The Department of Industrial Policy and Promotion (DIPP) will initiate action against any online marketplace players that violates the FDI policy on e-commerce and offers discounts to customers as there is no ambiguity in the rules disallowing it, a senior official has said.

It, however, has to be established first that the e-tailer practised predatory pricing and that vendors’ products were being sold below cost price, the official added.

‘Clear rules’

“Our rules are very clear on not allowing e-marketplace owners to give discounts on products sold on their platform. However, vendors are free to give discounts and the marketplace owners can’t be accused of financing it if there is no predatory pricing,” the official said.

The DIPP is also examining queries on whether the cash-back offered by Paytm amounts to a discount. “Paytm is a financial services company that offers cashback to promote the use of its services. But, we will examine the complaint in greater detail before coming up with our view,” the official said.

The policy, announced earlier this year, clarified that while 100-per cent FDI is allowed in e-commerce in the marketplace model (where the company allows other vendors to sell items on its web-based platform), it is not allowed in the inventory-based model where e-commerce companies sell their own products.

Brick-and-mortar retail organisations such as the Retailers Association of India and the Confederation of All India Traders have complained to the DIPP alleging that e-commerce companies such as Flipkart, Amazon and Paytm are violating FDI rules by offering discounts.

Price difference

Some retailers argued that since there was a marked difference between prices offered by vendors at brick-and-mortar retail outlets and online platforms, it indicated that e-marketplace owners were funding the discounts.

According to Arpita Mukherjee from research body ICRIER, in a country like India, where there is huge difference in the maximum retail price of a product and its cost price, establishing predatory pricing is very difficult.

“A Banarasi saree may be sold by the producer to a showroom in Delhi at ₹10,000. The same saree is then offered at an MRP of ₹20,000 by the showroom to the customer. This allows the showroom to offer a discount of even up to 70 per cent on special occasions and yet earn a profit. It is this margin between MRP and manufacturer’s selling price brings down prices of items sold online as the marketplace owner has to be given just a small commission.

“Moreover, the large number of items sold online also incentivises the manufacturer to further lower the price at which he sells,” Mukherjee explained.

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