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This is why Modi govt wants to punish Amazon, Flipkart for deep discount sales

The Diwali sales offered by e-commerce giants Amazon and Flipkart draw thousands of breathless customers every year.

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New Delhi: A Rs 2,199 watch available for Rs 247. An air purifier worth Rs 32,995 for Rs 23,999. Branded shoes at 60-80 per cent off, and an inverter worth Rs 9,995 at Rs 4,499. The Diwali sales offered by e-commerce giants Amazon and Flipkart draw thousands of breathless customers looking to score sweet deals on a whole range of essentials as well as indulgences. 

The same deals have now brought the companies under the government’s scanner over alleged “predatory pricing”, a controversial business practice where a player offers massive discounts to mitigate competition.

Last week, Union Commerce Minister Piyush Goyal assured action against Amazon and Flipkart if the two companies are found guilty of the practice. The two companies have reportedly notched up sales of over $3 billion in their festive sales this month. 

According to reports, the government has sent detailed questionnaires to both e-commerce platforms, which are owned by Americans. 

“E-commerce companies have no right to offer discounts or adopt predatory prices. Selling products cheaper and resulting the retail sector to incur losses is not allowed,” Goyal was quoted as saying. 

While the government awaits their response, ThePrint explains the laws the websites may have flouted with the discounts. 


Also Read: Fashion, lifestyle and electronic items expected to vanish from Amazon & Flipkart


What is predatory pricing?

While Amazon is a US-based company, Flipkart, founded by Indians, is majority-owned by American giant Walmart. 

Both follow the marketplace model of e-commerce, which means they connect sellers and buyers instead of selling their own wares. This is the only type of e-commerce where foreign investment is allowed in India. 

Under FDI rules that kicked in this February, they are also barred from striking contracts with private companies for exclusive sales of certain items, for example, the OnePlus-Amazon partnership, and offering discounts.

Even so, Flipkart and Amazon, apart from other e-commerce portals, have often been accused of indulging in predatory pricing owing to the deep discounts they offer.

Before the new FDI rules took effect, these platforms were accused of buying products in bulk from manufacturers at heavy discounts, and then selling them at lower costs to entities where they had a stake. These entities would then reportedly sell these products on the e-commerce platforms at lower costs. 

Costs were allegedly brought down further by waiving the delivery fee and via cashbacks, often on their own payment portals like Amazon Pay. 

Since such practices are seen as inimical to the functioning of brick-and-mortar stores, the new FDI guidelines barred e-commerce entities from “directly or indirectly” influencing the price of goods and services. 

It also tasked the companies with ensuring a “level-playing field”. In order to emphasise this, it stated that cashback or other services such as quick delivery should be applicable to all vendors on these platforms. 

The policy required e-commerce platforms to realign their business structures to ensure compliance. A draft analysis by PwC, in fact, predicted that the revised policy could cause a $46 billion fall in online sales by 2022. 

However, experts have been of the opinion that price-influencing is a competition issue rather than an FDI issue. 

“FDI is the wrong place to regulate marketplace or anti-competitive behaviour,” Nikhil Narendran, a partner at India-based law firm Trilegal was quoted as saying. “Deep discounts by itself are not bad as long as they are not harmful for the consumer. Free market, competition, and innovation benefit the consumer.” 

What about the Competition Commission of India?

Before the new FDI policy took effect, the Competition Commission of India (CCI) — the watchdog for anti-competitive practices in India — had absolved e-commerce platforms of indulging in anti-competitive practices. 

For instance, in Ashish Ahuja v Snapdeal.com, the CCI noted that the e-commerce market “thrives on special discounts and deals”.

It had then ruled that while Section 4 of the Competition Act 2002 does prohibit predatory pricing, the discounts offered would not be illegal since Snapdeal was not a “dominant player” in the relevant market. 

A market player is said to enjoy a dominant position when it can function independent of its competitors, customers and others, to take unilateral decisions. 

However, with the growing concern over predatory pricing, the CCI is planning to issue a “soft policy advisory” for the e-commerce industry. 

The commission has also initiated a study on e-commerce to gather information and insights from market participants in goods and services for various sectors like mobile phones, grocery, food, electronic/electrical appliances, lifestyle and hotels.

CCI chairperson Ashok Kumar Gupta told The Economic Times last month that deep discounts make a business “unviable” as it reduces the value of products and services in the eyes of the consumer. 

