oppn parties E-Commerce Policy: Putting Price Restrictions Not Government's Job

News Snippets

  • Police stop a 12-year old girl on her way to the Sabarimala shrine
  • In Karnataka, the JD(S) indicates that it might support the BJP government if it falls short of numbers after the bypolls
  • Congress pips the BJP in local body elections in Rajasthan, winning 961 wards to the BJPs 737
  • After Airtel and Vodafone-Idea, Jio also indicates that tariffs will be raised from December
  • Sources in Shiv Sena say that they might revive the alliance with the BJP if it offers the 50:50 deal
  • A miffed Sanjay Rout of the Shiv Sena says that it will take "100 births" to understand Sharad Pawar
  • Mobile operators Vodafone-Idea and Airtel decide to raise tariffs from next month
  • Sharad Pawar meets Sonia Gandhi and says more time needed for government formation in Maharashtra
  • Justice S A Bobde sworn in as the 47th Chief Justice of India
  • Supreme Court holds hotels liable for theft of vehicle from their parking area if parked by valet, says "owner's risk" clause is not a shield from such liability
  • Finance Minister says she is receiving feedback from many sectors that recovery is happening as there is lower stress
  • Sabarimala temple opens, but police bar the entry of women below 50 years
  • Finance Minister Nirmala Sitharaman says Air India and BPCL to be sold off by March
  • Media person Rajat Sharma resigns as DDCA president
  • Shiv Sena, NCP and Congress postpone meeting the governor of Maharashtra
Two Muslim litigants in Ayodhya refuse to accept the Supreme Court order, say review petition might be filed
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E-Commerce Policy: Putting Price Restrictions Not Government's Job

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
The government has come out with a draft e-commerce policy. This can be both good and bad news for a sector that has hitherto existed and developed in a policy vacuum. The policy can be good because it will set legal parameters that would put entry restrictions, thereby eliminating fly-by-night operators who give the trade a bad name. As per reports, the policy is going to be India-centric and is likely to benefit the domestic economy.

The bad news is that the government is also thinking of fixing floor prices of products and outlaw deep discounts or discounts below a threshold. Although one is not enamored of the deep discounting model followed by e-commerce marketplaces, one is of the view that it is their business decision and their right to price their products as they think fit. The government has no role to play in pricing and it should be left to market factors. The government is planning to introduce a sunset clause to fix the maximum duration for offering deep discount to attract new customers. But are deep discounts offered only to attract or retain customers?

It has to be recognized that some products get outdated or obsolete very fast. Take fashion wear for example. Today’s hot selling item might not fetch a tenth of the price once it goes out of fashion or newer designs are introduced. Then there is the question of size. Garments are made in all sizes. It may so happen that lots of odd sizes remain on the inventory, blocking scarce capital. Seasonal items like pullovers, cardigans, shawls etc. also need to be liquidated as the winter comes to an end. Doesn’t it make sense then to sell them off at a deep discount? In any case, some items are priced at fantastic markups when freshly introduced and cover their costs after selling a few thousand pieces. The rest of the stock can then be sold at deep discounts, sometimes less than the cost price, to recoup the capital.

In any case, it is not the e-commerce platforms alone that indulge in deep discounting nowadays. All the brick and mortar stores also do that with fashion wear and other selected merchandise. In the recent sale mania in July, the big stores like Westside, Shopper’s Stop and Pantaloons, to name just three, have offered discounts ranging from 50% to 70% on a wide range of merchandise. It has become a policy with these stores to sell off old stocks periodically at hefty discounts and fill the shelves with fresh, new products that are sold at a huge premium. How is the government going to stop them?

The government is moving against deep discounting after receiving written complaints from brick and mortar stores and mobile companies who have alleged that e-commerce platforms are misusing foreign funds to offer deep discounts. Hence, instead of going after pricing, the government should go after the foreign funding and specify clearly that such funding cannot be used to offer discounts and can only be used to upgrade operations or for other operational costs. It can mandate that e-commerce companies maintain an accounting system that clearly shows how the foreign funding was put to use. That would address the issue of deep discounting too.

The market follows its own rules. There are many questions of optimal purchasing, lower overhead costs, low marketing costs and other cost saving bulk deals that can help an entrepreneur offer better prices to consumers. Any government interference in this would result in the consumer being the loser. Further, as far as e-commerce goes, there is the question of benefits derived from advances in technology, information, communications and ease of digital payments as well as improving logistics scenario. If all this translates into benefits for the consumer, the government should keep its hands off.