India to look closer at discounts offered by Amazon and Flipkart during festive season

India’s FDI policy bars online marketplaces from offering deep discounts and forging exclusive deals with brands.

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As almost a week long festive period sale run by e-commerce giants Amazon India and Flipkart recently got over, India’s commerce ministry said Thursday the department is probing into deep discounts offered by these two marketplaces despite country’s new foreign direct investment (FDI) policy clearly states not to do so, local media Economic Times reported.

“E-commerce companies have no right to offer discounts or adopt predatory prices. Selling products cheaper and resulting the retail sector to incur losses is not allowed,” Piyush Goyal, India’s commerce minister, told reporters during a press conference.

He said the ministry has sent detailed questionnaires to these e-tailers and said stringent action will be taken if they are found of floundering any rule.

The Confederation of All India Traders (CAIT), which claims to represent over 500,000 merchants and traders in India, wrote to the commerce minister on Monday urging a detailed audit of e-tailers’ business model. CAIT also wants the ministry to talk to individual brands to find out if they are directly offering discount to online marketplaces. Flipkart and Amazon claim the discounts on their platform are directly funded by the brands and not by them.

While CAIT has approached brands themselves to find out the truth, three smartphone brands Realme, Oppo, and Vivo might not sign exclusivity deal with online retailers beginning next year. According to the FDI rules online marketplaces can’t sign exclusive deals with brands to sell their product as it gives them undue advantage over physical retailers. Of the three brands, Realme has written an official communication to the retailers, and Oppo and Vivo have given assurance in spirit.

Arvinder Khurana, president of All India Mobile Retailers Association (AIMRA), told Economic Times, “Over 30,000 cellphone stores have shut in the past year and a few thousand jobs have been lost. We need brand support to revive offline business.” AIMRA as well as state-level cellphone retailer bodies have held discussions with top executives of India’s five largest smartphone brands—Xiaomi, Samsung, Vivo, Realme, and Oppo—over the last few days to find a solution.

Till a few years ago, India was cold on the demands of offline retailers that wanted the government to look into the deep discounts and predatory business practices of e-tailers. But ever since India introduced FDI rules in February 2019, it’s now making fast moves and heeding to the demands of brick and mortar retailers.

Both Amazon and Flipkart have made a killing during their annual online festive sales and collectively amassed over USD 3 billion in gross merchandise value during the festive sales, thus earning half-a-years’ worth of sales in five days.

India’s e-commerce sector is expected to be worth USD 120 billion in 2020 and is growing at a rate of 51 % year-on-year currently.