The government should set up a regulatory authority to monitor and regulate e-commerce businesses in the country, and it should be empowered with due rights to penalise these companies in case they violate India’s laws, the traders’ body Confederation of All India Traders (CAIT) said. In a letter to Prime Minister Narendra Modi, the trade union also called for the government to issue a fresh Press Note, “blocking” e-commerce companies from violating India’s FDI rules. Press Notes are filed by the Commerce Ministry’s Department for Promotion of Industry and Internal Trade to regulate Foreign Direct Investment rules.
“The e-commerce landscape of the Country has been greatly vitiated by some of the major e-commerce companies who are continuously and openly violating the FDI policy, law and Rules without any fear of law by indulging into predatory pricing, deep discounting, loss funding, controlling inventory, sale of branded products exclusively on their respective portals,” CAIT said in the letter.
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.
CAIT’s letter comes after a damning Reuters report, which showed that a handful of sellers, such as Cloudtail and Appario, accounted for more than 60% of Amazon’s sales in India. The report revealed how Amazon used legal manoeuvres to sidestep Indian regulations aimed at curbing deep discounting and limiting FDI. Following the report, CAIT had written to Commerce Minister Piyush Goyal, calling for an investigation into Narayana Murthy, whose Catamaran Ventures owns a majority stake in Cloudtail.
Goyal had, earlier in February, said that e-commerce companies like Amazon and Flipkart are currently “under investigation” following complaints from consumers and small retailers. 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 had said.
CAIT on the offensive against Amazon, Flipkart
The CAIT is among the most vocal critics of e-commerce companies, especially Amazon and Flipkart. At least since 2016, CAIT has opposed e-commerce entities for alleged FDI violations. Following its repeated complaints against the two, the Department for Promotion of Industry and Internal Trade (DPIIT), in January, had forwarded their complaints to the Enforcement Directorate and the Reserve Bank of India for “necessary action”. In particular, the DPIIT had 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.
In 2016, it complained to the erstwhile Department of Industrial Policy and Promotion about alleged FDI violations by Flipkart. Since then, it has opposed Walmart’s acquisition of Flipkart, Amazon’s takeover of Aditya Birla Retail’s More supermarket chain, and generally demanded stricter e-commerce regulations, including the need for a dedicated e-commerce policy and regulator. It had even initiated legal action at the National Company Law Appellate Tribunal in an attempt to block the Walmart–Flipkart deal. Last year, Praveen Khandelwal, CAIT’s general-secretary and its most visible face, had accused e-commerce companies of stalling policies regulating them and complained that the most popular sellers on e-commerce marketplace were offshoots of the marketplaces themselves.