Editorial – April 2018

The Press Note 3 of 2016 (PN3), part of the consolidated FDI policy of India in August 2017, struck a fine balance between e-commerce infrastructure creation and the interests of large number of MSMEs and small retailers.

The framework for this was five key principles. First, FDI was allowed only in marketplace and not inventory based model of e-commerce. Second, a marketplace entity could not own inventory model. Third, marketplace e-commerce entities would maintain level playing field and not influence prices directly or indirectly. Fourth, it is the responsibility of the marketplace to ensure that not more than 25 per cent of sales can be from one single entity or its related entities. Fifth, warranty of goods sold would be the responsibility of the seller in the marketplace model.

This was the comprehensive theoretical model of fair business practices and safeguards.

The reality though is riddled with gaping violations. First, large marketplaces like Amazon India and Flipkart are running hybrid marketplaces, anchored by massive inventory-based operations through a network of “controlled sellers.” Second, these controlled sellers, enable the e-com marketplaces to influence prices of goods sold on their platform. Third, since sellers are proxies, effectively marketplaces warranty the goods sold. Fourth, prior to PN3, Cloudtail and WS Retail were the single largest sellers on Amazon India and Flipkart respectively. Both had an individual share of nearly 50 per cent on the respective platforms. Post PN3, instead of single largest sellers, both marketplaces have created smaller sellers, with the same amount of control that they had on the Cloudtail & WS Retail. On Flipkart, some of the controlled sellers are Retailnet, Supercomnet, Omnitech Retail, Truenet Commerce, IndiaFlash Mart while on Amazon India these are Green Mobiles / Rocket Commerce and a few others. For details, read our cover story and why the proper implementation of PN3 is such a crying need.

Business practices in the digital space have become a subject of global scrutiny. We did a series on tax avoidance by e-commerce companies. This time we are focusing on social media company, Google, which does businesses in India through various companies. Its oldest company is Google India Pvt Ltd. Incorporated in 2003, its investment in equity as on March 31, 2016 was Rs 91 lakh. With this minuscule investment, it generated a turnover of Rs 5,904 crore and paid a tax of Rs 130 crore after declaring a PBT of Rs 370 crore. The European Commission is leading the initiative of taxing online businesses in the EU.

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