A group of seller associations in India, including the All India Online Vendors Association (AIOVA), All India Mobile Retailers Association (AIMRA), Federation of All India Distributors Associations (FAIDA), organised a discussion on Thursday about the dominance and of e-commerce giants in India, and their impact on retailers and traders. Scheduled before Amazon’s four-day event for small and medium businesses, the event — Smbhav, which translates to “possible” — saw over a dozen retail representatives. Their event was titled Asmbhav, which translates into “impossible”. Over a dozen retailer representatives spoke out against unfair practices by e-commerce giants, though most of it was directed towards Amazon.
Our observations and highlights from the day (quotes are paraphrased, not verbatim, and translated from Hindi in some places):
- Number of organisations represented: 9, including Abir Roy, who serves as the lawyer for the Confederation of All India Traders (CAIT)
- They included the Swadeshi Jagran Manch and AIOVA, but also FAIDA, All India Mobile Retailers’ Association (AIMRA)
- Number of speakers: 14 people, of which 9 were retailers’ & trade representatives, and 4 lawyers
- Number of mentions:
- CCI: At least 8 times
- Enforcement Directorate: Twice
- Cloudtail and Apprario: 6 times
1. Ashwani Mahajan feels India’s regulators and agencies have not enforced e-commerce regulations: The government has enough regulations in place, but they are inadequately enforced, Ashwani Mahajan, national co-convenor of the Swadeshi Jagran Manch, felt. He blamed enforcement agencies and regulators for failing to rein in e-commerce companies in their violations of India’s foreign investment and other regulations. Sample Mahajan’s statements:
- In April 2018, months before the Flipkart-Walmart deal, there was an income tax case in which the officers asked them about their taxation. The companies said they don’t earn profits because they sell products at discounts using funding. We had then complained about this to DPIIT. Based on this, the Indian government wrote to RBI, CCI, the IT Department, and the Enforcement Directorate, asking them to look into the matter. The law is specific and laid down, but the institutions and departments have failed our traders and systems. We are still awaiting the result of their investigation/proceedings.
- The issue is not online sale or e-commerce, which is a new technology. There are millions of startups running on technology. But in the name of technology, by way of their financial prowess, by burning money, and increasing valuation, these companies have come up with a new business model. This is what Flipkart has also done, they have invested a little money and become a 20 million dollar company (“thora sa paisa laga ke $20 million ki company bana diya”). It’s a game of valuation. The issue is with the ability of the institutions to implement the Indian government’s rules. The RBI has told me in a letter, saying how they have not taken yet action because they are awaiting movement from the ED. The regulatory system needs to be strengthened. E-commerce companies can be brought under control, but these institutions need to work properly.
- Smaller sellers can be saved if the government gets its rules implemented. Amazon has challenged India’s law and the Prime Minister outright. The question is not about the laws, but the question of what the agencies responsible for implementation are doing. The ED and CCI are both carrying out investigations and proceedings, I request RBI to look into violations of FEMA by the e-commerce companies.
Mahajan did not blame government regulations, but did underline that it needs to act. It will be a political decision, he said.
The FDI regulations, in Press Notes of 2016 and 2018 as well as the e-commerce policies, indicate that the government is considering it seriously. It was felt then as if some practices are about to stop, but e-commerce companies’ owners are very clever and smart. They operate by circumventing laws and regulations. During the Flipkart-Walmart deal, both companies individually sent them caveat through big name lawyers. Using financial power, they are able to influence traders and even the country’s apex officers. This raises the question: who do we trust? The government will have to decide quickly to decide on how to save the small traders. This will be a political decision. Commerce & Industry Minister Piyush Goyal is making public statements, and these need to be implemented by several bodies.
Others also complained about inadequate enforcement.
- Enforcement is needed: There are big monopolies in e-commerce, traditional trade is going towards being finished. Amazon’s claims to increase manufacturing and sales is false, since they go to only preferred sellers. When products are being sold at a discount, the government is not able to collect tax also. Enforcement is needed; their practices need to be stopped. — Devendra Agarwal, FMCG Distributor and Traders Association.
- AIOVA filed a case [against Amazon] in May 2018. In July 2018, the CCI asked both platforms details about their top five sellers in terms of revenue and sales. Litigation began in 2018, Karnataka HC has stayed the CCI order in the Delhi Vyapar Manch case. It has been half a decade but there is no investigation, there is only an attempt of an investigation. There has to be an investigation, assuming that it can be dealt with under competition law. Looking at the timelines, it appears that it will take 5 more years to reach a solution. Even after these issues in play for half a decade, the latest (third draft) of the e-commerce policy is silent on the dispute resolution clause and there are no penalties. So where is the deterrent? There is no enforcement. — Chanakya Basa, Knock Legal, Hyderabad
2. India’s competition laws will be refreshed, Mahajan said. He didn’t pull any punches on the CCI.
The CCI was not trained for e-commerce; there was no e-commerce when it was formed in 2002. They did not even understand that kaali-peeli taxis and Uber were competitors, only eventually they understood that they both work in transport. They have slowly started to understand the similarity between e-commerce and physical retail. The CCI’s law needs to change, and discussions have begun and it will be changed.
