Explained: The policy that could kill steep online discounts

Big-bang sales by e-commerce companies may soon be over. A government think tank headed by commerce and industry minister Suresh Prabhu has prepared a draft e-commerce policy that sounds the death knell for deep discounts during online sales. If the draft policy becomes the rule, it will be difficult for big online marketplaces to shower discounts on customers. Here's what this means:What the draft saysTo address anti-competitive issues in e-commerce effectively, the draft e-commerce policy recommends several strategies. Two of these aim at regulating online prices. First is a sunset clause. The draft says, "A sunset clause, which defines the maximum duration of differential pricing strategies (such as deep discounts) that are implemented by e-commerce platforms to attract consumers, would be introduced." The sunset clause might restrict the ability of e-commerce companies to offer deep discounts. Another strategy aims at restricting the ability of the e-commerce marketplace companies to influence prices of goods. "The restriction imposed on e-commerce marketplace, to not directly or indirectly influence the price of sale of goods and services, would be extended to group companies of the e-commerce marketplace," says the draft.Why the restrictions?The restriction on pricing are aimed at curbing the practice of foreign-funded companies bypassing laws to use foreign money to offer huge discounts. Discounts help e-commerce companies gain loyal subscribers. Domestic retailers have raised the issue of foreign money funding discounts which makes it difficult for the local retailers to compete. Ensuring a level-playing fieldIn April this year, a group representing brick-and-mortar retailers, including Future Group and Reliance Retail, alleged that e-commerce companies were violating India’s foreign investment regulations by influencing prices on their platforms and illegally funding abnormal discounts. The Retailers Association of India alleged in a letter to Prabhu that Amazon and foreign-funded companies in India, including Flipkart, Shopclues and Snapdeal operated models under which 100% foreign investment was allowed only to provide platforms to other retailers and vendors to conduct business. Similar letters were sent to Prabhu by a group of small vendors that sells on e-commerce sites and by the Indian Cellular Association, a lobby of handset makers representing Apple, Micromax, Nokia, Vivo, Lava and Lenovo. They urged the government to take action against Amazon and Flipkart for violating FDI norms by offering discounts — directly or indirectly — on mobile phones and other products through intermediaries or partner companies. Flipkart and Amazon had denied the allegations.Curbs on related partiesThe draft e-commerce policy also places curbs on "related parties". "Bulk purchase of branded goods such as electronic products (especially mobile phones), white goods, branded fashion by related party sellers which lead to price distortions in a market place would be prohibited," says the draft policy. Related party sellers are the online sellers who already have a business relationship with the e-commerce company. A foreign-funded e-commerce company is not allowed to keep inventory but some companies might circumvent this rule by funding their sellers and offer discounts through them. Deep discounts hurt local retailersIn April, Future Retail joint MD Rakesh Biyani said there was a level-playing field imbalance happening due to improper discounts. He said the government policy stated that e-commerce players should not be allowed to participate in pricing and should not invest money in discounting. "If one particular channel is misusing its money power to discount the product at a faster rate and the other channel is unable to match the price, it shrinks the market," he said. Last year, when asked at a company event why e-commerce companies should not offer discounts when his own brick-and-mortar stores too offer heavy discounts, Future Group founder and CEO Kishore Biyani said, "This is an Indian company, with Indian money and discounts. That is foreign funding." The draft e-commerce policy clearly states that it is aimed at creating a level-playing field. It takes note of "the need to preserve flexibility and create a level-playing field to enable formulation and implementation of appropriate policies in the future for encouraging domestic innovation and boosting the domestic digital economy to find its rightful place with dominant and potentially non-competitive global players".

from The Economic Times https://ift.tt/2AohjXa