Why everyone is not happy with online discounts

A 10-member government panel has been set up by the corporate affairs ministry to look into the discounting practices adopted by top e-commerce firms such as Flipkart, Amazon and Paytm Mall. Mint analyses the key aspects of the latest probe.

What will the panel look into?

The panel will analyse if the heavy discounting practices of e-commerce firms including Flipkart, Amazon and Paytm Mall amount to predatory pricing and restrict competition. It will study whether e-tailers face restrictions in their access to dealerships from manufacturers. Brick-and-mortar retailers say they have been crippled by discounts offered by online sellers and this will eventually hamper consumer interest. Their argument follows a Competition Commission of India (CCI) directive in August that flagged the issue of discounting practices adopted by top online retailers.

What are the allegations against e-commerce firms?

According to traditional retailers, e-commerce firms have access to foreign direct investment that lets them fund deep discounts. In August, CCI said Flipkart’s discounting practices might have to be reviewed by relevant authorities, thus putting pressure on regulators to clamp down on discounts offered by online platforms. That statement from CCI was made shortly after it approved Walmart’s $16 billion buyout of Flipkart. Mint reported in August that CCI’s observations might trigger a regulatory probe of all online marketplaces that rely on discounts to attract customers.

What is the CCI’s order?

CCI said e-retailers might be flouting laws by offering discounts. In 2016, the centre allowed 100% FDI in online retail under the marketplace model, but barred such marketplaces from influencing prices of products.

How will this impact e-retailers?

E-commerce firms use discounts to attract customers to buy online. Amazon and Flipkart, which form a majority of the $18-billion online retail market, have been lobbying the government to scrap the draft e-commerce policy that contains regulations to phase out heavy discounting within two years. If the panel decides against the discounting practices of e-retailers, not only do they stand to lose customers, but it would also deal a blow to the third-party sellers that sell their products on these online platforms.

What are e-commerce companies saying?

Amazon, Flipkart and Paytm Mall, among others, have reiterated that they have no role to play in the discounts offered on their sites: the discounts as well as the prices are decided by sellers, they say. Amazon, Flipkart have lobbied the government to scrap the draft policy and instead consider fresh rules. Over several sale events in the past year, Flipkart, Amazon and Paytm Mall have offered discounts of more than 70% on all kinds of products. All of them say discounts are offered by third-party sellers.