Amazon.com Inc. is disbanding a controversial joint venture in India with billionaire Narayana Murthy, a potential setback for the e-commerce giant as the country’s online market is projected to surge to $1 trillion.
The seven-year-old joint venture, called Prione Business Services Pvt., will cease operating from mid-2022, the companies announced on Monday. The business, which began by helping merchants get online to sell their wares before becoming a dominant vendor itself, is owned by Jeff Bezos’s Seattle-based behemoth and Catamaran Ventures LLP, the private investment firm of Infosys Ltd. co-founder Mr Murthy.
The partners have “mutually decided to not continue their joint venture beyond the end of its current term,” they said in a statement. The JV has enabled over 300,000 sellers and entrepreneurs to go online and enabled 4 million merchants with digital payment capabilities, they said.
Amazon has come under fire in India for business practices that small retailers contend are unfair and illegal. The Competition Commission of India started a probe last year into the company and Walmart Inc.-owned Flipkart after local retailers alleged the giants abused their dominance through deep discounts, exclusive tie-ups and favorable backing of certain vendors. On Monday, India’s Supreme Court rejected petitions by Amazon and Flipkart to halt the probe, ruling on Monday that the antitrust investigation could proceed.
That adds to mounting pressures on Amazon and Mr Murthy, who turns 75 later this month, to end their collaboration, which has been criticized for violating the spirit of India’s e-commerce laws.
“We expect big giants like Amazon, Flipkart volunteering for inquiry and transparency and you don’t even want it,” Chief Justice N.V. Ramana said in the ruling. “Inquiry has to be permitted.”
Prione was set up in 2014, a year after Amazon began selling in India, with the U.S. retailer owning 49% and Catamaran Ventures holding 51%. The idea was to train and bring on the Amazon platform new-to-online merchants, including local shops like weavers and women-led startups. They were instructed in fundamentals like photographing and cataloging their products, writing accurate descriptions and providing customer assistance.
More controversially, Prione set up a fully-owned unit called Cloudtail that sold goods online alongside the independent shops. It grew to be one of the largest sellers on Amazon, forging agreements with premium brands like Apple and OnePlus, in part because of what smaller merchants alleged was favorable treatment. Cloudtail vended over a third of the goods sold on Amazon even as recently as two years ago.
India later changed its regulations to bar platforms like Amazon from selling products from affiliates or giving favorable treatment to related businesses.
In February of 2019, Amazon lowered its stake in Prione to 24%, while Catamaran Ventures raised its holding to 76%. The Confederation of All India Traders (CAIT), a group which represents millions of small retailers, alleged that the restructuring was a creative way to circumvent the new rules. Cloudtail now sells under a fourth of all goods sold by Amazon. Both the companies have insisted that they are fully compliant with the law.
In recent months, trade groups representing millions of small retailers have demanded that India’s commerce ministry further tighten the rules. When Amazon’s Bezos visited India in early 2020, incensed small store owners demonstrated outside the venue at which he was speaking with “Amazon Go Back” signs.
This July, the Indian Sellers Collective, which represents small seller groups, exhorted Mr Murthy in a letter to end the partnership with Amazon. The letter, which was reviewed by Bloomberg News, accused the billionaire of hurting the interests of his own country.
“Mr. Murthy has been in cahoots with Amazon through a name-lending arrangement with Cloudtail acting as a front for Amazon’s retail business and defied the objectives of the policies of the Government of India,” the Collective wrote. “Just for a fixed fee or returns, Mr. Murthy has sacrificed the interests and livelihood of millions of small traders in India and left them at the mercy of Amazon.”
The term of a similar Amazon joint venture with Pune’s Patni Group also ends in May 2022 but no decision has been taken on its continuance.
Amazon has invested heavily in India, with its billion-plus potential online shoppers and growing economy. During his visit last year, Mr Bezos pledged the company would invest $1 billion on top of an earlier $5.5 billion sum. Rival Walmart outdid the investing, first acquiring Flipkart for $16 billion and then plowing billions more to boost its growth.