Curious case of deep discounts

Deep discounting, which made e-commerce famous in India and in many other parts of the world, has returned to haunt the sector. As fresh round of dialogues begins between the government and the industry on what should be the defining points in the first comprehensive e-commerce policy, there are indications that deep discounting in prices of products sold online won’t be tolerated. That may be good optics to make a point on desi versus videsi and physical trade versus online. But, nothing more than that.

Even if there’s a real clampdown on deep discounting by e-commerce players, what will be the definition of “deep discount”? If at all a definition is pieced together, who will monitor the cases of deep discount? When there’s a dispute related to the matter, and that is bound to happen in such a competitive space, which court will handle the cases with expertise?

More than anything else, what happens to fair play while an authority sits on judgement over e-commerce companies selling products cheaper than normal market rates? For instance, it will be tough to allow a bricks and mortar retailer to offer freebies and discounts while preventing an online player from doing so. It will be even more complex when a physical retailer has presence in an online marketplace and when an e-commerce company sells in a high street store or elsewhere. With boundaries collapsing between the physical and the virtual, it may be a waste of time to draft rules that would apply to one world and not to the other. Discounts are a medium-neutral phenomenon and should stay that way.

That’s not all. Comparisons with other industries and sectors will show deep discounts are not just about e-commerce or retail trade. Telecom, a mature business now with private mobile telephony being around for more than 20 years already, is a case in point. After Reliance Jio’s disruptive tariffs, every other telco followed that route, in the process eroding their revenue and profit. Neither the Telecom Regulatory Authority of India nor the government came out with any diktat clamping down on the deep discounts being dished out to the consumers, however damaging it may have been for the industry. And when the incumbents or the existing telecom operators complained about low tariffs by the new player hurting their business, they didn’t get much of a hearing.

In e-commerce, the centrepiece of the government directive against deep discounting is foreign investment. Last December, the government had restricted flash sales and deep discounts offered by e-commerce players, something that officials are reiterating now after the diktat couldn’t get translated into much action. Hitting e-commerce, most of it funded by foreign investors, with a rulebook that’s illogical may upset the story of unicorns (billion dollar valuations) in the country.

Indian businesses and local traders have in the past knocked on the doors of the Competition Commission of India (CCI), raising concerns over heavy discounts being offered by e-commerce players. But CCI, after studying the matter, had said the big-billion discounts (the deep discount sales offered by e-commerce players) were not a competition issue. It’s a case for CCI only when a dominant player indulges in predatory pricing to exclude others. 

Share of e-commerce, irrespective of whether it’s with foreign investment or otherwise, is still in single digits when it comes to percentage of the total retail pie in India. That rules out bringing e-commerce deep discounts under the CCI ambit. 

Even after the foreign direct investment (FDI) rule tweaks were announced last year for e-commerce, big companies including Flipkart (now owned by Walmart) and Amazon had gone about their seasonal sales offering discounts up to 75 per cent. That shouldn’t change despite the Indian versus foreign rift.

Domestic traders, who continue to fear adverse impact of foreign investment on their business, will raise issues such as deep discounts by e-commerce companies. It was for the same reason they had protested against FDI in multi-brand retail and that category has remained stalled for years. With e-commerce being a bigger disruption than FDI in multi-brand retail, traders’ concern may have reason. But now that the Lok Sabha election is over, it’s time for the government to look beyond vote bank and focus on ease of doing business — something that has been its goal for five years.