Accusing e-commerce platforms of openly flouting FDI rules, traders’ body CAIT has asked Finance Minister Piyush Goyal to conduct an investigation into and place a blanket ban on festival sales by e-commerce companies for indulging in “predatory pricing” and “deep discounting”. Praveen Khandelwal, national secretary-general of CAIT, wrote to the minister on September 13 (see letter below), with “substantial evidence” of e-commerce companies indulging in predatory pricing and deep discounting.
CAIT raised these issues against e-commerce companies:
- E-commerce companies are “deeply engaged” in B2C business and the quantum of B2B business is negligible, said CAIT. This is against the FDI rules, which only permits e-commerce marketplaces to undertake B2B transactions with sellers registered on the marketplace. The CCI’s market survey on e-commerce also sought details on B2B sellers on e-commerce platforms, specifically asking about the percentage of sales via B2B.
- They control inventory: The fact that e-commerce companies offer discounts shows that they have control over the inventory. Since sales can only be organised by inventory owners, and if e-commerce companies do not control the inventory, how can they offer discounts on products owned by sellers registered on their platform? Under the FDI rules, if e-commerce marketplaces exercise control or ownership over the inventory, they wouldn’t be marketplaces anymore.
- Their discounts influence prices: E-commerce companies clearly influence prices by offering discounts of 10-80% and create an uneven level-playing field, both of which are disallowed under the FDI rules. In a recent discussion in Delhi, CAIT had accused Amazon and Flipkart of deep discounting, predatory pricing and undercutting. The All India Online Vendors Association (AIOVA) is fighting the CCI for giving Flipkart a clean chit over abusing its market dominance.
Amazon and Flipkart offer annual sales, with discounts and offers, ahead of the festive season including Diwali. The sales are flagship events spread out over multiple days.
E-commerce companies and traders’ bodies have locked horns over deep discounting and how marketplaces are governed, as the offline-online retail battle plays out. Traders’ bodies such as CAIT and AIOVA want e-commerce companies to be thoroughly regulated, while e-commerce companies claim to be fully compliant with FDI rules.
Government action on FDI in e-commerce
The Department of Industrial Promotion & Policy released the Press Note 2 in December 2018, placing further restrictions on FDI in e-commerce, and tweaked rules for e-commerce marketplaces and vendors. The policy, which came into effect, a month after it was announced, caused significant disruption to the functioning to Amazon and Flipkart.
Apart from the policy, other government’s bodies have also acted against FDI issues in e-commerce:
1. DPIIT’s committee for FDI in e-commerce: The DPIIT has formed a committee to examine issues related to FDI in e-commerce. The committee was formed under DPIIT’s additional secretary and includes members from the department of commerce, department of consumer affairs, department of legal affairs and MSME ministry.
2. CCI’s market survey: The Competition Commission of India sought details on how inventory based models work, on pricing and control over the pricing, from all major e-commerce firms in India.
Go deeper: How Press Note 2 will govern Ecommerce marketplaces in India
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CAIT’s letter to Finance Minister Piyush Goyal:
