Amazon: Evaluating Government Fine And Its Implications On FDI Norms

The Central Government has imposed a penalty of Rs 75,000 on Amazon, an e-commerce giant, for not displaying mandatory information which includes the country of origin of the products sold on its platform, according to an official order. The Consumer Affairs Ministry had issued notices to e-commerce majors Flipkart and Amazon for not displaying such crucial information, in October. The ministry had also asked the states to ensure that all e-commerce firms comply with the Legal Metrology Rules, which is for packaged commodities.

Reasons for imposing penalty on Amazon

According to the order issued by the Ministry on November 19, Amazon failed to give a satisfactory reply to the notice.

“If you are willing to close the matter departmentally, you can compound the case as per section 48(1) of the Act on payment for credit to the government an amount of Rs 25,000 each on behalf of each director plus Rs 25,000 on behalf of the company,” the legal metrology department wrote to Amazon Seller Services last week.

The fine imposed on Bengaluru-based Amazon Seller Services and all the directors is as per the provisions of the Legal Metrology Act, 2009 and the Legal Metrology (Package Commodities) Rules, 2011.

The official added that Flipkart had not been fined yet. An email that was sent to Amazon on the matter did not bring out any immediate response. In the notice that was issued last month by the consumer affairs ministry, it was said, “It has been brought into notice that some of the e-commerce entities are not displaying the mandatory declaration on digital platforms required under the Legal Metrology (Packaged Commodities) Rules, 2011.”

In similar notices, the ministry had mentioned that Flipkart India Pvt Ltd and Amazon Development Centre India Pvt Ltd need to ensure that all mandatory decelerations are displayed on the digital and electronic network used for these e-commerce transactions. This is a first penalty that the government imposed under The Legal Metrology (Packaged Commodity) Rules, that came into effect in January 2018.

The Metrology department also added in the notice to Amazon that in case the company failed to respond within seven days, the department would be constrained to initiate prosecution proceedings against the e-commerce firm and all the directors at a competent court without any further notice.

The department had found two directors responsible for the violation and had sent across notices to both Amazon and Flipkart on October 16 for violating the rules. A government source told that the issue is not about the penalty amount alone, but that a message is sent across to other e-commerce firms that they need to comply with the rules.

In July, late Ram Vilas Paswan, the former consumer affairs minister, directed state governments to strictly enforce the provision that requires all companies and e-commerce businesses to display the origin of all their products. According to the provision, whether a product is sold online/offline, the country of origin needs to be displayed, which is mandatory.

Problems faced by E-commerce businesses

There are millions of online sellers, hence the number of listings, of which some are new, and some are old. While the new listings specify the country of origin, the old ones do not, and it will take much time for it to be updated.

Another problem that sellers face while mentioning the country of origin is the multiple sourcing of products.

In response to government action, e-commerce companies are seeking extension of deadlines on behalf of the sellers who meanwhile update their profile. Hence, they are looking forward to some step to be taken in this respect.

After Amazon and Flipkart violated the government policies, The Confederation of All India Traders (CAIT) has asked for a stern action to be taken on this arbitrary attitude and Foreign Direct Investment (FDI) norms of these companies.

CAIT demand stern action against e-commerce business:

On November 4, the traders’ body in a letter to Commerce Minister Piyush Goyal alleged that the online retailer had not sought the government’s approval for conducting multi-brand retail activities in India and demanded action and imposition of maximum penalty against the company.

The CAIT has sent a memorandum to the Secretary of Department of Internal Trade and Industry Promotion (DPIIT), Guruprasad Mohapatra complaining against Amazon.

CAIT has also indicated that both Amazon and Flipkart have made violations under the Foreign Exchange Management Act, 1999 and demands for strict action and punishment. National President BC Bhartia and general secretary Praveen Khandelwal of CAIT told that FDI is not allowed for the inventory-based model of e-commerce, despite them indirectly controlling the Indian companies.

CAIT alleged that Amazon has investment “of about Rs 4,200 crore in More Retail Limited (a multi-brand retail company); on the face of it looks like it is controlled by an Alternative Investment Fund (AIF) of Samara Capital, and has investment of about Rs 1,430 crore in Future Coupons Private Limited, a controlling investment in Future Retail Limited (a multi-brand retail company).”

The traders’ body further alleged that all these investments were in violation of FEMA Rules and Regulations, and urged the government to take immediate action.

Meanwhile, Flipkart is owned by Walmart holding Aditya Birla Fashion and Retail Ltd, again a multi-brand retail company. Therefore, e-commerce bunnies are indirectly controlling the sellers or their inventory.

CAIT alleged that Amazon India, is a make-believe e-commerce marketplace platform, but in reality (it is) indirectly carrying multi-brand retail business. The trader’s body stated that the Amazon have invested Rs 35,000 crore in taking over the Amazon India, based on the information in the public domain. It is also one of the cause for the death of the small traders in the country.

Denying the allegations, an Amazon spokesperson said: “As a responsible investor and a long-term player in India, Amazon complies with FDI laws and seeks regulatory approvals including from the Competition Commission of India. Our investment in Future and all investments in India comply with applicable regulations.”

On November 23, CAIT had sent a letter to RBI Governor Shaktikanta Das take cognisance and initiate proceedings against banks for offering illegal cashback and discounts on e-commerce platforms as such cashback violate the Constitution and competition laws.

On November 27, CAIT stated displeasure on the amount of penalty imposed on Amazon India, for not providing the compulsory ‘Country of Origin’ details on products displayed by the e-commerce website. They stated that such smaller fines would not make the offender realise their mistakes, which is opposite to the fundamental principle of charging penalities.

Retail trade is the lifeline of the Indian Economy and is a source of employment and livelihood to 25 per cent of the population. The capital dumping has had a negative impact leaving many people unemployed.

Implications of penalties on FDI:

India has been cautious, in opening up the retail sector to FDI because the livelihood of many small traders is at stake. For instance, within the grocery segment alone, there are around 12 million mom-and-pop stores. It is only during the last 7-8 years that the retail sector has been slowly opened for foreign investment, step-by-step and with stringent conditions. A free run foreign retail giant like Amazon will sound the death knell for many of these small traders.

In the retail sector, FDI is allowed in single-brand retail under the automated route. It is also allowed in multi-brand retail but only with government approval and tons of restrictions. The principles involve 50 per cent of the entire FDI money to be invested purely within the backend infrastructure. There are clauses for mandatory local sourcing of products and services. Such entities cannot trade utilizing e-commerce and corporations that have FDI can do multi-brand retail in just select states.

Now is the best wager for the government to create a comprehensive amendment to plug all loopholes and arm itself with powers under the exchange Management Act and free run foreign retail giant regulations to punish the guilty. Enforcing laws supported by forms should stop. It is time that the enforcement of FDI laws in e-commerce is supported substantially.

Krithika Ravi Iyer

I am an aspiring journalist who is very enthusiastic and assure to do my require job responsibly. I have a creative side to me as well and would do any task assigned to me with utmost sincerity. I like reading, listening to music and have started exploring art. Writing poems is something I do to pen down my thoughts as well.

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