India's e-commerce curbs could hit online sales by $46 billion by 2022 - PwC draft analysis-The Total Investment & Insurance Solutions

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16 January 2019

 

E-commerce sector(The Total Investment & Insurance Solutions)

India’s new foreign investment restrictions for its e-commerce sector, which includes giants such as Amazon.com Inc and Walmart-owned Flipkart, could reduce online sales by $46 billion by 2022, according to a draft analysis from global consultants PwC seen by Reuters. The Total Investment & Insurance Solutions

Under the changes, e-commerce firms in India will from Feb. 1 not be able to sell products via companies in which they have an equity interest or push sellers to sell exclusively on their platforms.

Announced in December, just months before a general election due by May this year, the rules were seen as an attempt by Prime Minister Narendra Modi’s government to appease millions of small traders and shopkeepers, who form a key voter base and say their businesses have been threatened by global online retailers.

Industry sources told Reuters the policy would delay or derail some investment plans and push companies such as Amazon and Flipkart to create new, more complex business structures.

In a private analysis PwC conducted based on estimates provided by the industry and using publicly available information, it forecast that online retail sales growth, tax collections and job creation would be severely hit if companies changed their business models to comply with the new policy.The draft analysis has not been made public. PwC India, in response to Reuters’ questions, said it “does not endorse any of these assumptions or conclusions, nor have we conducted any independent study on this”.

“As a matter of policy, we do not comment on company specific issues,” PwC said.

The analysis produced by PwC showed that the gross-merchandise value of goods sold online could reduce by $800 million from expectations in the current fiscal year that ends in March, a document seen by Reuters showed. Then, the sales would dip drastically below previous forecasts, lopping off $45.2 billion in the next three years, the data showed.

To be sure, sales would still be growing, but at a less robust rate than envisaged before the policy change.

Online retailers often use gross merchandise value, or GMV, based on monthly online sales as a measurement of performance, as they typically make revenue from the commissions they get from sellers.

The analysis also said that by March 2022 the Indian policy could lead to the creation of 1.1 million fewer jobs than may have been previously expected and lead to a reduction in taxes collected of $6 billion.

Amazon and Flipkart have both sought an extension of the Feb. 1 deadline, but a source at India’s commerce ministry told Reuters the government was unlikely to agree.

Amazon said in a statement it remains “committed to be compliant to all local laws” but has asked the government for a an extension of four months.

Flipkart has sought a six-month extension, a source said. Though the company did not respond to Reuters questions, it told India’s Economic Times newspaper that it believed “an extension is appropriate” to ensure that all elements of the policy were clarified.