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This is why the Modi government wants to punish Amazon, Flipkart for massive discount sales

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New Delhi: The Rs 2,199 watch is available at Rs 247. The air purifier costs Rs 32,995 for Rs 23,999. Branded shoes with a 60-80 percent discount, and an inverter for Rs 9,995 for Rs 4,499. The Diwali sale offered by e-commerce giants Amazon and Flipkart attracts thousands of panting customers who want to print sweet offers on all levels of basic needs and indulgences.

The same agreement has now brought companies under government scanners for alleged "predatory prices", a controversial business practice in which a player offers massive discounts to reduce competition.

Last week, Union Trade Minister Piyush Goyal assured action against Amazon and Flipkart if the two companies were found guilty of the practice. Both companies have he said posted sales of more than $ 3 billion in their festive sales this month.

Based on report, the government has sent detailed questionnaires to both e-commerce platforms, which are owned by Americans.

"E-commerce companies do not have the right to offer discounts or adopt predatory prices. Selling products is cheaper and causes the retail sector not to lose, "Goyal said.

While the government awaits their response, ThePrint explains the law that may be violated by the website with a discount.

Also read: Fashion, lifestyle, and electronic goods are expected to disappear from Amazon & Flipkart

What is predatory price?

While Amazon is a US-based company, Flipkart, founded by Indians, is majority owned by American giant Walmart.

Both follow the e-commerce market model, which means they connect sellers and buyers instead of selling their own goods. This is the only type of e-commerce where foreign investment is permitted in India.

Under the FDI rules which began this February, they are also prohibited from entering into contracts with private companies for the exclusive sale of certain goods, for example, OnePlus-Amazon partnerships, and offer discounts.

Even so, Flipkart and Amazon, apart from other e-commerce portals, are often accused of being involved in predatory pricing because of deep disturbances.the amount they offer.

Before the new FDI rules took effect, this platform be accused of buy products in large quantities from producers at a large discount, and then sell them at a lower cost to the entity for which they own shares. These entities are then reported to be selling these products on e-commerce platforms at a lower cost.

Costs are thought to be reduced further by freeing shipping costs and through cashback, often with their own payment portals such as Amazon Pay.

Because such practices are seen as inimical to the functioning of brick and mortar stores, the new FDI guidelines prohibit e-commerce entities from "directly or indirectly" affecting the prices of goods and services.

It also assigns companies to ensure "balanced fields". To emphasize this, it is mentioned that cashback or other services such as fast shipping must apply to all vendors on this platform.

Policy needed e-commerce platform to align their business structure to ensure compliance. A draft analysis by PwC, in fact, predicted that the revised policy could cause $ 46 billion decline in online sales by 2022.

However, experts argue that price influence is a matter of competition and not an issue of FDI.

"FDI is the wrong place to regulate market or anti-competitive behavior," Nikhil Narendran, partner at the India-based law firm Trilegal is as quoted. "Big discounts by themselves are not bad as long as they are not harmful to consumers. Free markets, competition and innovation benefit consumers. "

What about the Indian Competition Commission?

Before the new FDI policy took effect, the Indian Competition Commission (CCI) – watchdog for anti-competitive practices in India – had freed the e-commerce platform to engage in anti-competitive practices.

For example, in Ashish Ahuja v, CCI notes that the e-commerce market is "developing with discounts and special offers".

It was then decided that while Part 4 of the Competition Act 2002 did not prohibit predatory prices, the discounts offered would not be illegal because Snapdeal is not a "dominant player" in the relevant market.

A market participant is said to enjoy a dominant position when he can function independently of his competitors, customers, and others, to make unilateral decisions.

However, with increasing concerns over predatory pricing, CCI is the planning to issue "soft policy advisors" to the e-commerce industry.

The commission has also initiated a study on e-commerce to gather information and insights from market participants in goods and services for various sectors such as cellphones, food ingredients, food, electronic / electrical equipment, lifestyle and hotels.

CCI Chair Ashok Kumar Gupta told me The Economic Times last month that massive discounts made the business "unsustainable" by reducing the value of products and services in the eyes of consumers.

After a written complaint from the brick and mortar retailer lobby, the Confederation of All Indian Traders (CAIT), CCI too be told Faithful that it will oversee this deep discount.

E-commerce policy draft

The Department of Industrial Promotion and Internal Trade also released a e-commerce policy concept in February, but this focuses on setting the legal and technological framework for limiting cross-border data flow.

The policy proposes a ban on the e-commerce market adopting a business strategy that supports one or several sellers / traders, and a more comprehensive version is expected in 2020. However, the government has clarified that there will be no change in the rules of FDI in this sector.

In August this year, the Department of Consumer Affairs, Food & Public Distribution released 201 E-Commerce Guidelines for Consumer Protection 2019 ’to protect the rights of online customers. This guide makes it the responsibility of the e-commerce platform to maintain "a balanced playing field" and to ensure that it does not "affect the price of goods or services".

Meanwhile, the US government has been reported voicing his concerns the new FDI rules for e-commerce, and encourage these regulations to become a bilateral issue.

Also read: Affiliate RSS, the trade body wants the government to act against Amazon & Flipkart, fear of 'black Diwali'

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