Three of India’s largest consumer-facing distributor and dealer groups, representing FMCG, automobile and mobile phone sectors, have come together to seek laws to protect the interests of “nearly 30 million dealers and distributors” who are forced to operate under “one-sided terms and conditions”.
“We are concerned that companies operate without written agreements or impose one-sided agreements that solely benefit them,” Dhairyashil Patil, national president of All India Consumer Products Distributors Federation (AICPDF), said.
“Distributors and dealers invest crores to set up their network, and there have been examples when companies suddenly decide to terminate their association, leaving distributors to bear the brunt of the losses,” he said, speaking for auto and mobile phone sectors as well.
There are no existing laws to compensate distributors and dealers in such cases.
Distributors and dealers across 18 sectors in total, including pharmaceuticals, paper, plastics, and electronics, have jointly raised their concerns and called for new laws and policies to protect their interests.
Federation of Automobile Dealers Association (Fada) alleged that companies have exited the market without compensating dealers while All India Mobile Retailers Association (Aimra) also alleged interpretation issues during GST litigations and invoicing and return of inventories upon expiry.
“We need to have a national supply policy, and empower and strengthen India’s supply chain, which is the backbone of the industry,” said Praveen Khandelwal, secretary general of Confederation of All India Traders (CAIT). “Corporates have had a monopolistic attitude when it comes to engaging with trade, and that needs to change urgently.”
The organisations are seeking government intervention on the matter and are jointly in talks with the Department for Promotion of Industry and Internal Trade, and ministries of consumer affairs and commerce.
Fada has claimed that due to the exit or restructuring of five leading overseas automakers in the past five years, dealerships have borne a loss of 64,000 jobs and investments worth Rs 2,485 crore.
Since 2017, Ford, General Motors, Man Trucks, UM Lohia, Harley Davidson, Ford and multiple smaller electric vehicle players have either exited or drastically restructured and scaled down their operations.
“There have been several instances where multinational companies have exited the Indian market without paying fair compensation to dealers who had made heavy investments to set up the infrastructure,” Manish Raj Singhania, president of Fada, told ET. “They could not seek any recourse because there are no laws today to help facilitate the same.”
Singhania alleged that even for existing businesses, the agreements are lopsided. “Retailers are often made to set up multiple outlets without assessing the business viability,” he said.
Even after making these investments, legally the contract between manufacturers and dealers are valid for a year at a time even as “trade certificates are valid for five years”, Singhania said.
Industry estimates that investment of Rs 50-75 crore is required to set up a dealership for retailing commercial vehicles. For passenger vehicles and two-wheeler makers dealerships, the investments stand at about Rs 50 crore and Rs 20 crore, respectively.
“Today, there are about 500-600 electric vehicle makers registered and operating in the country. Some of these firms are very small and disappear overnight and when they do, there is no safeguard for distributions,” Singhania added.
Mobile phone retailers have raised similar concerns.
“All brands (except Apple) regulate the market operating price,” Kailash Lakhyani, founder chairman of Aimra, said. “This causes interpretation issues during GST litigations, because the processes followed on a daily basis are not documented in the agreements.”
He alleged that the invoicing and credit note process is set by the respective brands. “In the case of any statutory issues, brands don’t take any responsibility. This has to be changed,” he said.
Other aspects that Aimra has brought up include return of inventory upon expiry and agreements limiting the liability of the brands to a meagre amount. “We have also highlighted that agreements don’t allow many distributors or retailers to sell on e-commerce platforms,” Lakhyani said.
However, executives at companies disagree.
“Many of these allegations are sweeping, and not true for all companies,” a senior executive at a large personal care products company said. “Maybe, in some cases, distributors have faced the brunt, but not with all.”
Another executive representing a mobile phone maker, said, “We have built robust relationships with dealers and distributors over the years. We always deal with them in all fairness and will continue to do so.”
Both requested not to be identified.
