Don't kill e-commerce

Regulating new economy requires new thinking

E-commerce companies will come under intense regulatory watch as they head out for the biggest annual shopping carnival starting next week. The Competition Commission of India (CCI) wants to keep a check on deep discounts by e-commerce companies to protect the businesses of brick and mortar retailers. While it’s the job of the competition watchdog to curb anti-competitive behaviour across sectors, the e-commerce industry is yet to qualify as a dominant business to come under the CCI lens. At an estimated sale of $33 billion as of 2018, the e-commerce market is barely 25 per cent of the organised retail pie. As Indian retail is mostly unorganised, the share of e-commerce in that universe would be in low single-digit. Since e-commerce firms are not dominant players in the sector, discounts, however deep, offered by them cannot be termed “predatory pricing”. The CCI fear of making some businesses unviable due to e-commerce discounts, as reported, lacks valid reasoning. It’s true that traders, who are considered important in electoral politics, have been lobbying with the government against e-commerce discounts, but this should hardly be a reason for any regulator to clamp down on a certain business. 

Whether it’s an airline, a hotel chain, a telecom operator or a developer, abuse of dominant position must be established in any CCI case. Abuse is stated to occur when an enterprise (or a group of enterprises) uses its dominant position in the relevant market in an exclusionary or/and in an exploitative manner, according to the Competition Act, 2002. E-commerce is no different. A recent case related to Oyo hotels explains the point. New Delhi-based RKG Hospitalities, which had entered into a “marketing and operational consulting agreement” with Oyo in 2017, knocked the CCI door, alleging unfair and discriminatory clauses imposed by the firm. It said Oyo was able to execute one-sided clauses by misusing its dominant position in the market to cause harm to Divine Inn, the brand of hotels run by RKG. Last month, the CCI agreed that Oyo was not a dominant player in any relevant market.

This is not the first time that the CCI is looking at e-commerce companies — it had taken up complaints linked to online firms earlier too. However, this time, the watchdog is keen to take up cases, including in e-commerce, suo motu as well, and that’s worrisome. For instance, in a recent media interview, a CCI official said the watchdog would file more cases on its own in a proactive bid to tackle market distortions. The argument the Commission is putting forward is that deep discounts over an extended period could make some businesses unviable as that might erode the value of products and services in the mind of the consumer. 

The CCI, which has initiated a study to gain expertise in new economy with a special emphasis on e-commerce, is awaiting industry inputs till September 30. The Commission would do well to consult extensively before formulating rules. Regulating new economy will require new thinking at the CCI, which, like the sector it seeks to watch closely, is still young. Imposing measures such as clampdown on discounts may harm an industry that continues to attract top dollars and marquee global brands into India.