FDI rules fail to dampen online discount spirit

Who said sales and discounts are a thing of the past? Several e-commerce companies are wooing customers with anything from spring sales to April Fools’ Day deals as if it’s business as usual, despite the government riders that came along with new guidelines on 100 per cent FDI in e-commerce marketplace earlier this week.

One of the conditions was “e-commerce entities providing marketplaces will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field”.

Subsequently, officials in the department of industrial policy and promotion (DIPP) warned companies against violation of the guidelines.

American e-commerce major Amazon on Thursday sent out mails reminding users about its mega mobile sale. On Friday, it continued with a spring sale for electronic products. Discounts ranged from 25 to 80 per cent across sellers, including Cloudtail, the most prominent vendor on Amazon.in.

Amazon India did not reply to a query sent by Business Standard on its stand on discounts after the recent government guidelines.

Jabong, too, has been sending out mail on sales. “No fooling this April…,” it said on its website with “sale” and “discount” flashing bright. The portal had flat discounts ranging from 40 to 70 per cent as well as daily deals.

Sanjeev Mohanty, chief executive officer and managing director, Jabong, said, “Our strategy has been a mix of creative promotions coupled with an unparalleled depth of Indian and international fashion.” He added the new policy would end predatory pricing.

Another e-commerce marketplace player, ShopClues, sent out mails on “All deals under 99”. ShopClues could not be contacted for comment.

While the government clarified its position on FDI in e-commerce marketplaces, it said no foreign investment would be permitted in inventory-led e-commerce companies. Prominent e-commerce marketplace players include Amazon.in, Flipkart, Snapdeal, Paytm, Shopclues and Jabong.

DIPP clarified 100 per cent FDI is only for the marketplace format of e-commerce, where a company provides a platform to act as a facilitator between buyers and sellers, and not for the inventory-led model. It defined e-commerce as buying and selling of goods and services, including digital products over digital and electronic network. Consultants looked at the government announcement as a needed clarification on foreign investment in e-commerce.

Amarjeet Singh, partner, tax, KPMG in India, said, “Although some of the structures practiced by existing players may require alteration, it will give the much-needed clarity to undertake business with certainty in longer term.” Akash Gupt, partner and leader, regulatory, PwC, said the 25 per cent cap on sales by any vendor was meant to ensure a true marketplace. “This may require some of the operators to go on the drawing board to comply with the conditions,” he said.
RIDERS WITH E-COMMERCE FDI NORMS
Sales cannot exceed 25 per cent for any vendor

Marketplace players or their group companies cannot sell

Guarantee and warranty must be sellers’ responsibility

Platform owners can’t influence pricing of products

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FDI rules fail to dampen online discount spirit

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