Following written complaints by the brick-and-mortar retailers lobby, the Confederation of All India Traders (CAIT), the CCI also told Goyal that it will keep a close watch on these deep discounts. 

Draft e-commerce policy

The Department for Promotion of Industry and Internal Trade also released a draft e-commerce policy in February, but this focused on setting up a legal and technological framework for restrictions on cross-border data flow. 

The policy did propose prohibiting e-commerce marketplaces from adopting business strategies that favour one or few sellers/traders, and a more comprehensive version is expected in 2020. However, the government has clarified that there will be no changes in the FDI rules in the sector. 

In August this year, the Ministry of Consumer Affairs, Food & Public Distribution released  ‘E-Commerce Guidelines for Consumer Protection 2019’ to protect the rights of online customers. These guidelines make it the e-commerce platform’s responsibility to maintain a “level playing field” and to ensure that it does not “influence the price of the goods or services”.

Meanwhile, the US government has reportedly voiced its concerns over the new FDI rules for e-commerce, and pushed for the regulation to become a bilateral issue.


Also Read: RSS affiliate, trade body want govt to act against Amazon & Flipkart, fear ‘black Diwali’


 

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146 COMMENTS

  1. I purchased one high end laptop online from Amazon (Dell Inspiron 5570)
    Transaction was done on advance payment by Debit Card.
    Since I had problem from day of 1st use, I investigated. I found the following
    1)The laptop was a locally assembled by Dell India from Scrap windows 8 bought in lots. Only Mother Board was procured as OEM . It was sold as new one
    2) The fraudulant activities was carried out by Amazon India in connivance with Dell India
    3) The GST INVOICE. Of NIL was done showing as replacement supply
    4) No DCOA sticker (DELL CERTIFICATION OF AUTHENTICATION) attached . hence no Royalty was paid to US
    I HAVE ALL DIGITIZED PROOF. I wrote to FM & GST council . No action

  2. I bought a Vacuum cleaner from Eureka Forbes store offline from their dealership. And when I required service, they were not being helpful. But for the products I have bought online from Amazon – I’ve got excellent service. I would prefer to buy from Amazon because of their customer service.

  3. Discount in e- commerce for good products is good for the end users. But control mechanism on the quality of the products put up for sale should be there. The Govt should have stringent law to control over production in the factories , which can go over to the discount counters.. Bulk purchase is a mean to facilitate discount, but quantum of discount sometimes over shoot the production cost?. Productions and entry of down grade products are the grey areas where the Govt should look into , to stop exploitation of the customers

  4. Seems like a politically-motivated article glorifying the blunders of BJP. Yes BJP has proved to be a big blunder. They simply want to convey the “hafta” system to these companies. When all the buyer-seller parties agree to sell stocks on discounts, why does the BJP stomach starts paining? The producer, buyer, seller and consumer all are happy, then what is the problem. There’s no exploitation nor violation. Where was BJP when Jio used the same strategy to revolutionise the era of Internet? Now when these companies are just letting off on festive season, the party has problems. Height of lies and hypocrisy.

  5. Many are mistaken as they are talking about Jio and Ambani, Adani…..Please remember that the Government is not supporting them…Its actually a government of Ambani and Adani……if you are aware that Ambani spent so much crores when BJP came to power…..Will our voices be heard when the Election commission just removed their website content soon after questions were raised about the discrepancies in counts….Can India be saved? ??

  6. Let us not simply blame govt for everything. I have experience of big companies affecting small companies this way. Poor customers lack knowledge on after sales service, if it needs it. I assure you that all online purchases do not give any service latter. Then, does saving money during buying matter?

    On govts part they must close all online sales

  7. Long live Economic Nationalism!

    Yeah, it’s perfectly antithetical to Economic Conservatism — so what?

    As long as it benefits the vote-bank and above all, the campaign-donors — why should it matter?°

  8. The BJP Govt. was taking a deep nap when the same predatory pricing practice was used by Jio, which completely dis-mantaled the telecom industry and now when two e-commerce giants are offering huge discounts in festive season the Govt. appears to be worried. Two contradictory facets of the same Govt. These are the Acche Din! for which we voted.

  9. What was Jio’s strategy if not predatory. They even used the PM’s photo in their promos. Jio destroyed an entire industry. And today they are going to charge for outgoing calls.

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