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All you need to know about how Amazon and Flipkart are abusing the market rules and how Govt is plugging loopholes

India’s antitrust chief Ashok Kumar Gupta told Reuters on Tuesday that big e-commerce companies in India should not offer deep discounts which can potentially hurt and small-scale brick and mortar retailers in India.

Jeff Bezos, the founder of Amazon Inc and the owner of Washington Post visited India for a tour even as several small traders are planning to stage protests against the retail giant for distorting the local market. India’s antitrust chief Ashok Kumar Gupta told Reuters on Tuesday that big e-commerce companies in India should not offer deep discounts which can potentially hurt and small-scale brick and mortar retailers in India.

Amidst the ruckus, Union Minister Piyush Goyal had decided not to meet the WaPo owner Jeff Bezos during his three-day India visit. Following that, Prime Minister Modi too did not meet Jeff Bezos personally. Under such circumstances, the government has issued a detailed clarification of its views over the matter.

What are the main issues with Amazon and Flipkart operations in India?

As pointed out in the recent Competition Commission of India (CCI) order of Jan 13, 2020, the four main concerns regarding Amazon and Flipkart operations in India are deep discounting, preferred sellers on the marketplaces, preferential listing/promotion of private labels and exclusive launch of mobile phones.

Let us take these issues one by one. How do Amazon and Flipkart engage in deep discounting and how is it anti-competitive?

Both Flipkart and Amazon continue to make losses. Flipkart India Pvt Ltd had a turnover of Rs. 30,931 Cr and loss of Rs 3,835 Cr in the fiscal year ended 2019. This shows Flipkart is burning cash through deep discounts. It is subsidizing prices for their multiple seller entities. At Amazon, seller services losses are to the tune of 5,685 Cr. It is observed that there is deep discounting and it is used for subsidizing vendors.

Also, as mentioned in the CCI order, communications sent by Flipkart and Amazon to their sellers reveal that they are incurring a part of the discounts offered during the big sale events like the Big Billion Days (BBD) of Flipkart and the Great Indian Festival of Amazon. Certain smartphone brands/models are available at significantly discounted prices on these platforms and are sold largely through the sellers identified, as the platforms’ ‘preferred sellers’. This hurts competition in a negative way as retailers in phone business are not able to compete with the heavy discounts offered by these marketplaces due to their access to global funds.

What does ‘Preferred sellers on the marketplace’ mean and how does it hurt competition?

Both Amazon and Flipkart have their own set of preferred sellers and these preferred sellers have nexus with the e-commerce platforms either by way of direct or indirect ownership or some understanding. It can be seen that there appears to be an exclusive partnership between smartphone manufacturers and e-commerce platforms for the exclusive launch of smartphone brands. This means that certain sellers are given benefits which may restrict actual competition on the platform. This hurts competition as it does not allow other sellers to be listed similarly.

Is there a Preferential listing/promotion of private labels on Flipkart and Amazon?

Flipkart lends the word “Assured Seller” to the products sold by its preferred sellers such as Vision Star, Flashstar Commerce and Flashtech Retail and allegedly creates a bias in favour of preferred sellers to the detriment of other sellers. Amazon lends the word “Fulfilled” to the products sold by preferred sellers and further allegedly creates search bias by listing its preferred sellers in the first few pages of the search results. The products sold by Cloudtail India and Appario Retail allegedly dominate the first few pages of search results. This clearly indicates that there is a Preferential listing/promotion of private labels on Flipkart and Amazon.

What does the Exclusive launch of mobile phones mean and how does it impact Indian businesses?

Mobile manufacturing companies like One Plus, OPPO, and Samsung have exclusively launched several of their models on Amazon. Similarly, Vivo, Realme, Xiaomi etc., have exclusively launched several of their models on Flipkart. In 2018, Flipkart launched 67 mobile phones and Amazon launched 45 mobile phones exclusively on its platform. This has the potential to negatively impact small retail shops selling mobile phones.

How is the Government Plugging the loopholes and are the practices in violation of Indian Law?

These seem to be prima facie a matter of violation of competition law and therefore the Director-General of Competition Commission of India has ordered an investigation into the same in its order of Jan 13, 2020. Also, the Ministry of Commerce and Industry is looking at the FDI aspect of the matter.

The FDI Policy is clear on the matter and from 2000 has stated that FDI up to 100% is permitted for e-commerce activities but such companies would engage only in business to business (B2B) e-commerce and not in retail trading. In fact in 2019 January, too, the Government had issued a clarification on its press note 2 of 2018, which clarified that B2C e-commerce, which is multi-brand retail through the inventory-based model, has all along remained prohibited for FDI. Along with this, the Government is engaged in taking to these marketplaces to ensure proper compliance with Indian law in both letter and spirit.

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