Foreign e-com cos creating massive unemployment, alleges RIL

It is not difficult to indicate that foreign e-commerce marketplace entities engage in wide-scale capital dumping to sustain their indulgence in predatory pricing, RIL said in its complaint to Assocham.

Capital dumping is being used by foreign e-commerce firms to subsidise and engage in predatory pricing, oil-to-telecom conglomerate Reliance Industries (RIL) has told the Associated Chambers of Commerce and Industry of India (Assocham) in an internal document.

The document alleges that this is leading to massive unemployment and financial distress among small merchants and kirana stores.

It consists of various recommendations and proposed changes that deal with Press Note 2 of 2018 (PN 2), which RIL wanted Assocham to present to the government, according to sources.

PN 2 amends and tightens existing regulations applicable to e-commerce entities, such as Amazon and Walmart-owned Flipkart, that have foreign direct investment (FDI).

The suggestions have been sent at a time when the draft e-commerce policy is being prepared by the Department for Promotion of Industry and Internal Trade (DPIIT).

They highlight the need for the protection of small merchants in the country, which has around 80 million small merchants providing employment to over 400 million Indians.

“Capital dumping is being used by foreign e-commerce firms to subsidise and engage in predatory pricing, leading to massive unemployment and financial distress among these small merchants and kirana stores,” said the document, which has been reviewed by Business Standard.

The suggestions were sent by RIL to Assocham on March 12.

The document said foreign e-commerce firms have spent trillions of rupees in India to operate marketplace platforms.

The document said it seems highly unlikely that platforms that merely connect buyers and sellers would spend so heavily on marketplaces.

It is not difficult to indicate that foreign e-commerce marketplace entities engage in wide-scale capital dumping to sustain their indulgence in predatory pricing.

E-commerce firms, such as Amazon and Flipkart, are often accused by physical retailers of predatory pricing and offering discounts secretly through sellers on their platforms, in violation of FDI rules.

But these firms have denied such charges.

E-commerce industry executives said that there is no data available on the allegations that capital dumping by e-commerce firms has led to these alleged results.

Through its e-commerce venture JioMart, RIL is competing with players such as Amazon and Flipkart.

They are all betting big on merging online and offline retail.

Only 7 per cent of the $1.2-trillion retail market is online and these players are eyeing the rest 93 per cent of the industry, said sources.

To ensure the operation of foreign firms is restricted only to the technical platform and ancillary services and not in the ownership or control of inventories of sellers, the suggestions made by RIL discuss the need for recognising the importance of the merchant ecosystem.

RIL has proposed changes in PN 2, which it sees would plug such loopholes exploited by creative structuring by foreign e-commerce firms.

It said sellers related to the foreign e-commerce marketplace entities are selling their products on the platform of the marketplace entity, thereby indirectly indulging in multi-brand retailing.

Foreign e-commerce firms are using multi-layered innovative structuring to carry out indirect multi-brand retailing on their e-commerce marketplace.

Due to control and/or ownership of the inventory, they are able to indulge in predatory pricing by ‘capital dumping’.

The current definition of ‘group companies’ leaves scope for misinterpretation and is thus being misused by foreign e-commerce firms to circumvent the spirit of the restrictions envisaged in the policy, according to the document.

The document highlights the issue of foreign e-commerce firms using innovative structures to hoodwink regulations and have economic interests in most, if not all, of their major sellers on their platform.

As a proposed solution, it mentions that the e-commerce marketplace entity and its group firms will not, directly or indirectly, own or control the inventory.

As a proposed solution for predatory pricing, the document has said e-commerce entities will not directly or indirectly, influence the sale price of goods or services and shall maintain a level playing field for all vendors.

A query sent to RIL regarding the matter remained unanswered till the time of going to the press.