He is really pissed with CCI:
Stock brokers cannot be part of SEBI, which monitors the financial markets. Can policymakers set up a body to monitor e-commerce practices and companies? There are existing regulators, but the CCI is an old fashioned organisation even though it was created in this century, in 2002. Things have changed so fast that they don’t even understand what e-commerce is. They did not even understand that there is competition between kaali-peeli taxis and Uber-Ola. An e-commerce policy won’t solve anything (“e-commerce policy aane se nahi hone wala”); along with that, we need a strong powerful regulator. Existing regulators also need to increase and use their power; the biggest people have gotten away from ED so Amazon is not a challenge from them (“toh Amazon kya cheez hai?”). The RBI has told me that the ED has not made progress on its own charges. There has been a violation and offences of FEMA, there are other offences.
3. Access to and concentration of data is an issue:
- Concentration of data, power must be stopped, Mahajan feels. “Power will get more centralised if we permit it right now. When power gets concentrated, whether its data or market power, it’s wrong. It happens when powers to stop competition are either non-existent or are not exercised. Our bodies and regulators need to work in the proper way. During Suresh Prabhu’s time, the e-commerce policy said that data should not be concentrated and also spoke about democratisation of data. All ministries, IT, Commerce, Consumer Department, will have to form a view about data and talk about its democratisation and storage, and discuss how everyone should have access to it. How will small e-commerce players survive if they do not have access to data, data is not localised, and everyone does not have access to it. Concentration of data, economic power, and of markets needs to be stopped.” — Mahajan
- Exclusionary conduct and data: “Abuse of dominance of excluding rivals and even potential rivals. Amazon will enter exclusive deals with vendors and sign deals containing MFN, give access to data, and by acquiring potential competitors in order to exclude existing and potential rivals. The features of all these platforms are the same and they become digital gatekeepers and not just marketplaces. They are exploiting their gatekeeper positions. Lastly, they also hook the customer, extract their personal data, and then use the data to attract bidders, and finally do data harvesting. The Social Dilemma reflects how these giants are behaving.” — MM Sharma, Head of competition law & policy, Vaish Associates
4. Regulatory intervention is the need of the hour:
- Only CCI can give a wider solution: The CCI now thinks there is an issue. Only a penalty won’t do anything; these companies are behemoths. Only the CCI can give a holistic remedy since they are an expert body. Under SEBI, there is no relation between the stock exchange and brokers. We can look at SEBI and come up with parameters for regulation. We are not against e-commerce, we are against distortion of the market. Players need to adhere to the law of the land. It will take five more years but the process has started. Interim protection is very necessary, which the CCI should give. — Abir Roy
- Have to move CCI for their dominance: We should not focus too much on FDI, because technically, these people do not violate the norms. The main issue is dominance, we have to move CCI for this. We need policies that if you are a giant in terms of revenue, then you cannot be into selling at all. — Pranav Sachdeva, AoR, Supreme Court
5. Marketplaces preferring their own sellers is a persistent issue:
Here’s what Abir Roy, from Sarvada Legal, who represents CAIT said.
- Mobile phone sale and preferred sales: Amazon asks mobile manufacturers to strike deals with preferred sellers such as Cloudtail and Appario, in which it already has a stake. Products are then sold at discounted rates. We are dealing it with such issues, including FDI and under competition law on behalf of CAIT.
- The shopping mall analogy: FDI in e-commerce regulations required the platform to remain neutral. For instance, a shopping mall cannot decide what the prices of the goods being sold inside the mall will be, or what products will be displayed prominently. But on Amazon, the first search results are products from Appario, Cloudtail, private labels, and Echo, Alexa. They are marketed and promoted by Amazon and are being sold by Amazon’s own preferential sellers such as Cloudtail… Just imagine. There is absolutely no level playing field between their preferred sellers and other sellers in the market.
- Self-preferencing becomes automatic for big players: The platforms were supposed to be shopping malls, but they have become digital resellers and retailers, and hence they have become competition. They are no match for sellers since they are a Silicon Valley giant. Self-preferencing is automatic. Network effects are an inherent phenomenon in such businesses, both direct and indirect. Amazon and Flipkat have direct network effects and economies of scale. The competition then becomes for the market, not in the market. Personal data becomes a very critical input, whoever has more data will become more strong. They use advanced analytics and algorithms. Information Asymmetry is too much, since deals with sellers are confidential and NDAs are signed. The moment you become strong, you start preferencing their own sellers such as Cloudtail for Amazon.
