Why is the Government Interfering in the Pricing of eCommerce?

If the Indian government is going to get involved in controlling OLA and UBER’s pricing of rides or discounting of Online markets, then what is left for their corporate Managers to decide?

How will this help the consumers who were getting great deals online and a safe ride at an affordable price?

Why is the government interfering at the cost of the benefits enjoyed by the consumers?

This write up is to encourage Software as a Service (SaaS) businesses and Start Ups/ Entrepreneurs to focus on self – regulation / risk mitigation due to policy grey areas. We are used to looking at policies from statutory compliance point of view and ‘tick in the box’ affair. However, managers need to anticipate pitfalls as it would affect their valuations, scaling up would be challenging if these pitfalls are ignored.

FDI in eCommerce – is it a great deal?

The recent announcement by the Department of Industrial Policy and Promotion (DIPP) about allowing 100% FDI in B2B (marketplace model) e-commerce under the automatic route sounded like worth rejoicing. However, FDI policy still does not permit FDI in B2C eCommerce, as FDI in inventory based model of eCommerce is disallowed, except in limited cases (Single Brand Retail Trading & Indian manufacturers subject to certain limitations).

So, ‘goods’ trading online or ‘e-tailing’ is not fully open to Foreign Direct Investment (FDI) yet. More importantly, while e-commerce had become competitive and a shopping paradise, the government has pulled the plug on discounting and cash-back offers by a blanket statement – “eCommerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field.”

To See the policy: Department of Industrial Policy and Promotion

Why are they protecting inefficient market players who are threatened by competition faced due to innovative solutions?

When Narendra Modi and his government came up with their fantastic plan of ‘Ease of doing business’ we never thought they would mean taking over the pricing strategies and designing business models for the companies. We understood ease of doing business to mean the government will reduce red tape and ‘do nothing’ but facilitate start ups.

More on: E-Commerce: A chaotic world waiting for stabilization, FDI in E-Commerce Retail, Bane or a Boon

The government is clearly looking London talking Tokyo – by encouraging Venture Capital funding, young entrepreneurs and start ups like in the ‘western world’ but then creating a ‘walled garden’ like in China.

If the mindset of the government cannot think progressively then there is no point in encouraging Start Ups or SaaS as they are meant to come up with disruptive technological solutions.

No basis for assumptions on predatory or surge pricing

Is there any economic basis to assume discounting by e-commerce amounts to predatory pricing? Or is it a ‘fear’ being inculcated by the opposing lobby?

On the other hand, why is ‘surge pricing’ bad when it is based on pure market demand and supply economics? To read more on: Ola and Uber Surge pricing

And how can the government disregard the jurisdiction of a special market regulator, Competition Commission of India (CCI), that particularly watches all adverse impact on competition – disallows predatory / excessive pricing and/or abuse of market power?

Competition Commission of India (CCI) has already looked into the complaints against predatory pricing of both online markets like Flipkart / Snapdeal and Cab aggregators like OLA / Uber. To read more on: CCI takes Ola for a Ride

Futuristic Issues

Technology Markets would have to always change their business models / pricing based on unstable policies essentially steered by lobbies. Investment in these companies cannot be done on a long term basis without being fraught with risks. Today Flipkart / Amazon are struggling. However, in reality it impacts all SaaS businesses.

Lack of Vision

Policies are meant to be futuristic and facilitate growth of specific sectors. The SaaS businesses have made technology based solutions to get rid of physical / infrastructure cost. They have bypassed regulatory hassles by incorporating transparency into the system. Their competition is not the traditional businesses actually but it’s the new SaaS businesses that can come up with even better solutions in few months.

The vision to take advantage of this seems to be missing as the government, instead of looking ahead, wants to interfere with fundamental business decisions. There are many more challenges facing the digital economy that need to be thought of urgently. To know more: Competition in Digital Economy

Instead of progressing towards a pro-competitive era, are we regressing into a command and control raj by the sovereign power?

Looking ahead of regulatory ramifications

Instead of being driven by knee jerk policy changes lacking in research & analysis, it has increasingly become important to create business strategies around regulatory risks.

The legal fraternity in India is also gearing up to understand and appreciate e-commerce.

Thus, self-regulation and proactive litigation strategy would be the best way to tackle the lack of analysis.

Please share your experiences on developing a well planned risk mitigation strategy.