Issues Around FDI, Discounting, And Press Note 3 Violations In The Draft E–Commerce Policy

“You [e–commerce businesses] have incessantly been giving discounts and will continue to do it for years, jab tak mere desh ka har vyaapari vyaapaar se bahar na ho jaye (until every trader of my country is thrown out of business),” said Ashwani Mahajan, the national co-convener of Swadeshi Jagran Manch at #NAMApolicy Delhi on India’s draft National E-commerce Policy.

Throughout the #NAMApolicy discussion in Delhi, stakeholders from different sides argued that e-commerce companies are either the victim or the perpetrator. While Mahajan argued that e-commerce companies are backed by foreign companies which have deep pockets, others questioned why e-commerce companies should be singled out since physical marketplaces also offer discounts. Mahajan argued that companies were violating Press Note 3 by giving discounts on their platforms. The discussion also revolved around the competence and jurisdiction of Competition Commission of India, the country’s anti-trust regulator.

The following were the key points from the #NAMApolicy discussion in Delhi.

Discounting, inventory, and FDI 

  • Press Note 3 allows platforms, but platforms obviously cannot hold inventory. Why would they need inventory? No price distorting discounts can be given. You come with deep pockets and billions of dollars, does that mean you can do anything you want? You have incessantly been giving discounts and will continue it for years, jab tak mere desh ka har vyaapari vyaapaar se bahar na ho jaye (until every trader of my country is thrown out of business). (Mahajan)
  • Flipkart and Walmart need not be happy that they got permission from the Competition Commission of India (CCI) for the merger. This country operates on the rule of law, kanoon ke haath lambe hote hain (the law has long hands). They [e-commerce companies] were not supposed to give price distorting discounts, or keep inventories, both of which they were doing. (Mahajan)
  • Whichever company it is — Uber, Ola, Amazon, or Flipkart — they are all violating the law by offering price distorting discounts. The e-commerce policy has to be made in such a way that discounts are not offered, and for that we have to attack. Everybody has a right to remain in this ecosystem, and I want to be very clear — we are for ecommerce, not against ecommerce. We are against the wrongoing, illegal activity and circumvention of the law by e-commerce firms. (Mahajan)
  • Platforms are not illegal, offering of discounts is illegal. Press Note 3, which is the law of the land, allows platforms. How can I be against it?(Mahajan)
  • The companies defend their business models despite running in losses. Because when they bear losses, their markets expand and then “international” companies give them high valuations…Softbank and the like… (Mahajan)
  • The Indian government issued a memorandum to the ED, the RBI’s enforcement department, Income Tax dept, FEMA, CCI, ordering them to begin investigation. Swadeshi Jagran Manchsupports the Bharat bandh on September 28 because we want to send a message to these departments that they have to investigate these companies and put them on trial. (Mahajan)
  • If I have not raised foreign money, am I entitled to give discounts? They are opposed to FDI because foreign money is coming to India, as far as it is done by Indian money, can I get away? Is the the source of the money the only issue? (Manav Sethi, participant)

“Why single out e-commerce companies?”

  • Apart from B2B and B2C forms of discounting, there are also cashbacks, zero-interest EMIs. But in the offline world, retailers like Vijay Sales also give zero-interest EMI. Cashbacks often come from banks. Offline retailers are looking at volumes which is why they can offer discount or zero-interest EMI. Why is it that the e-commerce companies are considered to be illegal, particularly when, in light of Press Note 3, it’s not a violation of the regulations? (Anubha Sital, Principal Associate, Induslaw)
  • If it is B2B commerce, 100 percent FDI is allowed in it. Marketplace does not own the product, its allowing somebody to list the product. I get a host of services on top of that: delivery, redressal mechanism. The sheer amount of money coming into the country is being passed on to the consumers. When they talk about the people you are trying to protect, and compare it to the consumer base which benefits, then why is it that the E-Commerce companies or marketplaces are considered to be the bad guys? (Sital)
  • The consumer is not the just a consumer, but also a producer and a worker. When platforms violate Press Note 3 and offer discounts, crowding out the small traders, Make in India and the locally manufactured goods suffer. Walmart is the largest importer of Chinese products, harming our local economy – manufacturing, transport, traders, everyone. Swadeshi Jagran Manch has been hearing this for years; the benefit of the consumer base is just an excuse to capture the market. (Mahajan)
  • It seems that there is a violation, in the sense that platform companies are influencing prices. Is it ok that the violation is taking place in such a systematic manner? It is very clear that platforms are influencing prices, which is against Press Note 3. Many representations have been given to the ED, where people have asked them for an investigation and clarification as to whether Flipkart has an existing violation. You cannot indirectly violate a law which cannot be directly violated. (Parminder Jeet Singh, Executive Director, ITforChange, participant) 

On whether platforms benefit small merchants

Foreign money is shutting down not just small traders, but also our own smaller e-commerce companies. When a platform sells something at 20-30 percent discount, the small ecommerce player can operate. The discounting is funded by foreign money. (Mahajan)