And what Chanakya Basa, who has represented AIOVA in the past, said:
- Everyone knows the platform’s exploits whether the executive or legislative bodies; Amazon sells its own brands like Solimo. They are selling this so brazenly is because of absence of enforcement. Both platforms are being investigated by ED for FEMA violations. – Chanakya Basa
6. Pranav Sachdeva says competition and fairness, not FDI, is the key issue.
- Competition is the main issue…. Government will formulate policies at consumer interest. The move to e-commerce is inevitable, and physical retailers will also open their own ecommerce stores. The issue is fairness and competition. Lot of arbitrary restrictions are being imposed [on retailers] due to COVID-19, which is taking away choice from the seller to open his shop. Consumers will approach e-commerce stores over physical stores. Permits and licenses are needed for a store to run, restrictions that e-commerce companies do not have to face. But the problem is coming because there are very very few e-commerce stores, and that is because millions of dollars are coming into a select few companies and oligarchies are being formed, but the main requirement of competition law is that oligarchies should not be abusive.
- …Because Indian corporates have also entered retail. The issue of FDI will become meaningless in the coming times because the money will come in, whether it is Indian or otherwise. Fairness will become the main issue. The distinction between the seller and the marketplace has become blurred. The need is to restrict the practice of the marketplace being both the seller and the marketplace.
7. E-commerce companies are smart and circumvent rules, are “technically compliant”:
- Issue is dominance not FDI: Our PIL in Delhi HC in 2018, stating that the big e-commerce companies have their own sellers, in which they have 49% stake. The ED had then said that they are investigating. While the PIL was pending, the government then changed the norms to say they cannot have more than 25% stake in any sellers. They will technically comply with that but in the spirit of things, a few sellers are dominant. We should not focus too much on FDI, because technically, these people do not violate the norms. The main issue is dominance, we have to move CCI for this. We need policies that if you are a giant in terms of revenue, then you cannot be into selling at all. — Pranav Sachdeva
- E-commerce companies will always be ‘technically compliant’: Amazon’s losses have increased hugely; same with Flipkart. They are distorting the market, can we permit them to make huge revenues while making losses, and without paying taxes? This is why restrictions are needed; they should not be permitted to sell; 25% is not enough. We need more restrictions. Even if you lift the corporate veil, they will be technically compliant. The companies will say that they have only a 49% stake, so they are not controllers of the preferred sellers. The government has to step in now, the CCI is taking its jolly well time. This is completely destroying livelihoods; 10 people are working retail markets, and there is a trickle down economy. — Pranav Sachdeva
8. AIOVA is really upset with the government.
- An AIOVA spokesperson: Our experience in the last 5-6 years were difficulties around payments etc. We used to approach the companies and ask them for help, saying that AIOVA could see growth in e-commerce. But we realised that the companies did not want to talk or officially engage or help solve our problems. They never acknowledged when we raised issues. Then we started approaching the government, which has been discussing issues since 2015, but they have not included any sellers in them. When sellers would be hurt due to companies going bankrupt, the government used to ask us why we should listen to the sellers? After all, e-commerce is the future although it accounted for only 0.5% of the retail. We don’t know where this figure came from. The companies themselves now claim that they are 7% of the market, which is a significant jump. China is seeing tremendous growth in e-commerce, but our government wants to run e-commerce in the country only through these two-three companies. They have no interest in anyone else, they don’t want to listen, solve their problems, or encourage them.
Expressing a similar sentiment, Shriram Baxi of FAIDA, said:
We had a meeting with DPIIT for the e-commerce policy. The government is inclined towards increasing e-commerce and supporting and enhancing the big players. The government’s vision and agenda will make a huge difference to the Indian lower and middle class, who provide employment to a large number of people. The government should look at the revenue part, because it is least bothered whether the price for the customer is low or high. E-commerce players with some money power will invest money for 2-3 years; they want to kill all competition, whether it is small, big, standalone, or local chains.
9. 40,000 mobile stores have shut due to e-commerce dominance:
Arvinder Khurana, National President, All India Mobile Retailers Association, says:
- India is a low margin retail density country, and the mobile industry operates on very thin margins. E-commerce are flouting FDI rules at every level, 40,000 shops have closed in the past two years and thousands are on the verge of closing. Our industry is going through the worst times. The topline of e-commerce companies comes from mobile phone sales. In the mobile phone category, e-commerce companies have a market share of 55%, the highest in the world. At a mobile phone store, at some point, 17-18 boys would be employed selling 10-12 brands. Business of mobile phone retailers are down by 60%. We have no platform to department or tribunal complain about violations of FDI policies. We are not against e-commerce, but we are suffering because of the malpractices of e-commerce companies.
- New phones are not allowed to come to physical retailers because manufacturers tie-up with e-commerce players’ preferred sellers. New phones do not reach retailers and if they do reach the retailer, they are not allowed to sell them online. If we try to sell older models, the platforms ask for high commissions, unreasonable return & refund policies, etc – the retailers cannot survive in such a market. There are an estimated 3 lakhs stores, 1.5 lakh of them sell smartphones are the others carry out recharges. They are selling 9 crore phones a year. A body to monitor implementation is needed. Even if a policy comes but is not implemented without a monitoring committee or empowered group, then our conditions are not going to improve.