Amazon, Flipkart operating 'hybrid marketplace' to skirt FDI rules, says govt
06 February 2019
The government has made it clear that foreign direct investment regulations for retail and e-commerce businesses are specific and investors cannot mix the two to skirt investment norms.
According to the government, e-commerce companies were operating at three levels to offer deep discounts and were booking losses in their books.
The government has also laid bare the nature of irregularities the two major ecommerce companies Amazon and Flipkart are involved in, while flouting the FDI rules. The government also said its decision to review FDI policy for retailers has its roots in the flouting of rules by the two companies to secure a larger share of the market.
The government in an explanatory release also made it clear that it stood firm in its decision to stick to the deadline set by it for the online firms to adhere to the guidelines.
Laying bare the exact process being followed by both the ecommerce giants, the government says they were operating hybrid marketplaces. The two companies are operating at three levels to offer deep discounts and were booking the losses in their books.
In the first stage, Amazon and Flipkart would buy the products, whether smartphones or other products directly from the manufacturers in bulk and avail discounts. These products would then be sold on their B2B platforms to entities in which they had stakes at prices lower than they had bought them, thereby booking the losses on their own books.
These sellers would then offer these products on the respective ecommerce retail platforms. When the customer makes the purchase, there are delivery charge waivers etc. This is the second level where losses are absorbed, to sell the products cheaper.
In the third stage, there are cashback offers and other interest free monthly payment schemes to make the deals absolutely attractive. These payment firms are also run by Amazon (Amazon Pay) and Flipkart (PhonePe).
The prominent sellers on Amazon that are linked to the US company are Cloudtail, Rocket Kommerce and Green Mobiles. On Flipkart, the sellers RetailNet, SuperComNet and OmniTech Retail, Truenet Commerce and India Flash Mart enjoy these advantages. Flipkart has an in-house courier service too, Ekart Logistics.
These are all direct violations of the FDI rules and all these directly impact the regular offline retailers in the country in the respective segments since they don’t enjoy any of these advantages, it said, adding that it was for is the reason that the government decided to put a full stop to these practices.
The two companies however totally deny that they are in violation of any law. They also deny that they have been served any such communication from the government. Flipkart seemed to admit that the changes now made may have long-term impact on their business.