Govt Sets Up Panel To Regulate Deep-Discounts In Online Retail

The central government is looking to revise the Competition Act 2002, in order to find out if the deep discounts offered by the online retailers promote competition. Reportedly, a 10-member panel has been set up by the ministry of corporate affairs (MCA) to examine the trends in digital economy. The panel will be chaired by the corporate affairs secretary Injeti Srinivas.

The panel will look for grounds in the Competition Act to suggest whether the e-tailers are subject to any restrictions in their access to dealerships from manufacturers or not.

Lately, an uproar has been observed in the offline seller’s community on the deep-discounts offered by the online sellers particularly during their festive season sales. The online retailers have also been alleged of threatening the existence of brick and mortar players as they have access to foreign investments, which allows them to offer huge discounts despite running in losses.

As per media reports, the traditional retailers are now looking to submit their recommendations to the panel, thereby suggesting ways to curb the discounted online sale of goods.

“We strongly oppose discounts offered by online retailers. These are not discounts but predatory pricing. We will be requesting the commerce minister to impose a blanket ban on discounted sales by online sellers, which creates an uneven playing field and is detrimental to traditional retailers as well as manufacturers. We are also formulating our views to be given to the competition law review committee,” said Praveen Khandelwal, secretary general, Confederation of All India Traders (CAIT) in a media statement.

What Does The Competition Act Say?

The existing Competition (Amended) Act 2012 prohibits the abuse of a dominant position if an enterprise or a group—-

• (a) directly or indirectly, imposes unfair or discriminatory—

(i) condition in purchase or sale of goods or service; or

(ii) price in purchase or sale (including predatory price) of goods or service;

• (b) limits or restricts— (i) production of goods or provision of services or market therefor; or

(ii) technical or scientific development relating to goods or services to the prejudice of consumers;

• (c) indulges in practice or practices resulting in denial of market access [in any manner];
• (d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;
• (e) uses its dominant position in one relevant market to enter into, or protect, other relevant market.

Here, “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to—

(i) operate independently of competitive forces prevailing in the relevant market; or

(ii) affect its competitors or consumers or the relevant market in its favour.

Further, the “predatory price” means the sale of goods or provision of services, at a. price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.

The Other Side Of The Coin

As per reports, the Competition law experts believe that in cases where certain brands receive intense competition from their arch-rivals, may not be seen as anti-competitive. Also, putting a control on the retail pricing may not be seen in the interest of the consumer as well.

In March 2016, the government allowed 100% FDI in online marketplace model through the automatic route which offered legitimacy to the online retail business in the country.

Also, the government has issued Press Note 3 — a document that spells out FDI norms for ecommerce. The Press Note 3 states that 100% FDI investment in ecommerce companies is allowed for marketplace models. Also, it disallows one seller from selling more than 25% of the total sales on the marketplace.

The draft ecommerce policy is under discussion already.

Inc42’s Take: How Valid This Debate Is?

In a country of 1.3 Bn population, where the number of online buyers is yet to surpass 120 Mn, it’s time that we should question: Why the debate on discounts?

There has been an all-round sale on offline stores offering sometimes close to 70% discounts, including the small retailers. In high margin and fast selling categories such as apparels, cosmetics, toys, books, among others, the consumers have been bargaining and getting discounts since ages.

The online and offline together, is expected to reach $1 Tn by 2020, according to a 2017 report from industry body Assocham. Here, according to a September 2018 report by IBEF, the ecommerce revenue contribution will be just $120 Bn in 2020.

Now, take a look from another angle. Though the digital payment user base has been growing in the country, still cash is the primary mode of payment in the country, pushing in as a major competition for the players like Paytm, PhonePe, MobiKwik, among others.

Not only this. We have seen players opting for the omni-channel as well as hyperlocal strategy – both in the offline and online segments and both for the big and small players. Even a decent kirana shop in a grooming Tier II city will own an app for ordering deliveries at home.

The crux of the matter is: Is the situation that bleak as it has been portrayed by the conventional retailers and industry bodies such as Retailers Association of India or The Confederation of All India Traders. Isn’t it the consumer whom everything depends here?

Once the Indian consumer becomes mature enough to understand the convenience he/ she is receiving from the online retail, and are ready to pay the price for it, the discounts will reduce gradually. After all, how long can a company even if being funded with millions of dollars can run its platform in losses?

[The development was reported by LiveMint ]

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.