Millennium Post

Boom time for e-retailers?

According to industry analysts the size of the Indian internet market could potentially rise from $11 billion currently to a mind boggling $137 billion by 2020. There is frenetic growth happening in the ecommerce industry. This growth, however, could be marred by uneven broadband penetration, slow acceptance of online marketplaces, and lack of physical retail infrastructure in many places. Currently an opportunity exists to modernise the online retail sector but that opportunity is largely going untapped because of a hazy regulatory environment and persistent red tape/government meddling. One bone of contention is that who is liable for local taxes - is it the seller, or the marketplace? If so what distinguishes a seller from the marketplace? Warehouses of e-retailers have been raided with states alleging non-compliance with existing tax laws which remain unclear to start with.

Despite these cumbersome bottlenecks the ecommerce industry is rapidly growing riding piggyback on the back of rapid adoption of cheap smartphones. Also fuelling the ecommerce boom is the fact that it increasingly relies on a burgeoning industry of supporting services like warehousing, payment gateways, and logistics. This growth is accentuated by the sad reality that unfulfilled demand for consumer goods exists in India across 4,000-5,000 towns and cities, but there is no significant presence of physical retail in almost 95% of these towns.

 However concerns have been raised by brick and mortar retailers about the pricing policies of online retailers. There have been complaints that e-commerce companies indulge in “predatory pricing” or “below cost pricing”. These claims must ideally be scrutinized by an independent regulator without hindering the freedom of e-retailers to price their products competitively.

Ascertaining whether a company has an overwhelmingly monopolistic position involves a complex blend of economic analysis, law, business realities, and consumer preferences. This is where the CCI (Competition Commission of India) needs to step in and play a proactive role. The current debate surrounding pricing policies may have inadvertently highlighted the problematic nature of competition laws in India’s retail sector. Ideally speaking, the beacon that should guide this pertinent debate is that in the absence of a dominant position, all sellers should be able to sell their products at any price they wish to sell (up to the MRP).

At the same time e-retailers should not be allowed to sell below cost because that would be tantamount to unethical predatory pricing. Experts have questioned whether price sops have any real impact on online sales considering that the margin of discounts which can be given on most goods is not very large. It is high time that the regulatory regime was simplified to allow free play to e-commerce while at the same time taking into consideration the interests of brick and mortar retailers and mom and pop stores.

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