India’s New eCommerce Rules Could Cost $46B In Lost Sales

PwC, the global consulting firm, is warning that a move by India to place new foreign investment restrictions on eCommerce could result in a $46 billion reduction in internet-based purchases.

According to a report in Reuters, citing a draft analysis from PwC, the restrictions would apply to companies such as Amazon and Walmart’s Flipkart. Reuters said in the report that the draft analysis it is basing its report on has not been made public and a PwC India representative told Reuters it “does not endorse any of these assumptions or conclusions, nor have we conducted any independent study on this.” It went on to say as a matter of policy, it doesn’t comment on “company-specific issues.”

The new rule, which goes into effect on Feb. 1 prevents eCommerce companies operating in India from selling products through companies they have an equity stake in. The companies are also prevented from inking exclusivity deals with sellers. The rules, which were announced in December, ahead of May’s general election in India, are seen as an effort by Prime Minister Narendra Modi to garner support of small traders and shopkeepers in India who contend their businesses are being threatened by online retailers who operate on a global basis. They are a key voting block.

The laws, noted Reuters, could result in Amazon and Flipkart delaying investments or halting them all together as they create business structures that work in the country. PwC also warned in the analysis that online retail sales growth, tax collections and the job market would take a severe hit if companies are forced to overhaul their operations to ensure they are in compliance with the rules. PwC’s analysis forecasts gross-merchandise value of internet sales could fall by $800 million from current expectations for the fiscal year that ends in March. Sales would fall below forecasts, with a $45.2 billion decline in the next three years. That doesn’t mean sales won’t grow, but the pace will be more muted because of the law. PwC also warned the policies could result in 1.1 million fewer jobs created and a $6 billion reduction in taxes, reported Reuters.

Amazon and Flipkart both sought an extension of the Feb. 1 deadline, Reuters reported, but a source at India’s commerce ministry said it’s not likely that they will get it. A source told Reuters that Flipkart wants a six-month extension.