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India Today reports that new rules in India regarding foreign direct investment (FDI) that have put restrictions on planned expansion by Amazon and Walmart could lead to a Walmart decision to “back out of its merger with Indian e-commerce giant Flipkart.”

That’s the assessment from investment bank Morgan Stanley, which says that “an exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated.”

The story notes that “implemented from February 1, the new FDI rules bar online marketplaces with foreign investments from selling products from sellers in which the online marketplaces hold a stake. The new FDI rules also ban exclusive marketing arrangements … The new FDI regulations are expected to heavily impact Flipkart as the e-commerce giant may have to remove up to 25 per cent of its products from its site. The biggest effect will be on the smartphone and electronic inventory of the website, a high earning segment for the website, due to the government targeting exclusive deals.”

Walmart tells India Today, however, that it remains “optimistic about the e-commerce opportunity in India given the size of the market, the low penetration of e-commerce in the retail channel and the pace at which it is growing.”
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