Home >Companies >News >New online marketplace rules fail to halt discounts, for now

Bengaluru: If you were worried that the new government rules for Internet companies will mean the end of eye-popping discounts on popular online marketplaces, breathe easy, at least for now.

On Tuesday, the government allowed foreign direct investment in online marketplaces but banned them from influencing product prices, among other riders it attached to its approval.

“E-commerce entities providing a marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field," the Department of Industrial Policy and Promotion (DIPP) said in a note.

The new rules are effectively immediately.

For e-commerce marketplaces on Wednesday, however, it was business as usual. All of the top e-commerce companies continued to offer deep discounts and cashbacks on a range of products including smartphones, laptops, clothes, toys and books.

The discounts ranged from 5-75% on Amazon India; 5-77% on Flipkart; 5-80% on Snapdeal; and, 5-91% on Paytm. All of these four companies have declined to comment on the specific conditions imposed by the government on marketplaces.

The end of discounting, if it happens, would significantly hurt the high valuations of India’s top e-commerce firms—Flipkart ($15 billion), Snapdeal ($6.5 billion) and Paytm (more than $3 billion)—as well as the rapid sales growth of Amazon India.

Online retail is expected to increase to $48-60 billion by 2020 from $4.47 billion in 2014. The potential size of India’s online business has attracted an unprecedented rush of cash from venture capital investors, who pumped in more than $9 billion into e-commerce firms over the past two years. A huge chunk of this money has been spent on luring customers through advertising and, more importantly, discounts.

The new regulations would put at risk the rapid growth of online retail—and the high valuations of e-commerce firms—in India.

Which is why many experts said on Wednesday it was naive to expect e-commerce companies and their venture capital investors to comply with rules banning discounts. Online marketplaces will simply find new ways to fund discounts even though it’s not yet clear how exactly these companies will continue discounting, they said.

“Discounting will obviously not suddenly disappear. There’s way too much money at stake here. It’s just a matter of time before a new mechanism of discounting will appear," said a lawyer who works with top Indian start-ups, on condition of anonymity.

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