A recent news report has detailed Amazon’s strategy to dodge India’s regulators. Predictably, Amazon has refuted these allegations, but the truth is both Amazon and its arch rival Wal-Mart have been chafing at the restrictions placed by the marketplace model India has embraced to protect its small traders — the brick-and-mortar stores, or more specifically the neighbourhood kirana shops that dot our retail-scape—from these MNCs which have the potential to side line and nudge out small players from the market.
In the United States, the inventory model permits ecommerce firms to do pretty much what they please in terms of procurement, discount and fees. Under the inventory model, Amazon can favour its own group companies for sourcing, offer heavy discounts and need not provide its platforms to traders not in its favoured list.
The law in India does not permit for such cherry-picking of retailers and helping them jump the queue. You simply cannot pick and choose. The same facilities and services should be given to suppliers for the same fee mounting the ecommerce bandwagon; no matter whether they are big or small, related to Amazon or not. The Reuters report has said that Amazon has flouted these rules all this while proclaiming that a level playing field is being offered
In 2019, the Department of Industries, Government of India, tightened the FDI rules on ecommerce with a view to providing a level playing field to brick-and-mortar stores. While 100 percent FDI in ecommerce continued to be countenanced, Amazon and other foreign companies were forbidden from selling products of its own group companies or of companies whose management was under its control beyond 25 percent of its total annual sales.
No flash sale or exclusive discount can be offered either, as it smacks of inventory model and is inconsistent with the marketplace model. In other words, the marketplace model requires them to stick to the straight and narrow of service providers for a fee, period. Sellers should be able to sell through their robust online platform and entrust the job of delivery of goods to them besides entrusting the job of collection of sale price from online buyers which would be periodically remitted to the sellers after deducting the fee or service charges. But pricing and stocking must be done by the sellers themselves.
In the corporate world, a complicated maze of cross-holdings and several layers of holding-subsidiary companies come handy for hiding the true ownership of a supplier company. Amazon owns a minority stake in the parent companies of Cloudtail and Appario, even though it does not have a direct stake on either of the two sellers.
Cloudtail accounts for 40 percent of the $10 billion sale Amazon clocked in India in 2019 according to Forrester research. In fact two-thirds of Amazon India’s sales are by just 35 companies though its online platform is dotted with 400,000-plus sellers. This hurts competition, more specifically the 400,000-plus small traders who have boarded the Amazon bandwagon in the hope of a level playing field. They have reposed faith in Amazon seeing merit in online selling, for which they do not have the wherewithal or expertise. Amazon’s cloak and dagger strategy belies this implicit faith of the small traders.
The US e-commerce giant has a long list of controversies, and in India also this would not be the first time it is running into rough weather. Though the Karnataka High Court had stayed the Competition Commission of India (CCI) investigations into anti-competitive practices of the US e-commerce giant, the Delhi Vyapar Mahasangh, a traders’ body, has urged it to allow resumption of the investigations.
So what Amazon is doing in testing the boundaries of the law, as the news report picturesquely describes its restlessness is to somehow adopt the inventory model, though it is a strict no-no in India. In the US it is kosher for corporates to employ lobbying firms to get the law tweaked the way they want. Not in India. Amazon could try to convince the authorities as to why the inventory model is not necessarily an evil incarnate — but one is not sure how effective that would be.
Amazon’s model could find acceptance in economies where the retail sector is more organised — but in India, where the retail sector is highly unorganised and the intrinsic chain of the local stand-alone stores (kirana stores) cannot be overlooked — it just does not sell. The earlier Amazon understands this fact about India’s retail sector, the better. Failing to do it, and to use subterfuges to test the malleability of Indian law, is most likely to see the MNC lock horns with the Government of India, which has time and again stressed that the interest of the small trader will be protected.
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