REPORT REVEALS HOW AMAZON DODGED REGULATORS IN INDIA
Company dismisses charges, says it treats all sellers fairly
It was early 2019, and senior Amazon.com Inc executive Jay Carney was preparing for an important meeting. He was scheduled to talk to India’s ambassador to the US. In Delhi, the Centre had just announced FDI regulations that threatened to disrupt Amazon’s business.
Before the meeting, Amazon employees had prepared a draft note for Carney. The note, reviewed by Reuters, advised Carney what to say and what not to.
He should highlight the fact that Amazon had committed more than $5.5 billion to India and how it provided an online platform for 400,000plus sellers. But he was cautioned not to divulge that some 33 sellers accounted for about a third of the value of all goods sold. That information, the note advised, was "sensitive/not for disclosure."
Other documents reveal equally touchy information: Two more sellers on the e-tailer’s India platform had merchants in which Amazon had indirect equity stakes, accounting for 35 per cent of sales revenue in early 2019.
This meant that 35-odd of the 400,000+ sellers in India accounted for two-thirds of its online sales.
This information, which was politically sensitive, would have given fresh ammunition to small retailers who allege that Amazon harms their businesses by flouting federal regulations and favoring big sellers. It would have undercut the public messaging that the firm is the friend of small businesses.
What Carney wound up telling the ambassador is unclear. A meeting did take place in April 2019, but neither side would comment on the specifics.
The briefing note for Carney is contained in hundreds of internal Amazon documents. News of their content could deepen risks facing the company as it encounters intensifying government scrutiny. The documents lay bare that for years, Amazon has been giving preferential treatment to a small group of sellers, and publicly misrepresenting its ties with the sellers to circumvent increasingly tough regulatory restrictions.
Traders, both brick-and-mortar and smaller online sellers, have long alleged that the American giant engages in predatory pricing. Amazon rejects this — it says it complies with the Indian law, which stipulates that an e-commerce platform can only connect sellers to buyers for a fee, unlike in the US, where Amazon can both act as a middleman and sell goods directly to consumers.
The company maintains that it runs a transparent online marketplace. The internal Amazon documents contradict those claims, revealing how it has helped a small number of sellers prosper, giving them discounted fees and helping one cut special deals with big tech manufacturers such as Apple.
The documents also show how it exercised significant control over the inventory of some of the biggest sellers.
These documents, reviewed by Reuters, are dated between 2012 and 2019.
One of the notes contains a frank appraisal of Modi’s “straightforward” style of thinking, sizing him up as “not an intellectual”. Together, they provide a look inside a cat-and-mouse game Amazon has played with the Centre, adjusting corporate structures each time the government imposed new restrictions on foreign e-tailers.
“The reporting appears based on unsubstantiated, incomplete, and/or factually incorrect information, likely supplied (maliciously) with the intention of creating sensation and discrediting Amazon,” it said in a written response to Reuters.
The company added that it “treats all sellers in a fair, transparent, and non-discriminatory manner, with each seller responsible for independently determining prices and managing their inventory.”
The PMO and commerce ministry didn’t respond to questions.
In recent years, Amazon has stated in its annual SEC disclosures that its business structures and activities comply with Indian law, but there are “substantial uncertainties” regarding their interpretation.
It is possible that the Indian government “will ultimately take a view contrary to ours”, the disclosure states. Violation of any existing or future regulations, or a change in their interpretation, could result in the business “being subject to fines and other financial penalties” or being forced to restructure or “shut down entirely”.
In January 2020, the Competition Commission of India announced it was probing Amazon and Flipkart following a complaint by a trader group. It cited four alleged anti-competitive practices — exclusive launch of mobile phones, promoting preferred sellers, deep discounting, and prioritising some seller listings. The probe is currently on hold after a challenge by both e-commerce majors.
Separately, Amazon is under investigation by the Enforcement Directorate for possible violation of FDI rules. Amazon said it was confident of its compliance and committed to cooperating with the CCI and ED. Flipkart did not respond to a request for comment.
The CCI and ED, too, didn’t respond to questions.
Because foreign investment regulations in India bar e-commerce firms from holding inventories of goods and selling them directly to customers, companies like Amazon can only collect fees from vendors selling products on their marketplace.