• E-commerce company flouting FDI norms? Vendors protest against Paytm’s cashback model

    Many online sellers have flagged a possible violation of the latest foreign investment guidelines by Paytm to the government. Chinese firm Alibaba Group is a major shareholder in the ecommerce marketplace.

    The department of industrial policy & promotion (DIPP) in response to the query raised in social media site Twitter clarified that giving discount is a prerogative of the seller only.

    All India Online Vendors Association (AIOVA), which represents about 500 medium-to-large sellers on various ecommerce platforms, in a tweet tagged to DIPP’s verified Twitter handle @DIPPGOI early this week sought clarification on whether Paytm giving cashback over and above the seller-funded discount is within the purview of the latest FDI guidelines.

    “Giving discount or not is prerogative of the seller owning inventory. FDI permitted in marketplace, not in inventory based model,” DIPP tweeted, but it did not clarify whether Paytm’s cashback strategy is in line with the latest guideline or not.

    DIPP in a press note issued in late March had clarified that 100% foreign investment was allowed in online marketplaces.

    However, it barred such platforms from influencing retail prices or offering any discounts of their own. Sudhanshu Gupta, vice-president at Paytm, defended the Noida-based company’s strategy.

    “Everywhere in the world, including India, all financial services and payment companies incentivise consumers to use their products. Banks promote usage of their credit and debit cards by giving extra reward points and cashback-…Paytm cashback promotions are similar in nature since they are driving usage of Paytm wallet,” he said.

    Some experts are not convinced about such an argument, pointing out that marketplaces are barred from influencing prices both directly and indirectly.

    Anil Talreja, partner at Deloitte Haskins & Sells, refused to comment on any specific case, but said, “The fine print of the circular clearly says that prices cannot be influenced directly as well as indirectly.

    Hence in no circumstance any kind of discount, whether monetary or in form of offers or any other form, will be in accordance with the circular.”

    Paytm’s Gupta also said, “There is a selection criteria in allowing sellers to fund cashback promotions on Paytm which is based on their overall performance in terms of deliveries and returns.”

    “Cashback, given above and beyond the seller discount, goes to the Paytm wallet of the buyer and is used for other purchases.

    Cashback offers are either not at all discussed with sellers or is discussed only with select sellers,” said one of the large sellers on the platform who requested not to be named. “A select group of sellers benefit from the attractive cashback offers as their products become cheaper than the rest, influencing customers decision. This is a way of influencing pricing and not maintaining level playing field,” he added.

    Sellers have sought further clarifications from the government on the issue. According to the regulation, ecommerce marketplaces are expected to be just technology platforms connecting buyers and sellers; they cannot influence the sale price of goods or services in any manner and must maintain level playing field.

    A spokesperson for AIOVA said, “DIPP is responding to us on Twitter which is a great step in order to remove doubts announced in the latest policies. We have requested them to give us the procedure of application to clear all doubts that we have.” The person said the association has also sought clarity on what nodal authority should be informed about violations of the FDI policy. “This also strengthens our ongoing demand for a regulatory body for ecommerce marketplaces on lines of Trai, Sebi, and IRDA.”

    In another grievance related to the FDI guidelines, sellers had questioned their responsibility of aftersales support. “@DIPPGOI how can sellers be responsible for warranty or service of branded products as Dey r just resellers n not manufacturers #mociseva,” one said.

    To this DIPP said case-specific clarification should be sought. “@AIOVA3- Sellers may or may not be manufacturers. Case-specific clarification may be sought from DIPP using prescribed format,” it said. Sellers on online marketplaces had recently written to the Prime Minister’s Office (PMO), demanding regulations to safeguard their rights and help resolve their issues with ecommerce giants. Denzel Perryman Authentic Jersey

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