In continuation of the consultations that the Indian Commerce minister Piyush Goyal has been having with different stakeholders on the ecommerce business, he held one more meeting this Monday where representatives from Amazon and Flipkart were also preset among others. It is learnt that the minister made it very clear that the companies need to stick to the FDI rules as clarified in a note in late December 2018 and being brought into effect from February 1 this year.
The key area of concern for the government as much it is for the online platforms is the deep discounting practice whereby products, particularly electronic products like mobile phones are sold at much lower prices than they are available in the market. While the government is trying to protect the small retailers in the country who believe they are being driven out of business due to this practice, Amazon and Flipkart worry because this is the main reason they have been able to build such a customer base in the country.
With the minister himself issuing a direct warning, it is to be seen how it pans out over the next few weeks /months. It is learnt that the companies claimed they were in complete compliance as far as the FDI norms were concerned and that they are not violating any. However, during the meeting, specific instances of such deep discounting practices were discussed and the company’s executives confronted.
The fact is that the ministry is being fed details by the trade body which has organised itself into a strong force and has made representations to the CCI (Competition Commission of India) and even filed cases in the courts. The December note issued by the government was in same way related to these complaints only.
In the model being followed then, the e-commerce giants like Amazon and Flipkart would pick up large volumes of say mobile phones directly from the manufacturers at heavily discounted prices and sell them on their B2B platform in India. These will be purchased by the sellers on their retail online platforms and sold at even higher discounts. The losses incurred by these sellers will be made good by Amazon and Flipkart respectively. Before February 1, the e-commerce giants had stakes in the seller companies and therefore were in violation of the FDI rules which prohibits these companies from holding inventories or selling on the retail platforms.
The companies went back to the drawing board and reworked this arrangement so that they were in compliance. If the proceedings of the Monday meeting are anything to go by, it appears that they have found some other new way to beat the system.
In all this, there is the US-India trade relationship angle as well, especially with the US Secretary of State in town and the US expressing its concerns on the changes in the government’s policies affecting the US companies Amazon and Walmart, which now owns Flipkart.