Just after getting through their enormous festive season sales, the ecommerce incumbents have got another reason to lose their sleep. Trader’s body CAIT (Confederation of All India Traders) has reportedly alleged that the major Indian ecommerce firms might be violating the FDI rule by providing heavy discounts and indulging into retail trade activities.
As stated by CAIT, “Amazon has declared Great Indian Festival Sale from 21 September to 24 September, 2017 and Flipkart has conducted Big Billion Day Sale from 20-24 September 2017, Snapdeal has announced Unbox Diwali Sale from 20 to 25 September 2017, Jabong Sale from 20 to 24 September 2017, Myntra Sale from 20 to 24 September 2017, Shopclues has announced Maha Bharat Diwali Sale from 20 to 28 September 2017 which is a blatant violation of the guidelines issued by the DIPP in the FDI Policy.”
According to a recent RedSeer Consulting report, e-tailers generated their highest ever sale performance over the five festive days from 20th-24th Sep 2017. For these festive sale days, the RedSeer analysis shows that the e-tailing industry managed to gene $1.5 Bn (INR 9,000 Cr) of sales. This is compared to USD 1.05 Bn generated in 2016 edition, a y-o-y growth of ~40%.
CAIT has thus urged the government to take immediate action against these ecommerce firms for the violation of FDI policy and has written to Union Commerce Minister Suresh Prabhu in this regard.
What Does The Current FDI Policy Say?
The FDI Policy issued on March 29, 2016, by DIPP (Department of Industrial Promotion and Policy), allowed 100% FDI (foreign direct investment) in the marketplace model of ecommerce.
However, it also enforces two major conditions for the ecommerce marketplace players.
- E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field.
- An e-commerce entity should not permit more than 25% of the sales effected through its marketplace from one vendor or their group companies
The first condition was supposed to create a level playing field for both online and offline sellers. On the other hand, the second one was aimed to push ecommerce players to widen their seller base and not direct the sales through their own seller services such as WS Retail for Flipkart, Cloudtail India of Amazon and so on.
Why Are FDI Rules Violated Per Se CAIT?
As per media reports, in its complaint, CAIT has stated that the advertisements issued by the ecommerce firms in past days “amount to soliciting retail customers at their portals and influencing the prices and creating an uneven level playing field”.
In its complaint, CAIT also alleged that “Under FDI policy these companies cannot undertake retail trading activities but these ecommerce portals being habitual offenders of (the) government policies are circumventing the law and engaged in B2C (business-to- commerce) activities which are prohibited for ecommerce marketplace portals.”
The term ‘habitual offender’ probably refers to the previous cases where similar complaints had been filed against the Indian ecommerce firms. For instance, in March 2017, The All India Online Vendors Association’s (AIOVA) logged a complaint against the aggressive discount strategies adopted by online ecommerce portals, which was then forwarded to the Reserve Bank of India (RBI) by the Ministry of Commerce.
Prior to that, in May 2016, the Confederation of All India Traders (CAIT) filed a complaint with the Department of Industrial Policy & Promotion (DIPP) against Flipkart for violation of FDI guidelines in ecommerce.
Since the time ecommerce started gaining a foothold in Indian shoppers mindset, there has been a continuous debate. While initially, there were no specific policies and even the term ecommerce was not defined, with its March 2016 FDI Policy DIPP took a measure in this regard. The ecommerce companies too tried to abide by the rules. For instance, recently Mantra onboarded new vendor Sane Retails to comply with the DIPP norms. However, the tussle between the ecommerce companies and organisations such as CAIT, AIOVA still persist. Considering that offline retailers have no such boundations imposed on them regarding the limit to discounts, it must be asked now, why the Indian ecommerce firms have to bear all the wrath.