Online retailers back with discounts despite FDI rules

The new FDI laws aren’t hurting online retail as some analysts had feared when the regulations were introduced


Amazon India is discounting as freely as ever after figuring out new ways of funding discounts, while the likes of Myntra and Jabong have set up new entities to comply with the laws. Photo: Ramesh Pathania/Mint
Amazon India is discounting as freely as ever after figuring out new ways of funding discounts, while the likes of Myntra and Jabong have set up new entities to comply with the laws. Photo: Ramesh Pathania/Mint

A few months after the new foreign direct investment (FDI) rules were announced, it’s business as usual for e-commerce firms.

Amazon India, which had temporarily stopped sales events, is discounting as freely as ever after figuring out new ways of funding discounts, while the likes of Myntra and Jabong have set up new entities to comply with the laws. Flipkart, too, is discounting as much as its cash burn targets allow.

In brief, the new laws aren’t hurting online retail as some analysts had feared when the regulations were introduced.

In late March, the government allowed 100% FDI in online retail of goods and services under the marketplace model, seeking to legitimize existing businesses of e-commerce companies operating in India. But it added two riders that seriously affected the way online retailers run their business. One, no group company or seller on a marketplace can contribute more than 25% of the sales generated on the site. Two, discounting by marketplaces was practically outlawed.

The two riders were seen as the handiwork of offline retailers, which have been badly hit by the expansion of e-commerce over the past four years or so and lobbying the government to curb online retailers.

But apart from a period of three months when some online retailers put sales events on hold, the new laws don’t seem to have caused any long-term effect on e-commerce firms.

Mint reported on Monday that Myntra has started working with a new seller called Tech Connect Retail Pvt. Ltd, owned by former Bharti Airtel Ltd chief executive Sanjay Kapoor, as it seeks to comply with new regulations.

Flipkart, too, has identified at least four sellers to meet the government’s norm of capping a single seller’s contribution to overall revenues at 25%.

Flipkart will take Amazon India head on in a discounting war starting with the Independence Day sale, as online retailers seek to revive growth after the industry reported its weakest first half performance in recent memory.

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