CAIT alleges Flipkart for Violating and Restructuring its Business Model

Traders' body Confederation of All India Traders (CAIT) has urged the government to investigate Flipkart’s sudden move to restructure its business model to take over its inventory and retail prices. The body has further accused Walmart-owned eCommerce giant Flipkart of violating the FDI norm blatantly.

Citing the concern in its letter to the Minister of Commerce and Industry, Piyush Goyal, the body said,” Flipkart violated FDI policy by creatively structuring its marketplace business model and creating a facade to exercise control over inventory and retail prices, a practice expressly prohibited by the FDI Policy on ecommerce.” They further demand an immediate investigation and strict action from the Indian government and the tax authorities.

When asked about the controversy, the company’s spokesperson said,” Flipkart's endeavor has always been to use technology and innovation to facilitate the buying and selling between lakhs of local sellers/MSMEs and over 300 million customers transparently and efficiently.

"We will continue to operate with the same transparency, and in line with India's FDI and regulatory framework, while creating new livelihood opportunities and jobs...With more than 3 lakh sellers on the Flipkart Marketplace, our seller partners are an integral part of the ecosystem," the spokesperson said.

Reportedly, In 2018, Walmart spent $16 billion for grabbing a whopping 77% stake in Flipkart, making it the most significant investment by a foreign company into an Indian eCommerce firm. Traders body CAIT urged the government to take action on e-commerce firms. In addition, Walmart further led a $1.2 billion funding round in 2020.

CAIT further noted that in 2019, the company had created a two-tier model, comprising 10 Authorized Distributors (ADs) and 20 Diamond Sellers (DSs) whose sole purpose was to grant control of inventory and prices to Flipkart. The model also worked as an eye-wash and misled the government on its wholly illegal activities undertaken by Flipkart and its associated entities.

It alleges that this model system came into existence for GST compliance and fulfilled their ceding control goals for a small cost.

"Flipkart has created a system of surrogate business partners with the sole aim of bypassing the FDI Policy and destroying the very traders the policy aims to protect."

"On behalf of over eight crore traders, we are writing to you to initiate an immediate inquiry and investigation into the wholly illegal business practices of Flipkart and its violations of the FDI Policy, GST, Income Tax and more serious money laundering concerns, before it wreaks havoc in the lives of our members, their families, and the overall retail industry," the letter states.