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Why Amazon may delay $1-bn investment plans in India

January 23, 2019 15:41 IST

Amazon India is waiting for clarifications from the government on several aspects of the latest FDI guidelines to be able to carry on with business in the country. Sources said, no new investment is likely till at least the second half of 2019.

Jeff Bezos-led Amazon is likely to put any fresh investment on hold for the India business at least till the Lok Sabha elections are over and a new government is in place.

 

Sources indicated that about $1 billion worth of investments could get stuck as Amazon India is facing stiff regulatory hurdles.

“No new investment is likely till at least the second half of the year,’’ one of the sources said.

Amazon India is waiting for clarifications from the government on several aspects of the latest foreign direct investment (FDI) guidelines to be able to carry on with business in the country.

The signals so far have suggested that the policy guidelines are unlikely to be changed drastically so close to the polls against the plea of domestic retail businesses.

While the American major is banking on a likely extension of the February 1 deadline set by the Department of Industrial Policy and Promotion (DIPP) for guidelines to kick in, an uncertain policy environment would stop the company from scaling up business through fresh funding, another source pointed out.

The billion-dollar investment, at risk of being pushed back by several months, is part of the $5.5-billion commitment made by Amazon for Indian operations so far.

Of that pie, the company has in the last five years invested $3.5-$4 billion in the country. Last year, Amazon invested over $950 million in the country.

Most of the money has been spent on manpower, warehousing, infrastructure development as well as expanding its footprint in the country.

Amazon India now delivers to almost 100 per cent of the pin codes and has around 70 warehouses across the country. The employee count (direct and indirect) is  around 45,000.

“Every year the company invests money in tranches as and when a requirement comes up. But this year may be different.

"At present, the main concern its getting an extension from the DIPP and later clarification on all the changes in the guidelines.

"Only then might the company put further capital in the country,” said a source close to the company.

If Amazon India and Walmart-acquired Flipkart are not able to get an extension to the February 1 deadline, they may have to pull the plug on some of their businesses.

From running private labels to having seller firms with their stake in them, doing flash sales to offering deep discounts, the new guidelines would alter the way e-commerce companies work in India.

While Amazon has indirect ownership in Cloudtail India and Appario Retail, possibly the largest vendors on its platform, Flipkart has similar arrangements with RetailNet and Omnitech Retail.

“Right now the guidelines are unclear. If one follows them, from February 1, Amazon and Walmart would have to stop the operations of their private labels.

"Amazon would also have to stop selling products from retail companies in which it has a minority stake including Shoppers Stop and More.

"It might also have to eventually shut down its operations of its food-only retail firm Amazon Retail Private Limited (ARIPL),” said a source close to the firm.

According to sources, Amazon and Walmart public policy teams are engaging with DIPP officials to seek relief.

They also said that while DIPP came out with a clarification on private labels a few days back, they are still unclear if these labels would be allowed or not.

“The clarification simply says the government is not against private labels. But how that applies vis-à-vis equity held in a certain firm is unclear,” a source said.

Photograph: Brendan McDermid/Reuters

Karan Choudhury in New Delhi
Source: source
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