Hyderabad: India’s brick and mortar retailers and e-commerce giants are at loggerheads. News of allegations and counter-allegations have become a common sight. The Confederation of All India Traders (CAIT), traders’ body called Amazon and Flipkart ‘economic terrorists’ and demanded the government to take action against them for alleged violation of laws of the land. Against this backdrop, Sharmila Das, an expert on retail business, throws light on the issue.
Time and again, the deep discounts offered by the e-commerce companies have been questioned by institutions and trade bodies in the country. While the e-commerce companies are saying they are operating as per the law of the land, the traders' body CAIT has made a fresh allegation of violation by these companies.
CAIT’s argument
Sumit Agarwal, National Secretary, CAIT said the e-commerce companies in India are not operating as per the e-commerce policy and FDI regulations.
“As per the e-commerce policy and FDI regulations, the e-commerce companies need to be a technological platform to connect the buyers and sellers. However, they are crossing the boundaries and having a far-reaching effect.”
It should be noted that the e-commerce market in India is regulated under the FDI policy where the Government of India had clarified the operating rules in 2018.
As per Agarwal, the e-commerce companies are not allowed to control inventory, they can’t influence price either. Likewise, the companies can’t form an exclusive partnership with brands and should not offer any preferential treatment to any sellers.
However, despite the clear regulations, the companies are violating the norms and hence the body demands a concrete action from the government to safeguard the interest of the lakhs of small retailers who are reeling under the hit of the e-commerce sales.
He also said brick and mortar mobile shop owners are the biggest hit of this predatory pricing. Since, mobile sales contribute to 50 percent of the e-commerce sales in India and hence, as per Agarwal, there were around 40, 000 mobile phone retailers who have shut shops in the last one year.
Agarwal claimed that the government is incurring huge losses in GST because of the predatory pricing. For example, if X company is selling a Rs 100 product at Rs 30, X will be charged GST on Rs 30 and not on Rs 100, implying a huge loss of revenue to the government.
“On the platforms, the discounts are offered from 10-70 percent and above, while such companies are not allowed to influence any price. They need to ensure a healthy and level playing competition in the market but on the contrary, they are indulging in predatory pricing. FDI policy asks to show the sellers contacts on the platforms. Till now, we don’t see it on any of the platforms. All these are serious and gross violations of the FDI policy.”
However, e-commerce is yet to reach 5 percent of the overall retail sales in India. Therefore many question whether the section has the might to impact the overall retailing in India.
“It's still unclear how a segment that is sub 5 percent of overall retail sales in India could indulge in predatory pricing that garners such attention. There is also ambiguity in the difference between predatory pricing and discounts, the latter of which is governed by contracts and legal arrangements,” said Ankur Pahwa, Partner and National Leader-Ecommerce and Consumer Internet, EY India.
What do Flipkart and Amazon say?
Spokesperson of Amazon said “The company has a high bar for compliance and we continue to comply with all applicable laws. Amazon.in is a third-party marketplace where sellers offer their products to customers for sale and have the complete discretion to decide what products to sell and at what prices. In just a little over 6+ years, Amazon.in has grown to have 550,000 sellers many of them MSMEs and including women entrepreneurs, artisans and Kirana stores who are adopting new-age technology to grow their business”
“Having already enabled exports of over US$ 1billion, helped create more than 20,000 millionaires and crorepatis in just 2019, and nearly two lakh jobs, we are delighted and humbled to see how Amazon.in is an important catalyst towards economic and job growth,” added the spokesperson.
Likewise, Flipkart also said it operates through a marketplace model in India and is fully compliant with all the laws of the country, including the FDI regulations. "Innovation and tech-driven digital commerce are central to India's dream of a 5 trillion-dollar economy, and e-commerce is enabling the 'Make in India' success of MSMEs, kiranas, farmers. The sector is also creating new livelihood opportunities while supporting formalization of the economy and bringing in more tax revenue to the exchequer,” said a Flipkart Spokesperson.
“Our partnership with more than 200,000 (and ever-growing) sellers has also created lakhs of new livelihood opportunities in the country besides giving impetus to Indian MSMEs and lakhs of artisans. Over the last five years, we have created lakhs of new jobs through our deep investments in infrastructure and the seller ecosystem and have built several hundred path-breaking innovations through our technology and engineering team," spokesperson added.
Government’s take on the matter
The government, particularly, the Minister of Railways and Commerce and Industry, Piyush Goyal has openly accepted the issues in a recently held event.
At the event, he said, “The Indian laws are laid down very clearly what the Indian marketplace model is. E-commerce platforms should have agnostic access to all sellers and buyers can make a purchase over there. However, the companies are not allowed to have ownership or control of the goods or they are not allowed to provide pricing support”.
“As a member of the government, I would urge everyone to please recognize the letter of the law and the spirit of the law. As long as I see you within the boundary of the spirit of the law I see there is no problem and one can go and promote his/her business. But if you are giving huge discounts, which is going to undercut my small retailers and I’ve 60 million small retailers whose interest would be lost”, said the Minister.
The gamut of predatory pricing in India
Predatory pricing has been debated long for its anti-competition law globally. Ideally, the laws are meant to protect consumer interests. Here, if we talk about discounts which is however predatory is good for consumers unless the companies withdraw such low price and start fleecing consumers using its monopoly position in a particular retail market.
A win-win is not a far-fetched idea
Reaching a win-win to safeguard the interest of the small retailers as well as promoting business and economic growth through the marketplaces is of the need of the hour.
While the e-commerce companies and several global retail names complain of a complex business environment where they fear to expand, the Indian Government should create an environment of growth that can be used for further investment and job creation in the country.
In the words of Agarwal, “We are not against e-commerce. It is the present and future of retailing. However, the government needs to lay down the e-commerce policy very clearly and make sure it is followed. The Commerce Minister has assured us of taking action. We are hoping something to come up by the end of this month or mid of January. Besides, we have approached the Competition Commission of India (CCI) too and they are examining the issues. Today we have written to the Prime Minister as well to form a Group of Minister (GoM) to look after the e-commerce issues.”
Likewise Pahwa of EY India has stressed that the issue can only be resolved once such ambiguities and set policy guidelines are brought in taking into account considerations of all the stakeholders. According to Pahwa, it is important to keep in mind that selling online is just another channel for retailer and not a separate segment in itself.
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