Amazon (AMZN 0.87%) founder Jeff Bezos recently visited India and announced that the e-commerce giant will invest $1 billion in small businesses in the country. While speaking at a summit for small- and medium-sized businesses (SMBs) in New Delhi, Bezos claimed that Amazon is aiming to export $10 billion worth of goods from India by 2025.
Amazon investors would ideally be elated with this announcement. After all, India is a fast-growing e-commerce market that could hit $200 billion in revenue by 2026, from just $39 billion in 2017, according to a third-party estimate.
But a closer look at the situation in that country makes it clear that Amazon is on a slippery slope.
Image source: Getty Images.
Amazon's new plan
So far, Amazon claims to have exported $1 billion worth of goods to markets outside India with the help of 50,000 sellers on its platform in that country.
This has encouraged the company to pump more money into small- and medium-sized businesses in India. Amazon says that the fresh injection of capital in India will go toward digitizing SMBs so that more of them can sell goods online.
This is a smart move from Amazon, as SMBs account for 40% of exports from India and have been growing at an average annual pace of 10%. Bringing SMBs online should help Amazon increase the selection of products on its platform, and bolster its chances of ruling the Indian e-commerce landscape at a time when its archrival seems to be pulling its punches.
But the problem is that Amazon is not just facing a rival such as Walmart (WMT +0.95%) in India. The country's government is not impressed with the American e-commerce giant, as is evident from the reaction to Bezos' latest investment in that country.
India's commerce minister is not impressed
Not long after Bezos' announcement, Piyush Goyal, who is the minister for commerce and industry in India, made a remark that's indicative of the ruling government's attitude toward foreign players. He said at an event in New Delhi (via NDTV):
Secondly, they may have put in a billion dollars but if they are losing a billion dollars every year then they jolly well have to finance the billion dollars. So it's not as if they're doing a great favor to India when they invest a billion dollars.
Goyal added that he wondered how Amazon was racking up huge losses in India despite operating a marketplace model that's meant to simply connect buyers and sellers.
In the fiscal year that ended in March last year, Amazon's marketplace business in India reported a loss of $802 million. The commerce minister said in no uncertain terms that Amazon could be involved in predatory pricing or dubious trade practices, which is the reason why it has been racking up huge losses.
Goyal's comments are not surprising in light of the fact that the Indian government has been taking steps to curb deep discounting on e-commerce platforms after complaints from small traders.
Amazon is facing backlash in India from small traders who protested across various cities during Bezos' visit. They allege that discounting practices and predatory pricing employed by Amazon have destroyed the businesses of small traders in the country.
This has also led to the launch of a formal investigation by the Competition Commission of India into allegations of unfair business practices by Amazon and Walmart-owned Flipkart.
What's more, the seemingly hostile attitude of the Indian government couldn't have come at a worse time for Amazon in India. Mukesh Ambani-led Reliance has started testing its JioMart e-commerce service in India, with plans of scaling up quickly. Being a local player, JioMart won't be subject to the regulatory hurdles that Amazon faces.
In the end, it won't be surprising to see Amazon face tough times in India. The government seems to be taking steps to rein in the e-commerce giant with measures that might derail its ambition of making a major dent in the country's consumer discretionary market.
