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Discounting e-tail’s benefits PDF Print E-mail
Tuesday, 14 August 2018 03:59
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No issue of unfair discount once FDI in multi-brand retail allowed

 

Though the Competition Commission of India (CCI) cleared Walmart’s takeover of Flipkart as its investigation found that the deal would not alter the existing competitive landscape in the e-commerce market – that is why the deal needed the CCI’s permission – it did have disturbing observations on Flipkart’s practices and its impact on the retail market in the country. Some of the arguments, the CCI order states, were in fact based on a decision taken by the Income Tax Appellate Tribunal earlier. After examining the complaints of predatory pricing and preferential treatment to specified sellers, CCI found that “a small number of sellers in Flipkart’s online marketplaces contributed to substantial sales”. Almost all of these sellers, the order says, were Flipkart’s customers in the B2B segment and availed “significant discounts from Flipkart in both B2B segment as well as in the online marketplaces”. Since this didn’t affect the case before CCI—the takeover of Flipkart by Walmart—it cleared the takeover but said “the above factors may merit examination from the perspective of anti-competitive vertical restraints” from the “appropriate regulatory/enforcement authority”.

The government’s draft e-commerce policy, in fact, deals with this issue of unfair discounting or predatory pricing as well and tries to address this by saying that related-party sellers like WS Retail, or a Cloudtail, should not be allowed to buy in bulk. That, however, strikes at the very heart of economies of scale, and even online retailers buy in bulk, so as to be able to supply to customers at rates lower than those offered by smaller retailers.

 

The reason why the draft e-commerce policy has made these suggestions or why, from time to time, arguments are made that existing e-commerce players like Amazon and Flipkart are violating the law—the law does not allow FDI in the retail or B2C segment—is that both stem from the same policy flaw, namely not allowing FDI in multi-brand retail. If this was allowed and, say, a Walmart was able to set up its brick-and-mortar stores for retail customers, no one would argue that a Walmart—or a Flipkart or an Amazon—was violating the e-commerce law by selling in the B2C segment. Similarly, no one would argue that, by buying in bulk, the country’s laws were being violated. FDI in multi-brand retail has not been allowed primarily because of the apprehension that this will hit kirana shops. But, since large Indian retailers, like Big Bazaar or Reliance Retail, have as much of a chance of hitting kiranas, the move to ban foreign players has never made sense; surely it cannot be the government’s argument that a kirana shutting down due to competition from Reliance Retail was okay, but not due to competition from a Walmart. Indeed, since both Amazon and Flipkart—and now its new owner Walmart—have made it easy for small suppliers to get access to a global market, it is in the interests of SMEs that e-commerce spread as quickly as possible across the country.

 

 

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