Amazon India and Flipkart have been accused of flouting foreign direct investment (FDI) rules by the Indian Cellular Association (ICA), which has approached Commerce Minister Suresh Prabhu urging necessary action against the e-commerce companies.
In a letter to the minister, ICA, which represents handset makers Apple, Micromax, Nokia, Vivo, Lava and Lenovo/Motorola, has alleged that the companies were offering discounts on products, directly or indirectly, on mobile phones through intermediaries or partner companies.
This, it alleged, bypasses the FDI rules under Press Note 3, which deals with holding inventory and influencing prices of electronic goods in the market, The Economic Times reported.
The handset makers' association said that this is eroding offline retailers' revenues and putting 60 million jobs at risk. "Looking at the alarming situation in India and the sector, we request urgent and severe action against Amazon India and Flipkart for rampant violations of the conditions of Press Note 3. It says both are directly and indirectly influencing the sale price of mobile phones and other goods," ICA said in the letter to Prabhu.
The ICA has also sought "necessary amendments" in Press Note 3 and other related laws so that violators, such as Amazon India and Flipkart, face "severe consequences" under the Prevention of Money Laundering Act. It also equated the development as an "act of economic terrorism against the country".
ICA also said that the homegrown e-commerce major and its global rival are manipulating price norms through direct discounts, equated monthly instalment plans, exchange offers and cashbacks, among others.
Press Note 3
Under Press Note 3 100 per cent FDI is allowed if the companies are engaged in business-to-business (B2B) sales, but not for business-to-consumer (B2C) transactions.
The law says that online retailers cannot opt for an inventory-based model to directly sell goods to consumers. E-commerce firms can work as a marketplace or medium, which connects the buyers and sellers, but cannot influence the prices or the customers.
The ICA alleged that Flipkart and Amazon were roping in intermediaries or support entities to mask the discounts and losses. "Both Amazon India and Flipkart pass on the discounts to these intermediaries, without booking it in their own books. The deals are customised everytime and, therefore, the detection is difficult as the expenditure is different each time."
In Amazon's case, ICA said that the company operates through support entities such as Amazon Seller Services, Amazon Wholesale India Pvt. Ltd and Amazon Pay, besides sellers on the Amazon platform such as Green Mobiles, Rocket Commerce and Darshita Electronics.
For Flipkart, the entities include Flipkart Internet Pvt. Ltd, Flipkart India Pvt. Ltd, Ekart Logistics and PhonePe. Sellers on the platform are Retailnet, SupreComnet, Omnitech Retail, Trunet Commerce and India FlashMart.
ICA alleged that companies buy mobile phones in bulk from Xiaomi and other smartphone brands via third parties and then supply them to their preferred sellers. The transaction earns them discounts of up to 15 per cent in comparison to offline prices.
Denying the allegations, an Amazon spokesperson said that the company is committed to complying with all the laws and has adhered to the regulations in India. "The prices on Amazon.in are completely determined by the sellers. We don't play any role in it," the spokesperson told ET.