It’s raining violations in the Indian ecommerce space. Yesterday it was Flipkart that was accused by CAIT of breaking FDI norms. Today another online marketplace Paytm is under fire for the same.
The Accusation
The Department of Industrial Policy and Promotion (DIPP) has instructed etailers that as per the revised FDI norms,
“Ecommerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.”
And according to sellers Paytm is breaking this rule by offering cash-backs on its platform.
The All India Online Vendors Association (AIOVA) raised a question regarding this on Twitter,
“@Paytm isn’t giving cashbacks against new FDI policy (INFLUENCE OF PRICING DIRECTLY OR INDIRECTLY) @DIPPGOI #mociseva @vijayshekhar ur say?”
To which DIPP replied from its official account,
“@AIOVA3- Giving discount or not is prerogative of the seller owning inventory. FDI permitted in marketplace, not in inventory based model.”
Though, the government body didn’t comment, whether cash-back qualifies as a breach.
Cash-backs – influence price or not?
Etailers say no. Sellers say yes.
Merchants feel cash-backs influence pricing of the product and buyers’ decision making. And that’s a clear violation of the FDI directive.
A seller shared,
“Cashback offers are either not at all discussed with sellers or is discussed only with select sellers. A select group of sellers benefit from the attractive cashback offers as their products become cheaper than the rest, influencing customers decision. This is a way of influencing pricing and not maintaining level playing field.”
On the other hand, the marketplace is of an opinion that offering incentives to buyers is a widespread trend across industries and not just restricted to ecommerce.
Paytm’s VP Sudhanshu Gupta justified its cash-back offers by saying,
“Everywhere in the world, including India, all financial services and payment companies incentivise consumers to use their products. Banks promote usage of their credit and debit cards by giving extra reward points and cashback-…Paytm cashback promotions are similar in nature since they are driving usage of Paytm wallet.”
Retailers Association of India (RAI) also thinks cash-back offers by marketplaces must be considered as influencing the sale price of goods.
Recent adjustments made by ecommerce players
The top 3 etailers have kept their grand sale events on hold so as to avoid breaking any rules. Amazon and Flipkart have also agreed to bring down Cloudtail and WS Retail’s sales contribution.
But when it comes to offering cash-backs, the broad FDI guidelines is open for interpretation. Earlier a news story had stated that a government official accepted that ‘cash-back incentives don’t influence the price of goods or services.’
Some industry experts also believe that such strict restrictions on incentives and loyalty points will affect buyers. Like Paresh Parekh, partner at Ernst & Young asserted,
“The customer would stand to lose in this situation. It will be unfair if the marketplace cannot even promote itself. You may not influence the price but you can influence the quantum of total purchase – credit card companies have been doing it.”
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