Growth of the Indian e-commerce sector may be slower than expected mainly because of the new regulations. The new regulations put forth in December 2018 is aimed at tightening the functioning of e-commerce companies in India to ensure those with FDI holdings operate as pure marketplaces without any equity interest or control on seller entities or mandatory exclusivity clauses. Morgan Stanley has revised its estimates for the e-commerce sector, expecting it to now clock in $200 billion by 2027, from its initial forecast of 2026.

These new regulations are expected to pose headwinds to growth in the near term as some of the prominent companies restructure their businesses, processes and contracts, to be compliant. For companies like Amazon and Walmart that acquired Flipkart, the new regulations increase the cost of doing business and add uncertainty.

However, the overall retail market is growing and online is only taking away market share from offline channels due to pricing attractiveness, convenience, and aggregation of demand. A vibrant offline to online model may emerge in India which could drive growth in the medium to longer term.

The FDI rules, which came into effect on February 1, bar online marketplaces with foreign investments from selling products from sellers in which the online marketplaces hold a stake, and also exclusive marketing arrangements.

 

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