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May 1, 2021

Request to stop inventory control by foreign e-commerce companies

by CA Shivam Jaiswal in Corporate Law

Request to stop inventory control by foreign e-commerce companies

Copy of Letter of Request to Shri Piyush Goyal from Confederation of All India Traders

Shri Piyush Goyal
Hon’ble Minister for Commerce & Industry,
Udyog Bhawan
New Delhi – 110001

Subject: Urgent Need to bring a New Press Note to clarify the FDI Policy to stop inventory control by foreign e-commerce companies and also to take strong action against foreign e-commerce companies for using unfair means to gain market share at the cost of small merchants in the lockdown due to covid-19 pandemic.

Dear Shri Piyush Goyal Ji.

1. This representation is in continuation of a series of our earlier complaints and representations against the illegal practices being adopted by Amazon and Flipkart (Walmart)

2. In furtherance of the illegal activities being carried out by Amazon and Flipkart, they have now started taking undue advantage of the pandemic by making illegitimate financial gain by supplying non-essential items which have been strictly prohibited by many state administration due to ongoing lockdowns to prevent the spread of covid-19.

3. Sir as you must be fully aware of the facts that the pandemic has hit the retail industry hard and since 2020, the industry has seen major upheavals. It is surprising to observe that while small and medium sized businesses (Kiranas) are languishing, foreign e-commerce companies are growing exponentially at the cost of small business.

4. In the difficult time of covid-19 pandemic when the people are fighting for the life and livelihood, these foreign e-commerce companies are trying to capture market share from small stores/traders/kiranas by defining every item as essential including mobile phones and accessories etc. whereas the physical shops who can sell these items are not allowed to open during the lockdown/curfew. It is beyond comprehension on how a new mobile phone falls in the category of essential item. These e-commerce companies, in the name of devises, are supplying all kinds of appliances/item in facts everything except apparel.

5. This illegal business practices of Amazon and Flipkart is hurting small traders/Kiranas and at the same time helping all these e-commerce companies who violate law blatantly. Since they are larger than life corporations, the government is closing its eyes towards all violations and is providing them impunity to continue their Anti-traders/Kiranas practices. Small traders will be put behind bars for any such violation, whereas, these companies are being rewarded by free access to the cost of small traders who are struggling for their livelihood.

6. It has been established by numerous market surveys and studies (since 2020) that MSMEs have been dealt a severe blow as a result of the pandemic. As reported by the Economic Times, a survey by the All India Manufacture’s Organization (AIMO) showed than more than 35% MSMEs had started shutting shop as early as June 2020. In another survey by India’s leading Social Media Platform, Local circles showed how close to 25% of the 7000 plus MSMEs that were part of the survey have already shut down as of October 2020 and more than 75% had their workforce slashed by that time.

7. The stark contrast of the financial health of MSMEs in India’s retail industry and the exponential growth and market share captured by these foreign e-commerce entities is evident. While MSMEs in India lost their business and many of them have closed down, Amazon’s marketplace in India had reported, self-admittedly, a 42% jump in its revenue at Rs.11,028 crores. It has also increased its authorized share capital from Rs.31000 crore as on March 31, 2019 to t 60,000 crore as on March 31, 2020. The c-commerce industry, in total, made sales of over USE) 8.3 billion in 2020 as compared to USD 5 billion in 2019 according to RedSeer Consulting. It would be an understatement to state that foreign e-commerce entities in India have been taking advantage of pandemic.

8. India’s MSMEs form the backbone of the retail industry, in particular and the economy in general. It is pertinent to note that these small and medium businesses cannot be left to languish at the cost of global behemoths like Amazon and Flipkart, backed by corporations that have deep pockets and an unwavering indifference to India’s law, its policies and its people. It is established how these global behemoths have violated the letter and spirit of the law in India numerous times and would stop at nothing to destroy the very fabric of the Indian retail industry — small and medium businesses/Kirana as they have done in various countries of the world.

9. As per the latest orders of State Governments, Offline retail outlets/stores (except essentials) have to either remain closed or are allowed to open only for a few hours, generally for 4.5 hours in the day. However, the e-Commerce entities have been carrying our a far wider gamut of goods and services (largely non-essential) that is further leading to trouble for small Kiranas. Foreign e-commerce players like Amazon and Flipkart are exploiting this opportunity at the cost of small Kiranas by not just selling essentials goods but also contravening the lockdown orders by selling mobile phones, electronics, and kitchen appliances amongst others. This is seriously prejudiced against the small and medium buinesses because  our members arc nor allowed to open their shops/retail outlets for selling the very same products. The small businesses/Kirana, who are not able to compete with the predatory pricing of foreign e-commerce players are further being subjected to unfair competition from the sale of non-essential goods by foreign c-commerce entities in light of government restrictions.

10. It is important to note that although these foreign e-commerce entities float a perception that they are helping small and medium businesses which is nothing but a hoax. For instance, Amazon India added over 1.5 lakh new businesses to its marketplace in 2020 but what remains a fact is that 35 out of Amazon’s self admittedly over 4 Lakh sellers accounted for two-thirds of total maxis sold on the marketplace, as reported by Business Today. It is established beyond doubt how Amazon and Flipkart control the few “preferred” sellers that make most of the sales on their marketplace platforms, in a clear violation of Press Note 2 of 2018. The FDI Policy has always prohibited control by foreign marketplace c-commerce entities over inventory (and prima) to protect the fabric of the retail industry but these entities, without any regard for law, business or people, have flouted every rule in the book.

11. It is important to prohibit these foreign e-commerce entities from gaining market share at the cost and life of small and medium Kirana stores in India because Kirana Stores have formed the backbone of the industry over the years and made it even more evident in the pandemic by ensuring supply of essential and non-essential goods and services. It is also important to protect these Kirana stores for the over 8.5 Crore small and medium merchants, their families and dependents.

12. We pray for immediate action prohibiting these foreign c-commerce entities from ruthlessly destroying the Indian retail sector with their deep discounting and predatory pricing mechanisms and trampling the lives of over 40 crore Indians. We also request your good office that in pursuance of the various representations already made by the industry to issue a new Press Note with clarifications with regards to what is permitted and prohibited for marketplace c-commerce entities, to expedite the process and save the industry from the ulterior motives of these foreign entities.

Thank you. With regards

Yours truly

Praveen Khandelwal
National Secretary General
Confederation of All India Traders