging with state government officials soon on the matter.

Amazon, which competes fiercely in the burgeoning e-commerce market in India with local players like Flipkart, Snapdeal and other smaller firms, already has a network of seven centres across the country totalling over half a million sq feet area.

It claims the new centre will bring significant benefits to the state in terms of investment, employment, enhanced revenues as well as scaling up of small and medium businesses.

''Besides providing affordable goods to consumers, it will also give a boost to various ancillary industries in Gujarat,'' according to the company.

Amazon currently has a total of 7 fulfilment centres on the outskirts of Mumbai, Bangalore, Delhi, Chennai, Jaipur, Ahmedabad and Tauru on the outskirts of Gurgaon.

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