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INDIA: Foreign e-retailing companies face legal pushback

Table of Contents

  • Charges that Amazon might have bribed officials have prompted demands that the government probes the company's operations in India.
  • The challenges posed by e-commerce to the survival of small stores are viewed sympathetically by the government.
  • The urge to get foreign investment to India is preventing the government from moving too aggressively, but this could come at a price as politics over it mounts.

Foreign companies operating in India's e-retailing ecosphere are reviewing their strategies as Amazon India faces a possible government probe following bribery charges. While resentment against foreign e-retailers from traditional mom-and-pop stores has been simmering for a while, Amazon India's more generic problems stem from a collision of interests between big international companies (like Walmart and Amazon) and Indian firms (like JioMart) for a stake in a market that is seeing surging growth, especially during the pandemic. Gaps in the e-commerce policy architecture allow interpretation of rules by the bureaucracy and the possibility that these can be influenced. The issue highlights how challenging it still is to operate in India, despite New Delhi's claims that the country has improved its ease of doing business rules.

A whistle-blower has revealed that Amazon India spent as much as INR 85.46bn (USD 1.2bn) between 2018 and 2020 on just legal expenses and that much of this could have been funneled into paying bribes to government officials by Amazon's five group companies in India. The company contests the figure (it says it spent INR 52.20bn on legal and professional expenses). But the fact that it has launched an internal inquiry and has asked its senior outside counsel to go on leave suggests something is amiss, giving rise to demands that the government probes the matter. While Amazon has an array of legal representation it keeps on retainer, the largest among them has reported no more than INR 200mn (USD 2.6mn) as its tax filing. Therefore, the question being raised is where the rest of the money Amazon claims to have spent did actually go.

Leading the charge is the Confederation of All India Traders (CAIT), a body of 70mn small traders that have kept up the pressure on Amazon since 2014 when Jeff Bezos first came to India and promised to invest USD 2bn in the Indian market. CAIT says Amazon helped a small number of sellers in India prosper, gave them discounts on fees, and helped cut special deals with big tech manufacturers such as Apple Inc. The company exercised significant control over the inventory of some of the biggest sellers on its platform. Government rules announced in 2016 require that an e-commerce platform should “not exercise ownership” over sellers' inventory. Keeping tabs on this is a complex exercise.

CAIT is not the only interested party. JioMart, run by India's wealthiest businessman, Mukesh Ambani has been trying to spread its e-retailing wings, but Amazon's deep pockets have stymied it. In 2020, Amazon's biggest competitor, Walmart, exited India, selling its business to Indian e-retailer Flipcart. There have been a spate of other mergers and acquisitions in this sphere: all of them structured to challenge the might of Amazon, and all unintended beneficiaries of CAIT's campaign.

CAIT, in turn, has unimpeded access to top echelons in the Indian government. Small business has traditionally supported the Bharatiya Janata Party (BJP), and Industries and Commerce Minister Piyush Goyal always has the time to lend a sympathetic ear to CAIT's complaints. In the current controversy, a publication that identifies with the BJP has endorsed the campaign that Amazon does not always follow the law of the land and operates like the East India Company – a charge that strikes a chord in India with its history of colonization by the British, initially through trade.

The BJP knows it is taking on war in terrain it cannot always control. One criticism of Amazon, for instance, is that via its music and streaming services, it frequently offends religious and cultural sentiment. But OTT platforms have to be superintended with a light hand for fear of violating the constitutional right to free speech.

However, the bigger issue is one of commercial and trade interests. If the government cracks down too hard on entities like Amazon, other foreign firms will naturally be reluctant to come to India, no matter how tempting the market size. CAIT has lodged a complaint with the US SEC against predatory pricing and other illegal practices of Amazon. While the government is not openly supporting the campaign, it has not distanced itself from it either.

While it is true there are considerable regulatory gaps regarding the activities of tech companies, the huge growth in e-commerce business during the pandemic shows consumers will protest if it is held back. As India is new to this business model, it will take time for the government to catch up.

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INDIA: Foreign e-retailing companies face legal pushback

Charges that Amazon might have bribed officials have prompted demands that the government probes the company’s operations in India. The challenges posed by e-commerce