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Will eCommerce deep discounting dispute make a comeback post lockdown?

  • Aug 6, 2020 | Divita S Gupta

Will eCommerce deep discounting dispute make a comeback post lockdown?

eCommerce businesses have gained profound prominence as being front runners for delivering essential goods to millions of consumers during the Coronavirus outbreak and subsequent nationwide lockdown. With lockdown restrictions gradually being lifted, a number of businesses are going to want to jump onto the eCommerce bandwagon. Once the regulations are relaxed, eCommerce brands are likely to host online sales to clear inventory. Question is, will we see a second phase of the war between eCommerce organizations and regulatory bodies like the Confederation of All India Traders (CAIT)?

For starters, let’s understand the background of this conflict.

In 2019, a study called the Market Study of eCommerce in India led by the Competition Commission of India (CCI) revealed that while discounts by e-commerce portals lead to user growth, the offering of huge discounts by large platforms could potentially harm competition in the sector. “Discounts lead to lower prices and can reflect cost savings arising from a variety of sources. Discounts offered by the platforms in the early years are typically seen as a means to establish network effects for user on-boarding. However, discounts can harm competition when used as an exclusionary device by enterprises with market power,” the CCI study said.

What is deep discounting?
Deep discounting refers to a greater than usual reduction in the price of goods sold online. These prices are much lower than the product’s actual retail value. Because eCommerce brands usually offer deeper discounts in comparison to traditional offline markets, many trading bodies have raised objections against the practice as it distorts and even disrupts the playing field. This issue gained a significant amount of traction during the festive season in 2019 especially when large foreign eCommerce players like Flipkart which was acquired by Walmart and Amazon started promoting festive sales.

Trade bodies like CAIT claimed that deep discounting or predatory pricing could affect foreign investments and ease of doing business in India. Moreover, they claimed that deep discounting was causing GST loss in a letter to the Finance Minister. Sources in the commerce ministry shut down these claims by clarifying that predatory pricing and foreign investments are two completely different things and the same would be clarified in the upcoming eCommerce policy.

The eagerly awaited eCommerce policy which will help set up a regulator for the vertical has been temporarily placed on hold due to the Covid-19 pandemic. This policy aims to promote eCommerce while protecting vulnerable sections of retail trade like kiranas and Indian eCommerce brands. The policy is also expected to cover concerns of data protection, deep discounting and foreign direct investment in eCommerce that is likely to bring eGiants like Amazon and Walmart in the line of fire.

Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. She has written on topics like mutual funds, insurance, taxes, SME financing for globally recognized banking and financial organizations including ICICI, Aditya Birla Group, News Corp. With a Masters in Business Administration from Symbiosis International University, she currently owns a small business in Mumbai.

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