e-Commerce: The New Boom

Govt panel set to probe e-commerce firms’ big discounts

Note4students

Mains Paper 3: Economy | Changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Analysis of principles of fair competition


News

Context

  1. A review of the competition law is set to find out if the steep discounts offered by online retailers promotes competition or stifles it as alleged by their old school rivals.
  2. A 10-member panel set up by the corporate affairs ministry will examine the trends in digital economy, including steep discounts in online retailing.
  3. It will enquire whether the e-tailers are subject to any restrictions in their access to dealerships from manufacturers.

Tasks of the Panel

  1. Discounting creates an uneven playing field and is detrimental to traditional retailers as well as manufacturers.
  2. Practices in the digital economy, backlog of competition cases to be resolved and the fee structure followed by the Competition Commission of India (CCI) will be reviewed by the panel.
  3. The panel will also comb through central and state government policies that do not foster principles of competition in letter and spirit.
  4. Conventional traders are now readying their recommendations to the panel suggesting ways to put an end to discounted online sale of goods.
  5. Confederation of All India Traders (CAIT) has requested to impose a blanket ban on discounted sales by online sellers.

Upholding Principles of fair Competition

  1. Competition law experts said that industry practices, such as manufacturers imposing certain restrictions on online sellers in order to protect a large number of conventional dealers, who also compete among themselves, have been a subject of dispute.
  2. In cases where certain brands face intense competition from rival brands, restrictions imposed by a producer on online dealers to protect its conventional dealers may not be seen by the competition watchdog as anti-competitive.
  3. This, however, enables producers to control the retail price and may not be in the interest of consumers.
  4. Online retailers have a transformational capacity in terms of reach, variety and price. And their discounting is followed after predatory pricing.

Problem of FDI Shield

  1. E-commerce companies had undue advantage as they were allowed to access foreign direct investment (FDI), through which they could provide deep discounts that traditional retailers would not be able to match.
  2. To legitimize existing businesses of e-commerce companies operating in India, the government in March 2016 allowed 100% FDI in online retailing of goods and services.
  3. This is under the so-called “marketplace model” through the automatic route.
  4. The earlier notified new rules through Press note 3 (of 2016 series), which promised to end the discount wars, prohibiting e-commerce marketplaces from offering discounts and capping total sales originating from a group company or one vendor at 25%.
  5. However, this only remained on paper, while e-commerce companies continued to offer heavy discounts, much to the anger of offline retailers.

Way Forward

  1. The draft e-commerce policy under consideration effectively seeks to regulate all aspects of online retail and recommends strict restrictions, including curbs on discounts.
  2. However, the government is currently going slow on finalizing this policy after opposition from major online retailers.
  3. The competition law review panel will also examine if the fee prescribed for the petitioners to approach the anti-trust regulator is high.
  4. It will also assess if a scheme to reduce backlog of competition-related cases be required.
  5. These considerations will further strengthen the draft e-commerce policy.
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