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E-commerce companies under investigation following complaints: Piyush Goyal

E-commerce companies like Amazon and Flipkart are “under investigation” following complaints from consumers and small retailers, Commerce Minister Piyush Goyal said on Tuesday during a press briefing. The government has sought “several informations” from the companies, which are currently being looked into, he added.

“We are also considering certain clarifications to ensure that the e-commerce sector works in the true spirit of the law, of the rules that have been laid down for e-commerce,” Goyal said.

He said that e-commerce companies are only “service providers”, and they should only enable trade between a buyer and seller, and not promote their own products or use algorithms to give preferential treatment to certain sellers. He added:

“To reiterate, e-commerce is supposed to provide and agnostic platform so that buyers and sellers can trade with each other. The platform should not become a part of the trading transactions, should neither be funding it, should neither be having algorithms which give preference to one or the other, should neither be promoting their own products, by providing all data that is required for a rational choice, and the choice should be free choice of the consumer.” — Piyush Goyal, Union Commerce Minister

In case e-commerce companies do not follow the “spirit of the law”, they will “have to respond to our concerns and correct their business practices at the earliest,” Goyal said.

Goyal’s remarks come as retail traders in the country are pushing back against Amazon and Flipkart. The Confederation of All India Traders, a group of brick and mortar retailers, and one of the most vocal critics of e-commerce companies has consistently blamed Amazon and Flipkart of violation India’s FDI in e-commerce rules.

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India’s FDI policy for e-commerce, the latest version of which is Press Note 2 (2018), allows 100% FDI in B2B e-commerce, i.e. the marketplace model. However, e-commerce companies operating marketplaces have to meet certain conditions. Among other things, they cannot exercise ownership over any inventory sold on their marketplace, or influence the sale of goods directly or indirectly.

In fact, after concerns were raised by the CAIT, the Department for Promotion of Industry and Internal Trade (DPIIT), in January, forwarded their complaints against Amazon and Flipkart to the Enforcement Directorate and the Reserve Bank of India for “necessary action”. In particular, the DPIIT has forwarded the following complaints made by the CAIT:

  • Aditya Birla Fashion Retail’s sale of a 7.8% stake to the Flipkart Group for 1,500 crore, which CAIT had earlier urged the government to stall, citing violations of India’s FDI regulations.
  • Alleged violation of FDI Policy related to Foreign Direct Investment (FDI) in manufacturing, which CAIT had claimed was being used for multi brand retailing by various e-commerce companies
  • Complaints against Amazon and Flipkart for allegedly violating the Foreign Exchange Management Act, 1999.

Goyal’s full remarks on e-commerce

There is no change in the e-commerce policy per say. E-commerce policy is very robust, well designed, and operating in India in several sectors.

However, there are certain complaints from consumers and from small retailers about certain practises of the e-commerce companies which are under investigation. We have sought for several information, they are being looked into.

We are also considering certain clarifications to ensure that the e-comerce sector works in the true spirit of the law, of the rules that have been laid down for e-commerce.

To reiterate, e-commerce is supposed to provide and agnostic platform so that buyers and sellers can trade with each other. The platform should not become a part of the trading transactions, should neither be funding it, should neither be having algorithms which give preference to one or the other, should neither be promoting their own products, by providing all data that is required for a rational choice, and the choice should be free choice of the consumer.

We believe the buyers and sellers should be given an opportunity to trade with each other, the platform only is a service provider. Those who break that law will certainly have to respond to our concerns and correct their business practices at the earliest.

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