India will let foreign-owned e-commerce companies like Amazon and Flipkart own the goods they sell on their marketplaces for the first time in seven years, as long as every item is exported, under a new framework that sits under the Foreign Trade Policy 2023.
Quick Backstory: A marketplace owning inventory that it sells on its own platform (thus competing against third-party sellers with an advantage) has been banned in India since a law took effect in February 2019, which is why Amazon and Flipkart exclusively operate as marketplaces in the country rather than retailers.
The law led to Amazon unwinding Cloudtail, the seller that moved Amazon’s own inventory onto the platform, in 2022, and cutting ties with Appario, which took over that role, in 2023 after regulators went after the preferred-seller arrangements that let it sell its own goods indirectly. (Cloudtail and Appario together drove about 35% of Amazon India’s total sales in 2019.) Basically, Amazon thought it was being smart by routing its inventory through sellers it partly owned instead of owning the inventory outright under its own name.
Now the government has carved out an exception, but only for goods leaving the country. Amazon and Flipkart can buy inventory from Indian manufacturers, warehouse it, and ship it abroad through their own supply chains, though they have to do it through separate legal entities that the Directorate General of Foreign Trade will monitor. Amazon and Flipkart still can’t sell the inventory direct-to-consumer on their own Indian marketplaces, so the protections that were originally put in place to protect smaller retailers remain intact.
The reason for the change is that India wants $200B to $300B in e-commerce exports by 2030 and isn’t anywhere near making that happen. The obstacle isn’t necessarily lack of demand for Indian goods, but rather that small manufacturers have difficulty handling customs clearance, foreign warehousing, and international returns on their own. Whereas, letting Amazon own the inventory moves that burden onto Amazon.
CAIT, the trade body representing India’s small retailers, objects to the new rule on the grounds that nobody has explained how the government will verify that export-bound inventory doesn’t secretly end up in a domestic warehouse. I’d also argue that a better solution would be to create a government-assisted entity that actually helps India’s small manufacturers handle those types of export logistics instead of passing the buck to Amazon and Flipkart, giving them the same international advantage that those mega-retailers have in place — but once again, nobody asked me first.
