As part of its efforts to clamp down on discounts by large foreign-owned ecommerce companies in India, the Union government is considering disallowing anchor sellers controlled by the platforms to conduct business on them.

This is seen as an effort to make the likes of Amazon India or Flipkart, now 77% owned by Walmart, more competitive in general and less hostile to small traders who often find it difficult to match the discounts offered by deep-pocketed entities run by the platforms.

Two senior central bureaucrats in New Delhi confirmed the government’s thinking on this matter. “If subsidiary sellers continue to sell on their parent ecommerce sites, it will be difficult to stop deep discounting,” a commerce ministry official told FactorDaily, adding that internal discussions on the proposal were still on. “It is easier to flout rules if these sellers are allowed to sell on the platforms.”

A second official, with the department of industrial policy and promotion, or DIPP, said that “there is a lot of competition for Indian startups on price distortion.” This official added that the issue of discounting by the platforms to gain market share would be addressed in India’s ecommerce policy.

The commerce ministry has been drafting an ecommerce policy in the last few months and, per early indications, the policy will create an environment that favours local players such as Paytm or Reliance Jio over international rivals.

Some quarters within the government, including the government’s policy think tank, the powerful Niti Aayog has raised questions over this approach. In a recent interview, its chief executive Amitabh Kant argued for keeping the momentum in ecommerce in India going.

Ecommerce accounts for just 2.5% of India’s $700 billion retail market, predicted to grow to $1 trillion by 2020. Yet, it is expanding at 23% year-on-year. Citi Research estimates that India’s ecommerce market will burgeon in the coming decade – at a compound annual rate of 21% to $202 billion by 2028. An estimated 70% of Indian ecommerce is accounted for by transactions on Amazon India and Flipkart.

How anchor sellers work

Amazon has at least two joint venture sellers in India, Cloudtail India Private Ltd and Appario Retail Private Ltd – both large sellers on its Indian platform that are structured in such a way to comply with local regulations. Cloudtail is a 49:51 venture between Amazon Asia and tech businessman N R Narayana Murthy’s venture capital company, Catamaran Ventures. Appario is a venture with Frontizo Business Services, owned by Ashok Patni of software services company Patni Computers.

Flipkart, on the other hand, had WS Retail, a company initially controlled by promoters Sachin Bansal and Binny Bansal, as its largest seller. At one point in time, it contributed close to three-fourths of Flipkart’s sales. The promoters, however, spun off WS Retail and exited the company – at least, to comply with the letter of the law. WS Retail is still the largest seller on the Flipkart platform.

WS Retail is now an independent seller like any other seller. “Flipkart is a fully compliant marketplace and we do not have platform-owned sellers,” a company spokesperson said in a mailed response to FactorDaily’s questions.

Amazon India did not respond to a request for comment.

Flipkart and Amazon have been waging a discounting war for almost half a decade, incurring heavy losses. Their bet is on when more Indians – the second largest population in the world – take to the internet and see incomes rise nudging them to shop online. The promise made by both these companies: buy almost everything under the sun at a price cheaper than anywhere else and have the purchase delivered home.

Activist groups and retailer associations have voiced concerns about discounting by Flipkart and Amazon muddies the market. “They are marketplaces and how can a marketplace offer discounts,” questions Ashwani Mahajan, national co-convener of Swadeshi Jagaran Manch, an organisation that emphasises local roots in all things business. “They (multinational companies) have made a set of companies… They are doing predatory pricing using the back door.”

The draft of the ecommerce policy, leaked to the media before it was final, suggests restrictions on ecommerce marketplaces that disallow them to directly or indirectly influence the price of sale of goods and services.

A leading Indian company has represented to the members of the commerce ministry task force given the responsibility of preparing the draft that some ecommerce firms operating as marketplaces in India have established three or more companies to purchase in bulk and influence prices, and yet not violate a rule that not more than 25% of the sales value on an Indian ecommerce platform be routed through one vendor. This was to ensure that anchor or subsidiary sellers don’t have an overbearing impact on the prices and that a level playing field is maintained.

Tension rises with Walmart entry

Worries among local retailers – mostly in Indian cities – and the smaller ecommerce companies have ratcheted with Walmart picking up stake in Flipkart – with the worry being that this will increase discounting. The tension is already visible. Pepperfry, a leading online furniture seller, has announced its sale season with a “Why wait for Diwali?” campaign. Diwali is the country’s largest festive season when retailers vie on promotions and discounts to pull in customers.

At Flipkart, the preparations are on and Amazon, unhappy that its offer for the Indian company was trumped by Walmart, is readying itself to go head on.

This year, however, the discounts are expected to be bigger. “Flipkart is flush with cash. This is its chance to take on Amazon… Amazon will have to match up… We can’t even think of competing with them. It will be a discounting war,” said the CEO of a smaller ecommerce company, who doesn’t want to be named.

This Diwali might be too early to stop the discounts but experts believe if the government can stop anchor or subsidiary sellers from splurging to acquire market share, it will be a good for the overall retail ecosystem as it would allow competition to offer better seller services.

“Vendors don’t play a significant role in deep discounting. Those are influenced by the ecommerce companies,” says K. Vaitheeswaran, e-commerce veteran and author of Failing to Succeed, a book on his journey as the founder of India’s first e-commerce company Indiaplaza. “No one in their sane mind would give discounts of this kind.”

Vaitheeswaran explains that discounts happen at two levels: one provided by the seller and, two, what the ecommerce company offers. Here, he believes, scale will play a role in pricing given the sheer magnitude of goods a large ecommerce company sells, often in millions.

Eventually, the Indiaplaza founder believes that the government will have to open up foreign direct investment in inventory-led businesses as well. Anchor or subsidiary sellers are a proxy for inventory-led business – when Amazon can’t hold inventory, it does it through its sellers. “Until then, this is a good move,” says Vaitheeswaran of the move to stop anchor or subsidiary sellers.

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