Legal teams of ecommerce companies look for a way to continue with the discounts

NEW DELHI & HYDERABAD: Legal teams at online retail companies are poring over the government’s guidelines on ecommerce marketplaces to find a way in which price discounts—a bedrock of their business model—can still be offered to customers.
On Tuesday the government said that online marketplaces cannot directly or indirectly influence the price at which merchants on their platforms sell goods, but this has raised the hackles of many who believe that such a stipulation constitutes needless interference.

Experts said that while it may not be possible for companies to mount a challenge in court to the guidelines stifling discounts, they could seek clarity from the government about what kind of freebies are still allowed.

Radhika Aggarwal, the chief business officer at ShopClues, which counts Tiger Global as an investor, said that the points which need clarity include the discounts which are given for using a specific bank's card as well as coupon-generated discounts which are directed at customer acquisition through the affiliate network. “Our legal team is working on it and will reach out to the Department of Industrial Policy and Promotion for further clarity," she said.

Snapdeal, India's largest online marketplace in terms of sellers transacting on its platform, said it is still going through the "fine print," but declined to provide details.

Flipkart and Amazon did not comment for this story.

The guidelines restricting the online marketplaces from offering discounts to the Indian consumer could also have a negative effect on the soaring valuations that they have been commanding over the last three years.

The rapid growth of India's ecommerce industry--Morgan Stanley forecasts gross sales of about $119 billion by 2020--has been fuelled by billions poured into the sector by deep-pocketed investors. A large chunk of this money has been used on marketing and to fund discounts in order to attract consumers.

“What we will have to wait and see is that if the discounts fall, will sellers transacting on these platforms see the same volume of sales?” asked Ashish Basil, partner for technology at EY.

However, legal experts pointed out that the online marketplaces have little-to-no avenues to challenge the clarifications as it stands currently.

"It can't be challenged, and no court will sit in judgement over the government’s decision. This is not an act, but a policy, which is clarificatory in nature, and courts have limited powers of judicial review," said Thomas Phillippe, associate partner at Khaitan & Co.

“There will be parleys with the government as these companies try and figure out how not be in violation,” Phillippe said.

The intention of the government in issuing the clarifications, according to legal experts, is two-fold – to avoid predatory pricing and respond to the complaints made against the ecommerce sector by the country’s brick-and-mortar retail players.

“There are well-publicized complaints against the ecommerce, and these, at this point in time, seem to be a direct reaction to them,” said Rahul Matthan, a partner who specialises in technology at Bengaluru-based Trilegal.

“Now there are conditions to comply with which did not exist earlier. But it’s not yet clear how they’re going to enforce them,” he said.

In a stance contrary to peers, Alibaba Group-backed Paytm, however, backed the policy clarifications.

"In terms of pricing, there has been a classic malpractice that has been carried out by other ecommerce companies by way of significantly discounting the products sold by their captive or exclusively affiliated sellers. This creates issues in the market as it cannibalises sales of offline retailers and creates problems for the brands as well," said Sudhanshu Gupta, vice president at Paytm.