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Violation of FDI Norms - Amazon, Snapdeal, Flipkart in Trouble Again?

Violation of FDI Norms - Amazon, Snapdeal, Flipkart in Trouble Again?
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

And yet again, the eCommerce portals in India have found themselves in trouble. Accusing them of violating the FDI norms, Confederation of All-India Traders (CAIT) has filed a complaint with DIPP on Wednesday, against the stars of Indian eComemrce industry – Amazon, Flipkart and Snapdeal.

The FDI policy that was announced on March 29, 2016 clearly stated that FDI upto 100% is permitted under automatic route in B2B eCommerce and these entities cannot, directly or indirectly, influence the sale price of the goods. Also, no vendor should account for more than a fourth of total sales. Now with the Independence Day approaching, the three accused have been giving big advertisements in media announcing sale on their platform with many discounts, which is a violation of FDI guidelines on e-commerce.

"Under the FDI policy guidelines, online marketplaces cannot undertake retail trading activities, but these e- commerce portals being habitual offenders of government policies, are circumventing the law and engaged in B2C activities, which is prohibited for ecommerce marketplace portals," said the industry body in a statement.

Calling it a ‘blatant violation of FDI Policy in e-commerce of the government’, CAIT claims that these companies are allowed to do B2B business, but they are doing B2C for which they are not authorized. 

In a complaint sent to DIPP, CAIT has demanded that not only these companies be restricted to conduct such sales events, but the operation of their respective portals should also be stayed.

BC Bhartia, national president, CAIT and Praveen Khandelwal, secretary general, CAIT, said in a joint statement, "By inserting big advertisements in the media, they are attempting to address consumers directly which is contravention of the aforesaid guidelines."

Action is awaited from DIPP, however, a similar complaint was filed by CAIT in March against Flipkart. It was in reference to an advertisement in newspapers announcing the sale of an item together with its discounted price to be available on the e-commerce platform. But this time, it’s not one but three big online portals, and since the officials did nothing when it was just Flipkart, we honestly don’t see anything happening with this one as well. Flipkart has already mastered dogging Indian eCommerce laws and Amazon and Snapdeal will only follow the lead.

Nonetheless, the three firms do stand guilty of giving such huge discounts, which is great when we see it as a consumer, but it also creates an uneven playing field for the rest following the rules. These small eCommerce portals who do not have as much money as Flipkart or Amazon rely on the prices set by sellers, and hence lose a major traction to the ones that do offer discounts.

“Since ownership of inventory is not held by the said companies, they cannot offer ‘sales’ or ‘discounts’ in totality on their online portals, but they are doing so which also establishes that they are not marketplace and as such openly flouting the FDI policy,” the release concluded.

Edition: October 2016

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