100% FDI in e-commerce: Flipkart, Amazon and others barred from offering discounts

NEW DELHI: Flipkart, Snapdeal, Amazon and others running online marketplaces are not only barred from giving discounts directly according to new rules but they may not be able to offer promotional programmes such as cash-back offers to lure shoppers either.

These incentives go against the intent of the policy aimed at curtailing any direct transaction between the marketplace and the consumer, a senior government official said, while acknowledging that cash-back incentives don’t influence the price of goods or services.

The government wants e-tailers to have the same level of disengagement as in the case of a physical marketplace, such as a mall, where the operator has no interaction with the consumer.

"The policy has not gone into such finer details but these companies cannot offer discounts of any kind," the official said. "That control is solely with the seller."

E-commerce companies are not allowed to influence, directly or indirectly, the pricing of goods and services as per the rules laid down on Tuesday for marketplaces by the Department of Industrial Policy and Promotion (DIPP). The idea is to also create a level playing field with brick-and-mortar retail.

Traditional retailers could object if any cash-back or loyalty points scheme creates an uneven field and affects the pricing of goods and services. This could have a direct impact on the big-sale events run by e-commerce companies. The step was taken in response to retailers' complaints about predatory pricing by online portals. Snapdeal said it did not wish to comment on the matter. Flipkart could not be reached.


Some experts said this level of restriction would hit consumers.

"The customer would stand to lose in this situation. It will be unfair if the marketplace cannot even promote itself," said Paresh Parekh, partner at EY. "You may not influence the price but you can influence the quantum of total purchase -- credit card companies have been doing it."

By restricting online portals from influencing prices, the government wants to protect small and medium enterprises that are hurt due to deep online discounting. Traditional retailers have alleged that their online counterparts were flouting foreign direct investment rules and engaging in business-to-consumer (B2C) sales, which is not allowed under the current policy, under the guise of operating marketplaces that serve to connect buyers and sellers. Current policy allows 100% FDI only in business-to-business (B2B) online sales.


DIPP has defined the marketplace-based model of e-commerce as one that provides an information technology platform on a digital and electronic network and acts as a facilitator between buyer and seller. It clarified that FDI was not allowed in inventory-based marketplaces or companies that sell goods and services directly to consumers. While these e-commerce market places can provide support services to sellers, such as logistics, warehousing, order fulfilment, call centres and payment collection, they cannot influence the pricing either directly or indirectly.

The final notification was drafted by DIPP after consultations with various stakeholders, including ecommerce companies such as Snapdeal, Amazon and Flipkart, besides small and big offline retailers.