The e-commerce giants are now under scrutiny for probable violation of the FDI norms in India.
Image Courtesy: india.com
The festive season in India draws humongous crowds to the market. But, in the recent years, a large portion of these crowds have shifted to shopping from brick-and-mortar outlets to e-commerce giants like Amazon and Flipkart for the deep discounts they offer, The Print reported.
These enticing deals that were the main reason for high sales, have now come under the scanner of the government over alleged ‘predatory pricing’ to gain more customers, a business practice that aims to mitigate all competition and one that is under a lot of controversy.
A fortnight ago, a leading Indian trader body, the Confederation of All India Traders (CAIT) had approached the government saying that the discounts offered by Flipkart and Amazon violated the country’s foreign investment rule for online retail.
Calling for a ‘blanket ban’ on such sales, a letter by CAIT to the federal trade minister PiyushGoyalread, “By offering deep discounts ranging from 10% to 80% on their e-commerce portals, these companies are clearly influencing the prices and create an uneven level playing field which is in direct contravention of the policy.”
“He (Goyal) assured the delegation that if need arises and unethical business practices are proven, the government may order an investigation,” said Praveen Khandelwal, CAIT Secretary General.
Prior to the complaint by CAIT, the Department for Promotion of Industry and Internal Trade (DPIIT) also sought to meet representatives of Amazon and Flipkart following complaints by offline retailers that these festival discounts were hurting their business.
Speaking to LiveMint, a Flipkart spokesperson said, “We have always been fully committed to doing business the right way and appreciate the consultative approach that the Commerce Ministry & DPIIT have taken. We continue to be willing to work with the government & all stakeholders to promote a regulatory environment that creates balanced growth that is good for India. We are proud to be supporting job growth in India, supporting sellers, MSMEs, artisans and working with logistics partners including thousands of kiranas& general trade stores.”
What the FDI rules say
Under the new FDI rules that came in on February 1, e-commerce companies are barred from striking contracts with private companies for exclusive sales of certain items, for example, the One Plus – Amazon partnership and offering discounts.
By preventing exclusive marketing or selling rights in its new FDI policy for e-commerce, the government has disallowed online marketplaces from exclusively selling a product.
As per the current FDI policy, the government permits 100 per cent FDI in the marketplace model of e-commerce but not in the inventory-based model. The online firms are also not allowed to influence directly or indirectly prices of goods to be sold on their platforms. Both Amazon and Flipkart have maintained that they follow the current FDI policy.
Keeping in mind the current situation, the Competition Commission of India (CCI) will also issue a ‘soft policy advisory’ to the e-commerce industry.
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”.
What the Centre says
Following the complaints from the DPIIT and CAIT, the government asked Flipkart and Amazon to disclose names of top five sellers on their platform, price list of goods of preferred vendors and the kind of support provided to sellers.
Commerce Minister PiyushGoyal said, “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.”
He added, “If law has been violated in any manner, letter or spirit, strictest action will be taken. BharatiyaJanata Party, the NarendraModi government is very clear that we stand with the small retailers across the country.”
While the advent of e-commerce websites like Amazon and Flipkart have resulted in a free market system, they have above all opened up a vast world, full of innovation, to the online shopper. Such variety is hard to come by at local stores. With festive discounts being dished out all over the country, isn’t it wrong to single out e-commerce companies that are doing the same?
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