A top Indian trade body says it is getting legal advice on US retail giant Walmart’s proposed $16-billion takeover of Flipkart, as it believes the deal to grab a 77% stake in the country’s biggest online marketplace circumvents the law.
The Confederation of All India Traders (CAIT) has issued a statement urging the government to closely inspect the deal, saying it has major ramifications for retail trade and the economy as a whole.
“The deal is circumventing laws and will offend foreign direct investment (FDI) policy once it is implemented and will create an uneven level playing field, besides accomplishing [the] hidden agenda of Walmart to reach out to offline trade via e-commerce,” the CAIT said.
CAIT president BC Bhartia and secretary general Praveen Khandelwal said that Walmart was not an online company and e-commerce was not its core area of competence. So, on the basis of Walmart’s financial muscle, a bigger game was planned to bring its goods to offline markets via online trading. The government should closely monitor each part of the deal because it was not a merger of two companies but would have great ramifications for retail trade and India’s economy.
Biggest foreign takeover after 10-year struggle
Walmart struggled for over a decade in India’s tightly restricted retail sector before deciding to spend $16 billion to buy Flipkart and give tough competition to Jeff Bezos’ Amazon, which currently dominates the fast-growing Indian e-commerce market.
But the proposed buyout has sparked a nationwide debate over what amount of foreign direct investment should be allowed.
Walmart’s Flipkart deal would be the biggest foreign takeover ever. To date, Vodafone, which acquired a controlling stake in Hutchison Essar in May 2007 for $10.9 billion, has made the biggest foreign investment. But the government has fought a decade-long battle to get the telecom giant to pay a tax bill of over $2.6 billion (possibly double that on today’s exchange rates).
The Vodafone tax dispute, now the subject of international arbitration, has left the impression that India is still a tough place to do business.
And Walmart may not have a smooth road to travel either, as the traders’ body says its takeover touches on crucial issues such as “FDI policy, data security, competition, unfair practices …”
“The government should immediately frame a national policy for e-commerce and constitute a regulatory authority to regulate e-commerce business in India, and till such time, the deal should be put in abeyance,” Khandelwal said.
Cultural body linked to BJP also opposed
Swadeshi Jagran Manch, a cultural organization that promotes self-reliance, which is affiliated to the Hindu body Rashtriya Swayamsevak Sangh and the ideological flank of the ruling BJP, has also opposed the deal, claiming it could hurt sellers’ business.
The All India Online Vendors Association, the body representing groups selling products over the internet, also wants the government to set up a regulatory body to monitor e-commerce marketplaces and their policies towards merchants on these platforms.
CAIT secretary-general Praveen Khandelwal also noted the issue of control of users’ data, saying: “…whoever controls the platform, controls data and digital intelligence. Therefore, being controller of the company, Walmart may use the data and other information as per its will and wish and the possibility of compromising the data cannot be ruled out.”
However, Walmart India chief corporate affairs officer Rajneesh Kumar said: “We believe that this partnership will be beneficial to all stakeholders and Walmart will continue to be an economic contributor. The partnership [with Flipkart] will create millions of jobs through development of supply chains, [and] direct farm procurement will help in increasing farmers income and take forward government’s vision of ‘Make in India’ initiative and support SMEs, among others,” the Economic Times reported.