In what could potentially result in a major investigation by Indian authorities, a report today claimed that Amazon had systematically misrepresented facts, twisted statements and tried tricks to avoid scrutiny under India’s foreign direct investment rules for ecommerce marketplaces.
As per a Reuters report, the US tech giant gave preferential treatment to a select group of sellers with discounted commissions, and used them to bypass India’s FDI restrictions, which were put in place in 2018 through the so-called Press Note 2.
The report claims, “Some 33 Amazon sellers accounted for about a third of the value of all goods sold on the company’s website in early 2019.”
It goes on to say that two sellers in which Amazon had indirect stakes made up around 35% of the platform’s revenue through sales in the same period. In effect, just 35 sellers on Amazon accounted for roughly two-thirds of all sales, the news agency claimed. To put this in perspective, Amazon claimed over 1.5 Lakh new sellers joined its platform in 2020 alone, with 70,000 Indian sellers exporting products.
While India’s FDI rules bar ecommerce marketplaces with foreign investors from holding inventory, Amazon has seemingly skirted these rules with “significant control over the inventory of some of the biggest sellers on Amazon.in,” as per the report. In particular, it points out the Amazon leverages its relationship with companies such as Apple to give preferential treatment for Cloudtail, a seller in which Amazon India has an indirect stake.
In addition, Amazon is said to have discussed the specifics of what to discuss with the Indian government and what topics were considered taboo. It also spoke about Indian Prime Minister Narendra Modi. “PM Modi is not an intellectual or an academic but believes that strong administration and governance is the key to running a successful government,” the company was quoted as saying by Reuters.
In response, Amazon told the publication that it has always complied with Indian law. “As government policies have continued to evolve, we have consistently made the necessary changes to ensure compliance at all times.”
The company also said that it does not give preferential treatment to any sellers, despite the statements in the internal document indicating the dominance of a handful of sellers on the company’s India business.
Lobbying groups in the US as well as the country’s Congressional Research Services report from January 2021 have raised concerns about India’s upcoming foreign direct investment (FDI) rule changes for the ecommerce sector, which is expected to severely impact Amazon India as well as Walmart-owned Flipkart’s marketplace business.
Last month, ministry of commerce and industry spokesperson Yogesh Baweja confirmed that the Indian government is looking to revise the FDI policy once again, which was last revisited in 2018. Under pressure from sellers as well as bodies such as Confederation Of All-India Traders (CAIT) to investigate the marketplaces, the government is looking to introduce these new rules once again targetting the seller companies instituted by ecommerce companies.
The new laws might force Amazon India and Walmart-owned Flipkart to move away from the restructured holding patterns that had been instituted after the 2018 changes. Among a slew of changes, the government might not let ecommerce marketplaces sell products to sellers who then resell them on the very same platform.