Commerce and industry minister Piyush Goyal, while maintaining that he is not against e-commerce companies, has highlighted some of their practices which are hurting the unorganised retail sector. Banasree Purkayastha examines what exactly is the minister upset about
What did the minister say?
ON WEDNESDAY, GOYAL questioned the business practices of global e-commerce giants like Amazon in India accusing them of using corporate structures to circumvent rules and indulging in predatory pricing while taking on huge losses. He said
e-commerce platforms are eating into the share of small retailers by offering high-margin products, such as consumer electronics and apparel, at discounted rates. “More than 10 million retail stores in cities, and a possible 100 million small retailers across the country” are likely to be impacted, he said. On Thursday, however, his comments were significantly tempered as he said the government was not against e-commerce which has tremendous benefits but only desired fair play.
In 2020, Amazon CEO Jeff Bezos on a visit to India had announced that the e-commerce giant would invest another $1 billion in the country to help small and medium businesses sell their products but Goyal had then also said it was not doing any favour to India but was probably doing this on account of a need to fund losses.
What are the FDI rules for e-commerce marketplaces?
INDIA ALLOWS 100% foreign direct investment (FDI) in the marketplace model of e-commerce, which it defines as a tech platform that connects buyers and sellers. The inventory model, which Walmart and Amazon use in the United States, is where the goods and services are owned by an e-commerce firm that sells directly to retail customers. Since India does not allow FDI in inventory-driven models of e-commerce, companies such as Amazon and Flipkart are only allowed to operate as a marketplace. They are only permitted to provide platforms to other sellers or merchants or businesses to enlist their products and sell them but they cannot list their own products on the platform. The restriction is aimed largely at protecting India’s vast unorganised retail sector that does not have the clout to purchase at scale and offer big discounts.
Can online marketplaces give discounts?
WHILE E-COMMERCE PLATFORMS cannot directly offer discounts to buyers since they are only marketplaces, they host deep discount events and flash sales where sellers offer heavy discounts. Flipkart’s Big Billion Days and Amazon’s Great India Festival held in the run-up to Diwali every year see a sharp spike in sales as customers are lured by the deep discounts. While it may be argued that deep discounting benefits consumers and, therefore, should not be declared as inherently anti-competitive, there is the risk of elimination of brick-and-mortar retailers, creating distortions in the supply side of business. In January 2020, the Competition Commission of India (CCI) had passed an order which recognised deep discounting as an anti-competitive factor.
Tightening the regulations
IN 2017, THE government announced that one vendor cannot sell more than 25% of total sales on a single market-place. In December 2018, the Department of Industrial Policy and Promotion issued a Press Note disallowing the participation of marketplaces in any type of seller activity even through any “group companies”. The inventory of a vendor is deemed to be controlled by an e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies. Also, no seller can sell its products exclusively on any marketplace and all vendors on the e-commerce platform should be provided services in a “fair and non-discriminatory manner”. Services include logistics, fulfilment, warehousing, advertisement, payments, and financing among others.
What’s the problem then?
OFFLINE RETAILERS ALLEGE that online retailers continue to offer deep discounts on their balance sheet, while passing it off as being provided by the sellers. Confederation of All India Traders secretary general and BJP MP Praveen Khandelwal has called for a new e-commerce policy. Goyal has also questioned the huge losses posted by Amazon India, asking where these are coming from if not due to discounting.
