The Flipkart office in Bangalore. Photo: AFP

Though the Indian e-commerce industry was recently hit by changes in investment regulations, Walmart has reiterated confidence in the long-term prospects of its Indian online unit Flipkart.

Effective from February 1, the new rules aim to curb marketing practices such as offering steep discounts and striking deals with sellers to trade exclusively on their platforms.

They also prevent e-commerce platforms from selling products distributed by companies in which they have invested. Companies operating in this space also cannot earn more than 25% of the total revenue from a single platform.

This struck at the very root of business models followed by e-commerce leaders Flipkart and Amazon and caused widespread disruption, with many products disappearing from their product ranges.

The new rules were reportedly brought in following intense lobbying by small businesses, which are reportedly struggling to match the deep discounts and predatory competition unleashed by online retailers. The new policy was also welcomed by offline retail chains such as Future Group and Reliance Retail.

The US retail giant, which had acquired Flipkart last year for US$ 16 billion, expressed disappointment with the new law but claimed it retains confidence in the long-term prospects of Flipkart.

At an earnings call, Walmart president and CEO Doug McMillon reportedly said his team was working to ensure compliance with the new rules, but also expressed his disappointment with the Indian Government’s decision, Business Standard reports.

McMillon, however, expressed hope that in future the Indian Government will bring in a collaborative regulatory process. He hoped to work with the government to formulate policies that will benefit the e-commerce industry, domestic manufacturers, farmers and suppliers, the daily added.

He was also optimistic about the Indian market given its size, low penetration in the retail channel and its fast-paced growth.

A few days after the new e-commerce rules came into effect, US brokerage Morgan Stanley speculated that Walmart may drop Flipkart if it does not see a long-term path to profitability.

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