Look into Amazon, Flipkart qcom ops, distributors urge commerce ministry

The All India Consumer Products Distributors Federation has sought a review of whether Amazon and Flipkart can legally operate inventory-led quick commerce models under the existing FDI policy

The rapid expansion of ecommerce giants Amazon and Flipkart into quick commerce (qcom) has sparked fresh concerns among tradi­tional fast-moving consumer goods (FMCG) distributors, prompting their industry body to seek government interv­ention over the legality of their operating models.

 

The All India Consumer Products Distributors Federation (AICPDF) has written to the Ministry of Commerce & Industry, urging it to examine whether foreign-funded ecommerce companies are permitted under the country’s foreign direct investment (FDI) policy to run inventory-led quick commerce businesses through warehouses and dark stores.

 

In its letter, the federation sought clarity on whether the government has amended existing rules or granted specific approvals allowing foreign-funded marketplace entities such as Amazon and Flipkart to operate quick commerce through such infrastructure. “As per the consolidated FDI policy, particularly Para 5.2.15.2, read with DPIIT Press Note 2 (2018 Series), 100 per cent FDI is permitted only under the marketplace model of ecommerce, while FDI is expressly prohibited in the inventory-based model of ecommerce,” AICPDF stated in the latter, a copy of which has been reviewed by Business Standard.

 

It argued that the current qcom model functions via a dense network of warehouses or dark stores, typically located within a 3-5 kilometre radius of consumers. 

 

“In practice, these dark stores appear to be centrally managed, with inventory planning, stocking, pricing, promotional schemes, discounts, logistics and customer experience being directed and controlled through the platform,” it said.

 

Emails sent to both Flipkart and Amazon for comment remained unanswered until the time of going to press.

 

A senior executive at a large ecommerce company, however, pointed to policy measures taken by the government in 2022. The government had then permitted 100 per cent FDI under the automatic route in food processing and allowed 100 per cent FDI, through the government approval route, for retail trading, including ecommerce, of food products manufactured or produced in India.

 

The executive added that for non-food categories, warehouses continue to be used, but ownership of inventory remains with the respective sellers rather than the platform.

 

“The Government of India permitted 100 per cent FDI in food retail, subject to the condition that the food products must be manufactured or produced in India. This exception allows global retailers and food companies to establish wholly owned food retail operations in India, provided they source products that are domestically manufactured or produced. At times, the finer nuance is lost,” said K Narasimhan, advocate at the Madras High Court.

 

AICPDF has also urged the government to constitute a high-level committee comprising the Department for Promotion of Industry and Internal Trade (DPIIT), the Ministry of Commerce & Industry, the Ministry of Finance, the Competition Commission of India (CCI), the Central Consumer Protection Authority (CCPA), trade associations, distributors and consumer representatives.

 

The proposed panel, the federation said, should study the long-term implications of quick commerce on competition, employment, investment, consumer welfare and India’s broader retail ecosystem.

 

It also called for policy measures to ensure “a fair, transparent and level playing field” while safeguarding the livelihoods of an estimated 14 million retailers, 450,000 distributors and others dependent on the country’s retail trade.

 

The distributor body said mounting competitive pressure from digital commerce platforms has already forced a significant number of retailers to shut shop in recent years. “If foreign-funded marketplace companies are permitted to enter quick commerce using inventory-controlled models, the impact on employment, entrepreneurship and small businesses could be devastating,” the letter said. 

Flagging a wholesale problem

 

• Review whether Amazon’s and Flipkart’s quick commerce operations comply with the consolidated FDI policy and DPIIT Press Note 2 (2018)
• Clarify if any exemptions or approvals have been granted permitting foreign-funded marketplace platforms to own, control or operate dark stores
• Refer competition-related concerns to the CCI and consumer protection issues to the CCPA
• Set up a high-level committee to study the long-term impact of quick commerce on India’s retail ecosystem