In today's Finshots, we explain why Union Commerce Minister Piyush Goyal is questioning Amazon's $26 billion investment plan in India, and how the government might take inspiration from Europe to level the playing field for local businesses.

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With that out of the way, let’s get on to today’s story.

The Story

Union Commerce Minister Piyush Goyal didn’t hold back last week. He called out e-commerce companies and his question was simple: Is Amazon playing fair, or is it slowly squeezing the life out of India’s small businesses?

But this isn’t the first time we’ve heard concerns about e-commerce giants since they entered the Indian market back in the early 2010s. So why call them out today, all of a sudden?

Well, it seems Amazon is planning to invest a whopping $26 billion into India by 2030. And there’s a troubling inconsistency that Goyal can’t ignore—how can Amazon justify this massive investment while its Indian arm, Amazon Seller Services, reported a 33% rise in net losses last year?

It’s not just about the money because Goyal is also questioning how a company that claims to merely connect buyers and sellers is racking up billions in losses while pushing deep discounts. It all sounds too twisted, right?

And that's the heart of the issue. It's something that Goyal flagged as “predatory pricing” or in other words, the strategy of selling products at such low prices that it drives competitors out of the market— like e-commerce platforms offering prices so low that local businesses just can’t keep up. And as Goyal suspects, Amazon’s aggressive pricing strategy is doing just that - slowly but surely crushing India’s small retailers.

To understand the impact, let’s take a step back.

Say you’re eyeing the latest smartphone. You’ve got two options: head to a local store and haggle a bit, or shop online, where irresistible offers—10% off with a credit card, extra discounts for trading in your old phone, and cashback deals – lure you in. It’s no wonder millions, like you and me, click ‘buy’ from the comfort of their couch. But while you’re scoring those deals, local shops are fighting to stay open. They can’t compete with the rock-bottom prices offered by online giants. And this isn’t just bad news for your neighbourhood retailers, it’s a serious issue for India’s economy too.

Back in 2013, 10% of smartphones in India were being sold online. By 2016 that figure jumped to 30%. By 2019, 44% of all smartphones were sold online. And of these online sales, Amazon and Flipkart were already dominating roughly 90% of all smartphone sales.

It doesn't stop at smartphones – whether its clothing, footwear, or kitchen appliances, folks are turning to online marketplaces for the best possible deals they can find.

So, when Amazon announced its plan to invest another $26 billion in India, Goyal wasn’t buying it—literally and figuratively. He suspects those massive losses Amazon reports are a direct result of slashing prices to undercut competitors. And those billion-dollar investments? They might just be a clever way to cover these losses.

And here’s where it gets interesting.

Because as per Indian foreign direct investment (FDI) regulations, e-commerce marketplaces are supposed to function strictly as business-to-business (B2B) platforms, simply connecting buyers and sellers. If a company wants to own and sell its inventory directly to consumers—a business-to-consumer (B2C) model, like Walmart and Amazon do in the U.S.—that’s a strict no-go in India. This rule protects India’s brick-and-mortar stores from being overshadowed by international giants with deep pockets.

And that brings us to the big question - How does Amazon India accumulate such significant losses if its role is merely to connect buyers and sellers?

First off, deep discounts. The company slashes prices by as much as 70% during festive seasons. While this drives massive sales, it also contributes to the heavy losses. Amazon’s strategy here is clear: to capture market share, even if it means taking a financial hit in the short term.

Next, there are infrastructure and tech costs. Amazon has invested billions in building fulfilment centers, warehouses, and a vast delivery network across India. With over 60 fulfilment centers covering 20 million cubic feet of storage space, the costs add up quickly and significantly.

And then there are legal and compliance battles that drain Amazon’s finances. With accusations of violating FDI regulations and anti-competitive practices, Amazon has spent huge sums—upwards of ₹8,000 crore on legal fees in India alone between 2018 to 2020. And it’s not just Amazon under the microscope. In January 2020, the Competition Commission of India (CCI), began investigating Amazon and Flipkart after complaints from Indian trader groups. The CCI pointed out four key issues: 1) e-commerce firms exclusively launching mobile phones, 2) promoting preferred sellers on their websites, 3) offering deep discounts, and 4) prioritising certain seller listings over others.

But if taking losses is part of Amazon’s and Flipkart’s way to grow, why’s that an issue, Finshots?

Well, because the aggressive expansion comes at a cost to trade and commerce.

There have been allegations that e-commerce giants manipulate sales in favour of specific sellers on their platforms. A Reuters report revealed that in 2019, of Amazon’s 400,000 sellers in India, a measly 35 were responsible for about two-thirds of its online sales. And Amazon held equity stakes in several of these sellers, blurring the lines between being a middleman and acting as a direct seller.

So, what’s the silver lining here?

Globally, Amazon's direct sales model, which deals directly with manufacturers, has been highly profitable. In 2018, 58% of Amazon's physical goods sales came from third-party merchants, with the rest from direct sales. This model gives Amazon greater control over its product range and pricing – and it’s a strategy the giant is keen to replicate in India despite regulatory barriers. After all, Amazon cannot ignore the revenue opportunity in the world’s most populous country. It made nearly $10 billion in sales in India in 2019. Therefore, it keeps trying to bypass the legal regulations which are impacting local retailers nationwide.

But now, it seems the Indian government is gearing up to go after these e-commerce giants by taking inspiration from Europe’s regulatory approach.

A recently published report by the Committee on Digital Competition Law has suggested adopting ex-ante regulations, much like the European Union’s Digital Markets Act (DMA), to tackle anti-competitive practices before they can even take root.

What does the report suggest?

First, e-commerce giants trying to push their private-label products ahead of other local sellers’ offerings would be a big no-no. This will ensure that these platforms won’t be able to use their dominance to stifle competition unfairly.

Second, e-commerce giants should not restrict third-party apps. For instance, if Flipkart has its own payment service, it wouldn’t be allowed to block alternative payment options from being used on its platform. So, this is about giving consumers more choice and ensuring that no single company can monopolize the digital marketplace.

But perhaps the most crucial aspect of these proposed regulations could be the focus on data. The new rules would limit how platforms like Amazon and Flipkart can use customer data. No more using this data to give their own products an unfair advantage over those of independent sellers. It’s about levelling the playing field and ensuring that data is used ethically and fairly.

Of course, these proposed regulations haven’t gone unnoticed by the e-commerce giants. Both Flipkart and Amazon are pushing back against the bill.

As these giants weigh their next moves, the question looms: Will these new rules truly level the playing field, or will Amazon and Flipkart find yet another way to bend the system to their will? You tell us.

Until then…

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