India asks Amazon, Flipkart to comply with rules barring steep discounts

REUTERS/Abhishek N. Chinnappa

India has told foreign e-commerce firms such as Amazon and Walmart’s Flipkart that they must ensure compliance with new foreign investment rules aimed at deterring them from providing steep online discounts, three sources familiar with the discussions told Reuters.

Commerce Minister Piyush Goyal has said that while the government was prepared to listen to concerns about its new foreign direct investment rules (FDI), it was committed to protecting small traders from predatory behavior by foreign-funded companies, the sources said.

The comments were made by Goyal during a closed-door meeting on Monday with several e-commerce companies. It comes in a week when U.S. Secretary of State, Mike Pompeo, is due to visit New Delhi – he is expected to arrive late on Tuesday – and trade tensions have heightened between the two countries.

India from Feb. 1 imposed new e-commerce FDI rules to help hundreds of thousands of small traders, but small businesses and a right-wing group close to Prime Minister Narendra Modi’s ruling party say there are still issues. They allege big online retailers use complex business structures to circumvent federal rules, and still burn billions of dollars to offer discounts.

Amazon and Flipkart say they’ve complied with the rules and deny any wrongdoing. Both companies, and the U.S. government, protested against the rules in January, saying they would force firms to change their business structures, Reuters has reported.

Goyal during the Monday meeting defended the government’s new FDI policy, saying the rules should in no way be violated by any company, both in letter and in spirit. The government will not allow e-commerce firms’ discounting practices to affect small shopkeepers, Goyal said, according to three industry executives in attendance.

“The minister was clear and direct,” said one of the executives.

Flipkart CEO Kalyan Krishnamurthy in a statement said the company looked forward to working with the government and Goyal had engaged “in a candid, positive & progressive” discussion.

Amazon said it welcomed the “open & candid discussions & the promise of continuing engagement” with the government, adding it was committed to supporting various Indian government initiatives.

In a statement on Tuesday, the commerce ministry said it had formed a committee to hear grievances on issues related to FDI in e-commerce, adding it will ensure small retailers thrive in the country. It did not detail discussions around the question of steep online discounts.

E-commerce, trade concerns

The government brought in the new policy in February after complaints from small Indian traders who said the e-commerce giants used their control over inventory from affiliated vendors to create an unfair marketplace in which they offered major discounts. Such practices are now prohibited.

The rules led to a brief disruption of Amazon’s online operations in February and shocked Walmart, which had just months before invested $16 billion in acquiring control of India’s Flipkart in its biggest ever deal.

The United States government and American firms have voiced concerns about several recent Indian policies. Other than stricter e-commerce rules, India has demanded companies to store more of their data locally. In 2017, the United States lodged a written protest against India’s decision to cap medical device prices.

Goyal has had a series of meetings since last week with foreign and Indian e-commerce firms and technology companies with an aim to iron out policy issues. He has also discussed what government press releases describe as “threats” local firms face from “large foreign competition”.

On Monday, concerns around online discounts available on Amazon and Flipkart were discussed specifically during the meeting, with both companies asked by government officials about how they price products online, the sources said.

Amazon and Flipkart argued they provide logistics support and other services to small Indian retailers who use their e-commerce platforms to boost their businesses, said the third source who attended the meeting.

“Goyal said he doesn’t want uncertainty for businesses … he talked about having an inclusive policy that protects interests of all stakeholders,” said one of the sources.

Reuters 

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.