CAIT seeks Government audit into business models of Amazon and Flipkart after retailer complaints

The Confederation of All India Traders (CAIT) has written a letter to Commerce and Industry Minister Piyush Goyal to initiate an audit into the business model of e-commerce firms Amazon and Flipkart. In the letter, CAIT said that since Amazon and Flipkart consider brands responsible for offering deep discounts, the government should convene a meeting with the e-commerce firms and ascertain the truth.

Government is looking into whether the hefty discounts offered on Walmart-owned Flipkart and Amazon during their online festive sales violate foreign investment rules.

Amazon and Flipkart say that they have complied with the foreign investment rules. However, local trader groups say that the two companies are violating the rules by offering discounts - of more than 50% in some cases - during the ongoing festive sales.

India introduced new rules in February 2019 aimed at protecting the 130 million people dependent on small-scale retail by deterring steep online discounts. The rules forced e-commerce firms to tweak their business structures and drew criticism from the United States, straining trade ties between New Delhi and Washington.

Senior officials of the Department for Promotion of Industry and Internal Trade (DPIIT) had held a meeting with the representatives of Amazon and Flipkart following a complaint by the CAIT. The CAIT mentioned in the letter that “both Amazon and Flipkart in a clandestine manner refuted the issues raised by us even after showing relevant evidences. For offering huge discounts on their portals, they have categorically said that it is the brands which are offering discounts and they (Amazon and Flipkart) have no role in it. To other concerns, they did not own the responsibility citing their own explanations based on several flimsy grounds.”

Reuters reviewed emails and internal training material from Flipkart showing the company is in some cases offering to reduce, or forfeit, its sales commission from sellers that offer discounts.

A Commerce Ministry official told Reuters the government was reviewing complaints and evidence filed by the CAIT which is representing some 70 million brick-and-mortar retailers, alleging Amazon and Flipkart were violating the foreign investment rules.

According to CAIT's secretary general Praveen Khandelwal, customers are going online because of the unbelievable discounts thereby affecting sales at offline businesses which are down 30% to 40% this month.

A Flipkart source said the incentives were compliant with Indian regulations and were aimed at promoting sellers' earnings by effectively reducing the commission they pay.

All India Online Vendors Association, whose 3,500 members sell products on various online platforms including Flipkart, said in a statement that fewer than 100 of its members benefitted from Flipkart’s partial discount funding, giving some sellers an unfair advantage.