In late December, the Indian government headed by Prime Minister Narendra Modi came down hard on global e-commerce giants like Amazon
Modi's new policies will force an about-face in Amazon and Walmart's approach to Indian retail strategy. Amazon will be prematurely forced out of competition with independent Indian sellers, and lose the Indian market for selling its proprietary products, such as the Echo speaker. Walmart's $16 billion purchase of a 77% stake in Flipkart now must be considered from a different light. Walmart's history of predatory pricing and deep discounting suggests that it would eventually have created a trade environment where it would out-compete Indian independent sellers. But Modi's new policy will take away Walmart's playing field, and curb the advantage it hoped to gain through its newly forged relationship with India's leading online retailer.
Modi's reversal comes at a time when his Bharatiya Janata Party's re-election prospects are dangerously low. Modi previously welcomed foreign companies into the country's economic sphere, but now seeks to lower the presence of foreign firms to appeal to the small traders. The small traders are a sector of roughly 25 million small business owners that have been hurt by Modi's past financial and tax policies. Modi hopes to gain their trust in time for May 2019 elections. But many are still smarting from what they suffered in the lead-up to Modi's reversal. Some small business owners saw profits slashed by over half, as a consequence of Modi welcoming foreign behemoths to the Indian market. There is no guarantee that the majority of this sector will vote for Modi.
Foreign retailers like Amazon hoped for great success in the Indian market, especially since many are seeing a slowdown in growth in American markets. Prior to this new policy, Amazon invested over $7 billion in its Indian operations. On a global scale, Amazon lost roughly $2.4 billion in the past four quarters.
Modi's new policy will help locally oriented companies like Paytm, a payments company with a digital mall, and Reliance Industries (NSE: RELIANCE), an Indian conglomerate seeking to claim the Indian online retail market. Reliance happens to be owned by the wealthiest Indian, Mukesh Ambani, a patron of Modi.