FDI regulations forcing Flipkart to downscale B2B biz

It is no more a secret that the FDI regulation outlined by the government last year played a spoilsport in Walmart’s plan to use Flipkart to maximum advantage in cross-selling their private brands.

Further, the regulations seemed to have its impact on its e-comm marketplace's wholesale operation, which has been in existence through a layer of intermediaries that Flipkart had created to comply with India’s revised foreign investment rules, which came into effect from February 1, 2019.

Due to tighter e-comm rule, Flipkart is finding hard to continue with as usual wholesale business and have reportedly started to curtail buying products directly from the companies. It is also asking preferred sellers to buy merchandise directly from manufacturers.

The process to close the wholesale business has started to ensure that it is completely in compliance with FDI norms, reported ET quoting sources aware of the development.

However, Flipkart has not reacted to the development. Entrackr queries to Flipkart is yet to receive any response.

Last year in December, stricter guidelines came in the form of FDI policy 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%.

FDI notification also added that a seller on an e-commerce platform would be considered controlled by the marketplace operator if it sourced more than 25% of its merchandise from an entity.

Before the enforcement of the policy, close to around 70-75% of the sales on the Indian e-comm marketplace were made by vendors who sourced the goods from the wholesale arm of the company and had access to deep discounts which helped them price products extremely low.

The e-comm firm reportedly found a loophole and introduced intermediaries to bypass the norms. 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.

While the DPIIT is keen to look into the functioning of e-comm firm's business model, Flipkart CEO Kalyan Krishnamurthy had said that his firm is open to any audit to check for compliance with requirements in Press Note 2.