Ecommerce companies in India have been criticized for predatory pricing, but the revised e-commerce policy plans to make deep discounts a thing of the past. However, some analysts believe online marketplace is likely to find innovative ways to continue offering discounts once the dust around the new rules settles.

On 26 December, the commerce and industry ministry had issued new guidelines, reviewing its policy on foreign direct investment (FDI) in e-commerce. As part of the move, the ministry plugged loopholes to stop online retailers from selling products of companies, wherein they own stakes. Besides, the new guidelines also restrict them from entering into exclusive merchandise deals. The new guidelines will come into effect from 1 February.

But questions remain on how effective the new rules will be over the long-term. “This whole (e-commerce) ecosystem is very strong and backed by a lot of capital. Considering this, it’s not a small thing that you can just take out of the market with a policy. Either these guys (marketplaces) have to figure out a way or the government has to work in collaboration with them to make a policy that is a lot more collaborative," said Anil Kumar, chief executive officer, RedSeer Consulting.

But it is not just small traders. Even large brick-and-mortar retailers have been of the view that deep discounting benefits nobody in the long run—neither offline retailers or consumers, nor the e-tailers.

“The government should appoint agencies to ensure compliance of norms and probe any flouting of norms and initiate action against such marketplaces. The creation of level-playing field is the government’s focus. As long as the government is clear on this, enforcement will follow," said Kumar Rajagopalan, chief executive officer of industry body Retailers Association of India (RAI).

The clarifications to the policy were aimed at tackling “anti-competitive" behaviour by e-commerce players, a senior government official said, on condition of anonymity, adding that online marketplaces are wrongfully subsidizing products.

German wholesale retailer Metro Cash and Carry Pvt. Ltd’s India head also said that the government’s move will benefit small retailers by creating a level-playing field for all small and medium businesses, traders and kirana stores to stay relevant in the competitive landscape.

But some say online marketplaces were anyway reducing the amount of steep discounts over time. “Discounts backed by aggressive advertising have been used by e-commerce companies to gain market share, but I don’t think that’s the crux of the matter. Once a critical mass is reached, discounts automatically decline, as we have seen in various categories. The bigger issue is the domestic retailers’ concern that corporate structures are being used creatively for cross-subsidization, which hurts smaller competitors and the local ecosystem," said Devangshu Dutta, CEO, Third Eyesight, a retail consultancy.

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