Marketplaces themselves cannot offer discounts

  • There is no problem with giving discounts on marketplaces, but the platform cant give the discount – they are a tech platform. NSE is a tech platform, what if NSE also becomes a broker. A tech platform is supposed to be neutral and enable buyers and sellers – you cannot become a seller on your own platform. Press Note 3 clearly says marketplaces will not influence price directly or indirectly. There are legal structures which may be kosher, but it is still a violation in spirit. If somebody investigates, it may even be a legal violation. (Rajneesh Wahi, Senior VP of Corporate Affairs & Communication, Snapdeal)
    Mobiles and electronics account for almost 40 percent of e-commerce sales, while in the offline world, it is about less than 5 percent. Do marketplaces offer better phones or experiences? No. But they sell more phones and electronics because they offer deep discounting. (Wahi)

The benefit of geographical reach

The fact that electronics and mobiles contribute the largest pie is not just because of discount, it is also largely because of the geographical reach. A city like Shillong in the Northeast has very high per capita income and is high on consumption curve. Nike is not going to open a store for them, because offline retail has investment and may not justify the cost. That doesn’t mean that a Flipkart should stop selling a Nike shoe there, that is something that is price-elastic. It is not given by discount — you and I both know that in this country organised retail is a very, very small chunk of retail.  This entire thesis that e-commerce or marketplaces on its own will not grow, or has grown only because of underwriting discounts is a misplaced notion. (Sethi) 

On whether there should be online–offline parity

  • There are arguments on both sides with respect to competition law. Geographical reach is taken in account when you evaluate substitutability. E–commerce is able to overcome geographical limitations. If you had a limited area of operation of an ecommerce entity, then you could say that it substitutable. When it comes to an Amazon or Flipkart, which has far-reach, we cannot imagine that it can be substituted with physical stores. Other considerations in terms of consumer outreach and consumer interest also have to be taken into account. (Sital)
  • It is not possible to have ecommerce culled out as a separate sector; e–commerce affects multiple aspects of life, not just e–retail, but everything we do online; buying tickets, paying bills, transacting money. It is embedded into our lives. But it is agreeable the traditional parameters need to be re-looked at, for measuring competition or to figure out whether there is a parity or disparity. They have take into account the advances in technology and the advantages an e-commerce entity is able to enjoy as against brick-and-mortar stores. (Sital)

On the competence of the CCI

The CCI already considers predatory pricing an issue. If vertical integration is found to be abusive, and anti-competitive, it will also come under competition law. From the perspective of whether Press Note 3 is a good law or not, why do we need another law when competition law itself can address this. Why are we obsessed about bringing in something in the name of foreign exchange management to address competition issues? Do you have any views on that, do you think the CCI is not good enough? Are you saying that they are incompetent to handle these issues? (Pratik Dutta, Researcher, NIPFP, participant)

  • (Said in response to the above): I have not said any of those things. If you look at the CCI order that approved the Flipkart–Walmart merger, they have mentioned specifically that Flipkart created 6 entities, all after the Press Note 3 came into place. These entities control a large part of the business and they earn much less revenue than normal retailers. They’ve asked the government to investigate via ED. These transgressions are happening, but it is not the CCI’s domain to investigate a misuse that may happen in the future, but they’re raising a red flag nevertheless. (Wahi) 

The proposed Consumer Protection Authority

The Consumer Protection Bill proposes the establishment of a central consumer protection authority. The authority will protect and ensure the interest of the consumer, looking at them as a class in itself. This is probably where CCI is lacking; the CCPA can act on a complaint made by the consumer, or if the Government of India asks them carry out an investigation, and even take suo-motu action. It is being proposed that they should have the authority to take up investigation and propose changes on those lines. That might address the debate over issues of adequacy or inadequacy the CCI. (Sital)

New concepts in the draft e–commerce policy

The draft policy has introduced two new concepts which are not in the current CCI law — access to data, and networking effect. How they influence competition has been introduced in the draft e–commerce policy, is something the CCI’s new law should look at. These new issues — access to data and networking affect — are being looked at as anti-competitive issues, not just in India, but worldwide. (Singh) 

Other notable comments

  • On whether the draft e-commerce policy is a good law: Market power is a big thing, when policies are made, every person’s interest in the country is taken into account. Many interests are put together; the government tries to negotiate a transition when a big change comes. In this negotiation, there is a policy which has to be seen vis-a-vis the impact it is causing on all layers of society. (Singh) 
  • There is clearly dissatisfaction with the current law. If an Indian-owned supermarket tries give discounts, but local kirana stores start selling at prices which are even lower, then would you say that people who are working in the the supermarket are losing their jobs, and should we go to their rescue? How are you defining this economic democracy and people who we are trying to uplift? At both ends, if you are trying to protect the Indian economy as a whole, there is no one law that can ensure that, unless it is all encompassing.
  • We are in a transitional phase; when new situations develop, new laws are framed on the basis of the ecosystem. I have said before that the government’s policy is fair, but they have to be followed. We are not asking for protection of mom-and-pop stores, local traders and manufacturers because we are scared, but because the law of the land has to be followed. So according to Press Note 3, they were not supposed to offer discounts, why are they doing it anyway? Democracy is good, but we have to protect everyone. (Mahajan) 
  • In the name of technology, the country’s ecosystem is being ruined with the help of foreign money. Will the country run on those $10-20 billion? The small e-commerce players should also be allowed to flourish. Do you think all the great ideas are only with Flipkart and Walmart? So many young people have so many ideas. We Indians are smart! Are we all going to shut our brains and go after only the Flipkarts and Walmarts.— Medianama
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