In a move that could be seen as a strategic retreat by Amazon in India amid increasing scrutiny by local regulators, Cloudtail India, one of the largest sellers of the American e-commerce giant, will cease operations in the country in May next year.
Cloudtail India is a wholly-owned subsidiary of Prione Business Services, a joint venture between Catamaran Ventures, an investment firm set up by Infosys billionaire N.R. Narayana Murthy and Amazon. The two parties on Monday said they will have “mutually decided” not to renew the seven-year partnerships due May 19, 2022.
Cloudtail, which was set up in 2014, has so far enabled over 300,000 sellers and entrepreneurs to go online, the two companies said in a statement, adding that the joint venture has also provided four million merchants with digital payment capabilities.
“Amazon and Catamaran entered into a JV in the early days of e-commerce in India with a shared vision of transforming hundreds of thousands of small businesses into a fast-changing digital world by providing online capabilities, enabling them to access customers both in India and globally,” said Amit Agarwal, global senior vice president and country head of Amazon India, in a statement.
“We are humbled by how the joint venture exceeded its vision, helping online commerce evolve through the unrelenting efforts of hundreds of its employees, positively impacting over 4.3 million small businesses, creating hundreds of thousands of jobs, and contributing to India’s digital economy,” added Agarwal.
The development comes right after India’s apex court refused to halt an ongoing antitrust probe against Amazon and Flipkart by market regulator Competition Commission of India (CCI).
Amazon and Flipkart have been on the radar of Indian regulators for allegedly flouting the FDI rules that were laid down in late 2018. The regulations that came into force in February 2019 said a seller wouldn’t be allowed on an online marketplace if the latter owns equity in the seller or controls over 25% of the sales of that seller. However, these two e-commerce companies quickly found a way around these rules. For instance, to keep selling products from affiliate companies, Amazon India changed the ownership structure of Cloudtail by reducing its stake from 49% to 24% so that it is no longer its group company, which supposedly made it eligible for selling on the platform (the FDI regulations were not clear on what equity participation means, hence was open to interpretation).
In January 2020, CCI launched an investigation against Amazon and Flipkart based on a complaint filed by an offline retail trading group. The complaint accused Amazon and Flipkart of promoting select sellers, particularly those in which they had a stake, on their platforms and using steep discounts to kill the competition. However, both companies denied those charges and challenged the investigation in court for lacking evidence, halting the probe for more than a year.
Earlier in June, the high court in the Indian state of Karnataka finally ordered the investigation to resume after months of hearings. Swinging into action, Amazon and Flipkart challenged the ruling in the Supreme Court, but their plea to halt the investigation was squashed on Monday.
Praveen Khandelwal, secretary-general of the Confederation of All Indian Traders (CAIT), an association of offline traders bodies, told local media Business Standard that not renewing the joint venture is “now a cover-up exercise by Murthy.”
“The fact that Amazon is violating the law and foreign direct investment (FDI) policy through Cloudtail must have been known to Murthy long before or even at the time of entering into an agreement with Amazon,” Khandelwal said the question arises as to why Murthy took this long for taking this decision. “Did Murthy ever explain as to why Cloudtail is being used as a preferential seller on Amazon in utter disregard of the FDI policy?”
Meanwhile, M.D. Ranganath, president of Catamaran, in a media statement, said, “as our JV with Amazon reaches the end of its tenure, I reflect on this successful partnership that introduced the power of digitization and empowered hundreds of thousands of SMEs across big and small towns.”