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Amazon Needs To Watch Its Steps In India

The US e-commerce giant has a history of controversies ranging from aggressive tax avoidance in its home base to allegations of predatory pricing and unfair discounting practices

Oct 28, 2020 / 06:52 PM IST

India was, is, and will remain an attractive market for global businesses. The fundamentals — a huge middle-class with good purchasing power — have not changed, since liberalisation in the 1990s. If anything has changed in the past few years, it is an improvement in the ease of doing business.

Many global companies that started business in the subcontinent, after the reforms have generated enormous goodwill and trust, in addition to improved bottom lines in their balance sheets. However, a few continue to focus more exclusively on the latter than the former, and with impunity.

Such firms are better advised to introspect their business approach.

India with a vibrant democratic structure and a highly-evolved legal system, knows to protect the country’s interest and priorities while respecting all its international commitments. It also looks for the same commitment in reciprocation from the firms investing in it.

So, when global majors such as Amazon come under the scanner of tax and antitrust institutions in the US and other countries where it operates, it should be a concern for policymakers in India.

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Amazon has a long history of controversies. In the US, analysts and policy makers have highlighted how the company of its size ($280 billion sales) has avoided tax. In 2019 it paid a $162 million bill on pre-tax profit of nearly $14 billion after paying zero US federal income tax in 2017 and 2018.

In a report last year, tax transparency campaign group Fair Tax Mark singled out Amazon as the worst offender among big tech firms that have ‘aggressively avoided’ paying tax over the past decade. Amazon has denied wrongdoing, but the fact remains that its effective tax rate was 12.7 percent over the decade compared to the headline tax rate of 35 percent in the US.

Recently, a US House antitrust subcommittee released a 450-page report as part of a year-long investigation concluding that there is ‘significant evidence’ to show that the market power of Amazon and a few others of its ilk have reduced consumer choice and hindered competition. A 2016 report from the Institute for Local Self Reliance said that Amazon’s ‘tightening grip is stifling competition, eroding jobs, and threatening communities.’

House Democratic lawmakers have proposed to break up Big Tech companies such as Amazon to ensure that their power over consumers and market is controlled. US senator Elizabeth Warren, once in the running to be US President, proposed the same thing.

Back in India, the All India Online Vendors Association, with more than 2000 members hawking goods on Amazon have alleged unfair business practices by the US firm. The association has alleged Amazon favours a few retailers offering substantial online discounts and elbowing out the independent vendors out of business. It has filed a case on August 10 at the Competition Commission of India (CCI).

“This anti-competitive arrangement ... is causing foreclosure of competition by driving independent sellers out of the market,” the group alleged, said Reuters in a report.

This case comes after the CCI had in January initiated a probe into Amazon and rival Walmart's Flipkart over alleged violations of competition law and certain discounting practices. Amazon got a stay on that investigation at the Karnataka High Court. When the CCI appealed this at the Supreme Court, the apex court asked the Karnataka High Court to decide on the CCI’s plea within six weeks.

This is not a positive image for any company that claims to contribute to the growth of the economy and development where it invests and helps it to become more self-sufficient.

Foreign companies would also do well to remember that customers in India are not only discerning but also fiercely patriotic. The recent boycott of Chinese products is just an example. Amazon’s advisers in India should understand this, but the company continues to send the wrong message like when its representative did not appear before a parliamentary panel reviewing the Personal Data Protection Bill.

Amazon’s statement tried to justify that its representatives could not travel due to pandemic is perhaps hard to digest for any, when it comes from a company that is built on a digital platform.

Those supporting Amazon’s business strategies in India would call any action of any self-respecting nation, as counterproductive, since the US company and its subsidiaries offer employment to a huge number of people. No doubt it does. But as Union commerce minister Piyush Goyal said earlier this year Amazon was not doing a favour to India by investing here. He made it clear that "investments are welcome but they should be within the law."

Remember that even in the 1970s, the opposition and critics failed to see the strength of ‘Swadeshi.’ Almost all the workers from US cola major were absorbed by a local firm when it exited after 22 years of operations. It was challenging but achievable.

The clarion call by Prime Minister Narendra Modi for an Aatmanirbhar Bharat is to prepare India for any such eventualities.

M Rajendran is a senior business journalist. Views are personal.
M Rajendran
first published: Oct 28, 2020 06:52 pm

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