• Amazon pulls host of items from its Indian website
• Amazon, Walmart and Washington had all lobbied against changes
• New rules force major changes on e-giants' business models
• Government keen to please small traders as election nears

NEW DELHI/MUMBAI: E-commerce rules that went into effect in India on Friday caused widespread disruption for Amazon.com, forcing it to take down an array of items from its India website including Echo speakers, batteries and floor cleaners.

Two sources with direct knowledge of the matter said the products began to disappear from the Amazon India website late on Thursday as it began complying with the revised norms before a midnight deadline.

"The company has no choice, they are fulfilling a compliance requirement ... customers will suffer," said one of the sources.

In December, India modified foreign direct investment (FDI) rules for its burgeoning e-commerce sector, which has drawn major bets from not only Amazon.com but also the likes of Walmart Inc, which last year bought a majority stake in homegrown e-commerce player Flipkart.

India's new e-commerce investment rules bar online retailers from selling products via vendors in which they have an equity interest, and also from making deals with sellers to sell exclusively on their platforms.

By Thursday, numerous items sold by vendors such as Cloudtail, in which Amazon holds an indirect equity stake, were no longer available on the Amazon India site.

Clothing from Indian department store chain Shopper's Stop was also no longer available, as Amazon owns 5 percent of the company.

Amazon's own range of Echo speakers, its Presto-branded home cleaning goods and other Amazon Basics products such as chargers and batteries had also vanished from the website.

Both Amazon and Walmart had lobbied against the latest rules and pushed for a delay in their implementation, but India late on Thursday said the deadline stood.

The situation in India is "a bit fluid right now," but the country remains a good long-term opportunity, Amazon Chief Financial Officer Brian Olsavsky said on a conference call with reporters following its fourth-quarter earnings announcement.

The company's main goal is to minimize the impact of the new e-commerce rules on customers and sellers, he added.

Amazon, which saw record sales and profit during the holiday season, has forecast first-quarter sales below Wall Street estimates due to the uncertainty in India - one of its key growth markets.

Flipkart CEO Kalyan Krishnamurthy warned last month that it faces "significant customer disruption" if the implementation of the new rules were not delayed.

On Friday, Flipkart said it was disappointed the government had decided to implement the regulations in haste, adding, however, that it would do everything to be compliant.

"We believe that policy should be created in a consultative, market-driven manner and we will continue to work with the government to promote fair, pro-growth policies," Rajneesh Kumar, senior vice president & chief of corporate affairs, said in a statement.

GROWTH DRIVER

The US government has also urged India to protect the investments of the two American retailers, Reuters reported last week.

Both companies have bet heavily on India being a big growth driver: Amazon has committed to investing $5.5 billion there, while Walmart last year spent $16 billion on Flipkart.

But Indian Prime Minister Narendra Modi's administration is seen as keen to appease small traders in the run-up to a general election due by May.

Many small traders say the e-commerce giants use their buying power and control over inventory from affiliated vendors to create an unfair marketplace where they can offer deep discounts on some products.

Such arrangements will be barred under the new policy.

Industry sources have said the new rules will force the big e-sellers to change their business structures, and will raise compliance costs.

Amazon India told Reuters it was "committed to remaining compliant to all the laws of the land", adding that all sellers make their own independent decisions of what to list and when.

Exclusive deals with sellers will be discontinued, the two sources said.

It is unclear how long the disruption will last. Would-be buyers of Echo speakers on Amazon India saw a message reading: "We don't know when or if this item will be back in stock."

The impact of the changes on Flipkart was not clear.