Won’t Allow Deep Discounts To Affect Small Retailers: Govt Warns Amazon, Flipkart

In a strict warning to global ecommerce marketplaces — Amazon and Walmart-owned Flipkart — the Indian government has reportedly communicated its commitment to protecting small traders from  predatory behavior by foreign-funded companies.

The warning was issued in a closed door meeting between Minister of Commerce and Industry, Piyush Goyal, and ecommerce marketplaces. A Reuters report cited sources at the meeting saying that the ecommerce companies such as Amazon and Flipkart have been told to ensure compliance with new foreign direct investment (FDI) rules.

The new FDI rules which came into effect from February, 2019 prohibit large online marketplaces to exercise ownership or control over the inventory of their sellers. Cash back provided by group companies of marketplace entity to buyers shall be fair. Ecommerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only.

Beyond exclusivity, the notification also prohibited marketplaces from making more than 25% of purchases of a vendor. As a result, Amazon and Flipkart suffered major disruption for a few weeks as they looked for loopholes.

• Flipkart was reportedly building a layer of B2B entities code-named Alpha Sellers, who will act as intermediaries between its wholesale arm, Flipkart India and its prominent online sellers in order to comply with the norms.
• Amazon lowered its commission charges by 35% for famous fashion sellers and by over 50% on specific FMCG categories in order to attract independent sellers and establish itself as a friendly marketplace.

Minister Goyal has now emphasised that these rules should in no way be violated by any company, both in letter and in spirit. The government will not allow ecommerce firms’ discounting practices to affect small shopkeepers, he said.

However, the government was prepared to listen to concerns about the new FDI rules.

The companies have however said that they’ve complied with the rules and have not done any wrongdoing. Flipkart CEO Kalyan Krishnamurthy in a statement reportedly said that they looked forward to working with the government and Goyal had engaged “in a candid, positive and progressive” discussion.

Amazon reportedly said it welcomed the “open and candid discussions & the promise of continuing engagement” with the government, adding it was committed to supporting various Indian government initiatives.

They also explained to the government their pricing strategy saying they provide logistics support along with other services to their small sellers.

The Ministry of Commerce and Industry has said that it had formed a committee to hear grievances on issues related to FDI in ecommerce. These meetings are part of Goyal taking account of  foreign and Indian ecommerce firms and technology companies with an aim to iron out policy issues.

These developments come at a crucial time as India and the US are engaged in a trade war. Ahead of the scheduled meeting of Prime Minister Narendra Modi with President Donald Trump at G20 Summit, Trump has said that he looks forward to talk to PM Modi about India increasing the tariffs on US goods.

Prior to this, US agencies as well as Amazon and Walmart have raised their concerns on India’s ecommerce and FDI policy. Walmart CEO Doug McMillon expressed his disappointment over the revised FDI guidelines during an investor call adding that he had hoped for a “more collaborative regulatory process” going forward.

Also, the US-India Strategic Partnership Forum (USISPF) had said that new ecommerce rules are regressive and could potentially harm the consumers.