The ecommerce party can continue in the coming festival season. Commerce minister Nirmala Sitharaman on Wednesday dispelled fears, raised by a recent clarification in the foreign investment policy for online marketplaces, of a crackdown on discounts.
“This government does not believe in interfering with markets. That will be the guiding principle in any call we take. We are not here to police a situation,” the minister told HT.
The government on March 29 allowed 100% foreign direct investment in online marketplaces through the automatic route. But it also notified rules that could end the discount war for which consumers love ecommerce.
The biggest ecommerce companies in the country, such as Flipkart, Amazon India, and Snapdeal, are online marketplaces. They have grown by tempting consumers through much lower prices than they can get from offline retailers. That has also been the pitch of most of their advertising.
The new rules said an online marketplace, since it merely brings the buyer and seller together on its platform, should not offer discounts. To tighten the screws further, the government said no one retailer should account for more than 25% of the sales on an online marketplace.
Ecommerce has lower costs than offline retail, since its saves on distribution and real estate. The savings can be passed on to the consumer as lower prices. In theory, an online market place can also encourage its retailers to give discounts by charging them lower fees for using its platform. They may be more tempted than ever to try this, or any other innovative accounting, during the festival season. In the last couple of years, this season, starting with the onset of Dussehra, usually in October, going right up to Diwali, usually in November, has become a big party for ecommerce.
{{/usCountry}}Ecommerce has lower costs than offline retail, since its saves on distribution and real estate. The savings can be passed on to the consumer as lower prices. In theory, an online market place can also encourage its retailers to give discounts by charging them lower fees for using its platform. They may be more tempted than ever to try this, or any other innovative accounting, during the festival season. In the last couple of years, this season, starting with the onset of Dussehra, usually in October, going right up to Diwali, usually in November, has become a big party for ecommerce.
{{/usCountry}}Will that invite government action this year? “We have not taken a clampdown approach.... We are not watching with a stick in hand saying we are going to hit you with it,” Sitharaman said.
The government will watch the scenario, she said, because it has to ensure that ecommerce companies do not use their foreign funding to offer predatory prices (prices lower than costs) and hurt offline retailers unfairly. However, its approach will not be that of a hawk. “If there is a need for the government to clarify, we will, after calling all stakeholders and listening to every point of view.”