Amazon in India: Case

New FDI norms: Amazon to seek legal opinion to ascertain future of its food retail business.
India has an Internet user base of about 475 million as of July 2018, about 40% of the population.
Despite being the second-largest user-base in world, only behind China (650 million, 48% of
population), the penetration of e-commerce is low compared to markets like the United States
(266 million, 84%), or France (54 M, 81%), but is growing at an unprecedented rate, adding
around 6 million new entrants every month. The industry consensus is that growth is at an
inflection point.

India's e-commerce market was worth about $3.9 billion in 2009, it went up to $12.6 billion in
2013. In 2013, the e-retail segment was worth US$2.3 billion. About 79% of India's e- commerce
market is travel related. According to Google India, there were 35 million online shoppers in
India in 2014 Q1 and was expected to cross 100 million mark by end of year 2016. CAGR vis-à-
vis a global growth rate of 8–10%. Electronics and Apparel are the biggest categories in terms of
sales. As of 2017, the largest e-commerce companies in India are Flipkart, Amazon, Shop Clues,
Paytm, Snapdeal and e-bay.

Because of the very attractive market potential, Amazon.com Inc. entered the Indian market in a
big way, and started Amazon Retail India Pvt. Ltd. (ARIPL) is fully owned by Amazon. In July
2017, it had received the green light to invest nearly $500 million in a food-only company.
ARIPL sells locally sourced food products through offline and online retail stores. It is one of
Amazon's multiple efforts to grab a chunk of India's growing retail market.

However, activities of online retailers has created difficulties for traditional small retailers, who
have started moving away from the ruling party because they feel that their concerns are not
adequately addressed. With elections due in about four months, the government recently
announced changes in policy related to online retailers. Amazon Retail India Pvt. Ltd is in a lurch
as it is unsure whether it can sell products on the Amazon marketplace after the new guidelines
come into effect on February 1.

With the new FDI guidelines announced, e-commerce companies are scrambling to restructure
their business models. At present, market giant Amazon is questioning the future of its food retail
business in India after the change in norms.

The global retail-to-technology giant is also seeking legal advice for the same, as per a report in
The Economic Times. The company is consulting legal advisers about whether Amazon Retail
India Pvt Ltd (ARIPL) can sell on the marketplace after the new guidelines come into effect on
February 1.

And this is exactly where the problem arises as the new policy bars e-commerce companies from
selling products on their website in which they have any sort of equity.

The new policy has created a lot of confusion among the market players. A source close to
Amazon said in the report that everything is convoluted and complex and the company is not sure
of the way forward for its retail entity.

Amazon.in enabled operations for ARIPL only a few months ago, after a delay of more than a
year in getting the government's approval. The Centre had asked Amazon to keep its retail entity
away from the Indian market.
"We have always operated in compliance with the laws of the land and are evaluating the new
guidelines to engage as necessary with the government to gain clarity so that we remain true to
our commitment to India," a spokesperson quoted in the report said.

According to the new rules, Amazon's joint venture with Catamaran Ventures, Cloudtail, is no
longer allowed to sell its products on the marketplace. Similarly, Walmart and its entities cannot
sell any product on Flipkart.

Questions:

1. Analyze the political risk Amazon Retail is facing in the Indian market

2.What can it do to mitigate the impact of the policy changes?