Though it is no longer a secret, the government has laid bare the nature of irregularities the two major ecommerce companies Amazon and Flipkart are involved in, while flouting the FDI rules. This has come out in the form of an explanation given by the government for its decision to stick to the deadline set by it for the online firms to adhere to the guidelines.
The government’s explanation lays bare the exact process being followed by both the ecommerce giants. The government says they were operating hybrid marketplaces.
According to this explanation, the companies were operating at three levels to offer deep discounts and were booking the losses in their books.
In the first stage, Amazon and Flipkart would buy the products, whether smartphones or other products directly from the manufacturers in bulk and avail discounts. These products would then be sold on their B2B platforms to entities in which they had stakes at prices lower than they had bought them, thereby booking the losses on their own books.
These sellers would then offer these products on the respective ecommerce retail platforms. When the customer makes the purchase, there are delivery charge waivers etc. This is the second level where losses are absorbed, to sell the products cheaper.
In the third stage, there are cashback offers and other interest free monthly payment schemes to make the deals absolutely attractive. These payment firms are also run by Amazon (Amazon Pay) and Flipkart (PhonePe).
The prominent sellers on Amazon that are linked to the US company are Cloudtail, Rocket Kommerce and Green Mobiles. On Flipkart, the sellers RetailNet, SuperComNet and OmniTech Retail, Truenet Commerce and India Flash Mart enjoy these advantages. Flipkart has an in-house courier service too, Ekart Logistics.
All these directly impact the regular offline retailers in the country in the respective segments since they don’t enjoy any of these advantages and that is the reason the government acted on putting a full stop to these practices. These are all considered direct violations of the FDI rules.
The two companies however totally deny that they are in violation of any law. They also deny that they have been served any such communication from the government. Flipkart seemed to admit that the changes now made may have long-term impact on their business.