The logo of e-commerce company Flipkart at its headquarters in Bangalore. Photo: AFP

E-commerce giants Amazon and Flipkart are now facing an investigation from Indian government authorities following complaints by small traders of deep discounts during the current festive season sales alleged to amount to predatory pricing.

The Department for Promotion of Industry and Internal Trade has told the big companies to disclose the names of top five sellers on their platforms, price lists of goods of preferred vendors and the kind of support provided to sellers, Business Standard reports, quoting unnamed sources.

The department has also sent them a questionnaire seeking details regarding their capital structure, business model and inventory management system.

This was done following complaints by a traders’ body, Confederation of All India Traders, that e-commerce companies have been violating the foreign direct investment policy by hiding behind festive season sales. The confederation time and again has raised the issue of alleged unethical, predatory pricing by the two e-commerce companies.

Commerce and Industry Minister Piyush Goyal confirmed the investigation against Walmart-owned Flipkart and Amazon. Executives from both the companies were summoned to meet commerce ministry officials last week to discuss the matter.

The companies have, however, denied allegations of involvement in deep discounting and claimed that the discounts were offered by the brands.

According to the consulting firm RedSeer, e-commerce companies such as Flipkart and Amazon could generate up to 390 billion rupees (US$ 6 billion) in sales this festive season.

In February India introduced new e-commerce rules, which were aimed at protecting small-scale retailers who reportedly employ around 130 million people. These retailers have also been strong supporters of the ruling Bharatiya Janata Party.

The rules forced e-commerce firms Amazon and Flipkart to tweak their business structures. The online firms were to function as mere technology platforms and were prohibited from influencing directly or indirectly the prices of goods to be sold on their platforms.

These measures drew criticism from the United States, and trade ties between New Delhi and Washington became further strained. The Donald Trump administration has been critical about the huge tariffs imposed on products imported from the US.

While Amazon and Flipkart claim they have complied with the new rules, trader groups allege that the two companies are violating them by providing incentives to sellers to offer discounts – in some cases more than 50% – during the ongoing festive sales.

In order to attract shoppers during the Diwali festival, both the e-commerce went gone on an advertising blitz in various dailies to showcase discounts for products ranging from mobile phones and television sets to apparel.

The traders’ confederation secretary general, Praveen Khandelwal, alleged that because of steep online discounts, sales at offline businesses are down 30-40% in October. The confederation claimed it had emails sent by Flipkart and Amazon to sellers offering partial funding of discounts.

Traders have been the BJP’s core support base for nearly four decades. This makes it very difficult for the government to ignore their complaints – even though the targeted e-commerce platforms have deep pockets.

However, the government is also keen on attracting investments as a part of its ambition to expand India’s digital economy. This means it has to arrive at a fine balance between keeping its core base happy and taking note of investment plans by global e-commerce platforms. Amazon recently announced a significant reduction of its planned investments in India.

A recent report by Reserve Bank of India revealed that consumer confidence dipped to a six-year low in September as sentiment regarding employment, income and discretionary spending declined. People were less optimistic about their income over the year ahead. Under such circumstances, customers get attracted to deep discounts that help them limit their festival spending.

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