E-commerce companies including Flipkart, Amazon, and Snapdeal are providing huge discounts on their websites using procedures as complex as some conglomerates have adapted to bypass foreign direct investment laws in India.
The disruptive pricing has made the online sales lucrative for buyers. At the same time small retailers, distributors have bled, there pain and agony is immense. Sales volume are down, the three major e-commerce companies operating in India—Flipkart, Amazon, and Snapdeal—all operate as marketplaces.
That’s primarily because Indian law doesn’t allow FDI in e-commerce sites that sell directly to customers, but allows it in marketplaces that link sellers to buyers.
As direct retail is banned, marketplaces are not allowed to implement control over the product prices of the sellers on their websites. Still, Flipkart, Amazon, and Snapdeal do actually have a significant say in deciding product prices as all the three sites finance the amount of discounts offered by sellers sometimes partially and times fully.
Flipkart as per economic times stated “India’s biggest online retailer Flipkart is taking a stand against foreign direct investment in its sector, saying allowing it will benefit “only one company”, a nonverbal reference to Amazon”
The Karnataka commercial tax department has stopped Amazon India from selling electronics and several other products from its warehouse in the state as was reported in Reuters a few days back.
How Products are Sold Cheaper By Online Websites Compared to Retail Stores
Amazon after comparing prices with other sites, Amazon recommends the number of discounts to its sellers on products but doesn’t force them to adopt these suggested prices.
Sellers, however, end up selling at these suggested prices because Amazon finances the discounts. This is how it works: at the end of a certain period, sellers send a debit note to Amazon titled “promotional funding”& Amazon transfer the funds to the sellers.
The debit note also includes service tax that the seller collects from Amazon on the amount of the discounts.
The seller then pays the service tax to the central government. In effect, the number of discounts is currently being treated under central service tax laws rather than state tax laws.
Flipkart – WS Retail Services Pvt. Ltd, a seller on Flipkart, accounts for more than 75% of the site’s sales. For products sold by WS Retail, Flipkart doesn’t fund discounts. However, with other smaller sellers, Flipkart suggests prices.
For the discounts offered, Flipkart does not do promotional funding but forgoes commissions or listing fees that marketplaces usually charge from their sellers.
Interestingly WS Retail, Flipkart has a close business relationship. WS Retail was owned by Flipkart co-founders Sachin Bansal and Binny Bansal (unrelated) until September 2012.
In September 2012, the Bansals were forced to sell a large stake in WS Retail to former OnMobile Global Ltd chief operating officer Rajeev Kuchhal, just weeks before the Enforcement Directorate started an investigation in the company’s business relationship with WS Retail.(source HT Media)
Bansal brothers and their relatives gave up their board seats. Tapas Rudrapatna and Sujeet Kumar, known to be close to the Bansals, control 46% of WS Retail, according to filings with the Registrar of Companies (RoC).
It pays sellers by RTGS using Internet banking fund transfers, or by cheque. Snapdeal refers to the discounts as “promotional expenses”. During Snapdeal’s recent Buy One, Get One promotional offer, sellers were paid for both products by Snapdeal, which charged its commission fee only on one item.
There is nothing wrong with the above as long as the companies follow the law of the land & offers great deal for Indian Buyers. In fact these online retailers for the first time have helped many Indian buyers to realize their dreams and helped in expanding good service and products to remote buyers. Candytech hopes that the growth story continues in the years ahead.
(This story was originally investigated by Hindustan Times & was published in Mint) other sources include Reuters.in & economic times.
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