Walmart’s proposed $16 billion investment in Flipkart will become the biggest M&A ever in India, beating the $12 billion Rosneft paid for Essar Oil. Of course, the e-commerce deal, said to be the world’s largest, will be formalised only after going through regulatory agencies like the Competition Commission. Besides, the sellers must deal with the income-tax demands on that sale proceeds, that have posed tricky questions in past acquisitions in India. The investing retail behemoth from America wishing to enter India’s e-commerce space may face a more difficult time with political resistance that is bound to build up even if the deal sounds perfect to pro-big business elements at the very top of the ruling party. While the Swadeshi Jagran Manch, the economic think tank aligned to the RSS, is opposed to foreign investment in general, other sections of the ruling establishment will also be opposed to it due to the deleterious effect of gigantic e-commerce on small traders and mom-and-pop stores. The Left parties would in principle be seen to be against takeovers when the generation of more jobs is hardly guaranteed in the larger scale of operations.
The fact that the three biggest players in Indian e-commerce are foreign companies should also annoy those who oppose the M&A — Walmart-Flipkart (subsuming Myntra and Jabong), Amazon and China’s Alibaba through Big Basket. However, realistically, such cash-heavy operations needing deep discounts to build a loyal clientele can only be run by foreign companies able to manage funding in billions of dollars. No nationalist argument can trump money in such quantum needed to churn a market run along traditional retail lines into the new economy wonder of online shopping. The point to consider is whether all this will lead to generating greater employment in the numbers the Indian economy and population need. Of course, Walmart’s commitment to India in terms of sizeable headcount in its Bengaluru operations in procuring for global markets may be further enhanced by its presence in Flipkart, which may be the leader or joint No. 1 with Amazon in a growing marketplace.
The Indian marketplace’s size, and the estimated high 400 million middle class consumer base, might be big enough to accommodate global players in multiple formats. Nonetheless, our biggest worry is about the flooding of Chinese goods, a well-known Walmart strategy which has made it the world’s biggest multi-brand corporate in the physical retail trade due to its dominance of the US market. Its entry into India is driven by having to compete with Amazon in e-commerce. Competition should be welcomed as it will benefit the consumer. But unless Walmart-Flipkart is forced by regulators to source a minimum percentage of India-made goods, the country may soon become a huge consumer of Chinese goods, much to the detriment of Indian manufacturers.
