E-commerce companies Amazon, Flipkart and Paytm may face probe for offering heavy discounts

The discounting practices by e-commerce companies like Amazon, Flipkart, and Paytm may lead to a probe according to Competition Commission of India (CCI). Discounting by online retailer on their platforms is explicitly banned; CCI found that Flipkart and other online retailers were discounting on their platforms. In March 2016, the country allowed 100 percent FDI in online stores that follows the marketplace model; no FDI is permitted in firms following the inventory model. Marketplace model means providing an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. The companies like Flipkart, Snapdeal, and Amazon follow this model primarily. Inventory model means an e-commerce activity where the inventory of goods and services is owned by an e-commerce entity and is sold to the consumers directly. Alibaba, the e-commerce giant of China follows this model.

Some e-commerce companies offer more than 70 percent discount on various products on special occasions. These companies say that these discounts are offered by the third party sellers. But CCI thinks otherwise and it used strong language to denounce the discounting practices and the supplier relationships of Flipkart in its order on Wednesday. “The issues concerning FDI (foreign direct investment) policy would need to be addressed in that policy space to ensure that online market platforms remain a true marketplace providing access to all retailers”, CCI said in its order, referring to complaints by small traders against the deal. The Confederation of All India Traders complained that most of the e-commerce companies give preferential treatment to some retailers who are customers of Flipkart in B2B (business-to-business) segment.

CCI’s observations are significant particularly in the wake of the draft e-commerce policy released last week. Till now, India does not have a national policy to regulate the sector. So the government came up with an e-commerce policy draft to effectively regulate the burgeoning sector. The policy includes the prevision to create an independent regulator for the sector, like the Telecom Regulatory Authority of India (TRAI) which regulates the telecommunication sector.  A regulatory agency like TRAI is a government agency responsible for exercising autonomous authority over some area of human activity in a regulatory or supervisory capacity. To encourage a fair competition with the Micro, Small and Micro Enterprises (MSME), the policy draft on e-commerce proposes that all discounts should be phased out in two years. All the e-commerce companies will have to store all the data in India and for this, they will be given two years time and the government will have access to data stored in India for national security and public policy objectives, subject to rules on privacy and consent. There has been many merger & acquisitions (M&A) in the e-commerce sector in last few years. To ensure that these M&A are not distorting fair competition, the policy proposes to pitch in CCI. The regulatory authority will also take care of compliance with FDI caps in e-commerce in the country. 

The proposed separate e-commerce regulator, stricter curbs on discounting, data localization and other regulations have created uproar in the e-commerce industry. In 2013, the enforcement directorate (ED) had investigated several e-commerce firms, including Flipkart, Snapdeal and Myntra, for possible violations of FDI laws. That probe, which was related to allegations that the companies were selling directly to customers rather than through third-party sellers, did not lead to any action against the online retailers. So till now the e-commerce market was skewed against the small retailers but a regulator will ensure that small players also get a fair chance to compete with e-commerce giants. But the e-commerce giants are heavily lobbying against the new e-commerce policy draft. E-commerce is one of the fastest growing sectors in India. The country has an internet user’s base of about 470 million as of July 2017, about 40% of the population. As of 2017, the largest e-commerce companies in India are Flipkart, Amazon, ShopClues, Paytm and Snapdeal.