Amazon chief executive Jeff Bezos has asked Prime Minister Narendra Modi to allow foreign investment-backed ecommerce companies such as his to operate hybrid models in India that are part marketplace and part inventory-led, according to an Economic Times report citing sources.
This would amount to a major relaxation of the rules announced recently for online retailers with overseas investment. Under the March guidelines, ecommerce companies with foreign direct investment (FDI) can only function as marketplaces. These are platforms that connect third-party vendors to buyers. But the e-commerce players can't sell directly to consumers.
Bezos is said to have sought the change during a meeting with Modi in Washington DC during the Indian Prime Minister's trip to the US last week. This came after Amazon announced an additional $3 billion investment in India, the fastest-growing market for the Seattle-based online titan.
Spokespersons for the government and the Prime Minister's Office didn't respond to queries sent on Thursday and neither did Amazon. A senior government official had told ET earlier that the government should take advantage of its large mandate and open up FDI in online retail besides doing away with mandatory 30 per cent local sourcing.
The inventory-led model involves sourcing goods, holding stocks and selling merchandise directly to the consumer. The marketplace acts as a platform that connects sellers and buyers. The US online retailer is said to be of the view that such a model will be ideal for a large country like India where sourcing, stocking and delivering goods is a challenge.
This model will also help millions of small entrepreneurs without any experience in selling products digitally to go online besides allowing Amazon to operate its core business, which is to sell its own merchandise, said a person aware of the matter, according to ET. With its latest investment announcement, the Seattle-based company has taken the total investment pledged for India in the last two years to $5 billion.
India allows 100 per cent foreign direct investment (FDI) in the marketplace model that Amazon operates in India, as do homegrown but heavily foreign-funded firms Flipkart and Snapdeal. Online retailers with FDI can't hold any inventory of their own.
The new rules also put the spotlight on Cloudtail, a joint venture between Amazon Asia and Infosys founder N R Narayana Murthy's personal investment vehicle Catamaran through holding company Prione Business Services.
The new marketplace guidelines restrict sales from any vendor to 25 per cent of the total and as the largest vendor on Amazon's platform, Cloudtail is above the threshold, people with knowledge of the matter said. While there has been speculation about e-retailers seeking more time to conform to the new rules, Amazon and the other ecommerce companies have repeatedly said that they are in compliance with the laws of the land.
The government had announced the new guidelines in March in order to put brick-and-mortar and online retailers on a level playing field. Offline retailers had long complained that the rules put them at a disadvantage, allowing the ecommerce companies to engage in predatory pricing while having access to FDI.
India's e-commerce market has been growing at 34 per cent annually since 2009 and is expected to touch $22 billion in 2015, according to PwC, while Morgan Stanley says India's ecommerce business could swell to $119 billion by 2020.
Amazon has been growing rapidly in India with the country having been the fastest to clock $1 billion in gross merchandise value (GMV) since the start of services in 2013. India is also poised to become the fastest to $10 billion in GMV, outpacing Japan, Germany and the UK to become the second biggest market outside the US for Amazon.