Flipkart CEO Kalyan Krishnamurthy stated that the company has overhauled its FDI compliance procedure up to the current statutory norms, after heavily lobbying for deferring the implementation of new foreign investment rules in e-commerce listed in Press Note 2 released by the Department for Promotion of Industry and Internal Trade (DPIIT).
Last month, commerce and industry minister Piyush Goyal had a meeting with the stakeholders of the e-commerce industry where he reportedly asked the executives regarding their compliance with the latest FDI norms.
Stricter guidelines were introduced last year by the department to make sure there is a level playing field for Indian Companies and pushed implementation of the pure marketplace model for FDI-funded marketplaces, capping the maximum sales by vendors related to e-commerce websites to 25%.
Before the enforcement of these norms, the majority of the sales on the Walmart owned marketplace were made by vendors who sourced the goods from wholesale arm of the company and had access to deep discounts which helped them price products extremely low.
Reportedly, Flipkart found a loophole and introduced intermediaries to bypass the norms set in place. They layered the business model by inducting B2B intermediaries who bought products from Flipkart’s wholesale department and sold the same products to the vendors selling the merchandise on the e-commerce marketplace.
Recently, Flipkart was involved in an entire episode where GOQii had taken legal action against the company for the predatory pricing practices and had hinted at violations of the PN2 as well.
While the Department of Industrial Policy and Promotion is eyeing the functioning of the new business model of Flipkart, CEO Krishnamurthy emphasized that the company took legal compliance sincerely, and is open to any compliance audit by its statutory auditors.