Indian Govt hold Amazon, Flipkart accountable for violating e-commerce FDI rules

Apart from trader lobby groups such as CAIT and Swadeshi Jagran Manch, several sellers and re-sellers had complained about the practices adopted by E-Commerce giants  like Amazon, Flipkart. The government has finally defended its decision to rework the rules for marketplace model, accusing the country’s top e-traders of operating “hybrid” marketplaces, which were anchored by inventory-based operations through a network of controlled sellers.

This is the first time since the new rules were announced on December 26, and there is clarity on how the e-traders, who were lobbying at all levels in the government, were “circumventing” the previous rules. Earlier, the government had said it was acting on complaints submitted by several stakeholders.

“Flipkart and Amazon were influencing prices of goods on their platforms through various means, including direct price discounts, covering marketing expenses like marketing campaigns, EMI, exchange offers and extending concessional logistics services like packaging, courier, returns  wallet cash backs,” a source told in a report. “Both Flipkart and Amazon involved various intermediaries and group entities in the chain to divide these discounts and spread losses, which impact the domestic retail sector.”

For instance, Amazon Wholesale India would buy branded goods in bulk from manufacturers and allegedly sell to sellers such as Cloudtail, Rocket Kommerce and Green Mobiles at a discount, with the losses booked on its books. Amazon Seller Services is accused of paying for marketing, zero-cost EMIs and some of the other expenses. It would also handle the logistics-related activities with a built-in discount. Amazon Pay was also offering cash back, which was seen as a discount.

Similarly, Flipkart India allegedly bought goods in bulk, sold it to sellers linked to it such as RetailNet, SuperComNet and OmniTech Retail, Truenet Commerce and India Flash Mart at a discount. Then, Ekart Logistics undertook packaging and shipments, with PhonePe offering cashbacks.

While sources said the operations violated Press Note 3 of 2016, Amazon and Flipkart denied any irregularities. “These comments are completely baseless and untrue. We have received no such communication from the government. We have always been and continue to be compliant with all local laws and regulations,” an Amazon India spokesperson said.

The Flipkart Group spokesperson refused to comment. “The impact on Flipkart seems to be less in the short term but there will be long-term ramifications on its business model due to the tweaks in the policy,” said a company executive.

Several sellers, apart from trader lobby groups such as CAIT and Swadeshi Jagran Manch, had complained about the practices adopted by e-traders, which prompted the government to step in, sources said.