On May 9, global retail giant Wal-Mart acquired a 77% stake in India’s e-commerce major Flipkart for $16bn. This represents the largest ever e-commerce merger and acquisition deal in India, and it will enable Wal-Mart to take on Amazon’s dominance in the country's online retail market.
The deal is a two-part affair entailing an equity infusion of $2bn in Flipkart and the purchase of the stakes of shareholders such as Softbank, Naspers, Ebay, Accel Partners, Tiger Global and Tencent, as well as the holding of a founding partner, Sachin Bansal. Google’s Alphabet is also expected to invest $1.5bn in the venture.
The deal is the most determined bid by Wal-Mart to secure a footprint in India’s booming online retail market. Currently this is pegged at $15bn – a small fraction of India's total retail market of $650bn – but there is room to grow. Wal-Mart’s ambitions to enter multi-brand retail in India through a tie-up with Bharti in 2007 did not work out. It will now have to scale up its operations in terms of setting up cold chains, warehouses and sourcing from farmers and SMEs.
As with its ill-fated bricks-and-mortar foray, Wal-Mart’s entry into e-commerce has triggered a growing groundswell of opposition, as it claimed it will threaten the livelihood of millions of 'mom and pop' convenience stores. The Confederation of All-India Traders (CAIT) feels that this acquisition will encourage predatory pricing and malpractices, and that this should not be allowed until the government comes out with a proper e-commerce policy.
“It is unfortunate that even after having a clear FDI policy, multinational companies are finding an escape route, whether it is retail or e-commerce,” said Praveen Khandelwal, the secretary-general of CAIT, as reported in the Business Standard.
N Chandra Mohan is an economic and business commentator based in New Delhi.