Flipkart-Walmart Deal: Emerging Issues
by Ashwani Mahajan on 08 Jun 2018 2 Comments

Recently a deal was concluded where Walmart, USA is said to have acquired 77 per cent shareholding in Flipkart Limited, Singapore, and the holding company of Flipkart Group of Companies in India. It is narrated as the biggest e-commerce deal in the world. We are Swadeshi Jagran Manch (SJM) firmly believe that this acquisition shall result in Walmart’s backdoor entry into multi-brand retail trade in India, which is not permitted under the present foreign direct investment policy of India.


In fact, the management of Flipkart Group has been circumventing laws while carrying on multi-brand retail trade through e-commerce by flouting the Reserve Bank of India’s directions on Foreign Direct Investment (FDI). It can be easily seen that through a complex corporate structure, the management of Flipkart is presenting itself as an entity in Business to Business (B2B) segment whereas it is operating both in B2B and Business to Consumer (B2C) segments.


There has been a consensus in SJM and BJP, the ruling party, that FDI in multi-brand retail will not only kill entrepreneurship and is anti-farmer, but will also kill job creation opportunities in the market; so it is rightly kept out. The government of India has expressed clearly its intention of not allowing FDI in multi brand retail trade in ‘brick mortar’ as well as ‘e-commerce’ modes as it is essential not only to protect the consumers from predatory pricing practices of multinational companies operating in these segments, but also to protect small traders as well as small manufacturers from their exploitative practices.


A number of studies have proved and established that multinational companies in multi-brand retail trade have massive negative effect on local traders, suppliers, consumers and local employment. Accordingly, FDI policy of the government has put restrictions on multi-brand retail trade. It has been observed that in spite of such a clear policy, the execution of the policy by bureaucracy is not being implemented in letter and spirit. A glaring example of the same is this Flipkart group.


Walmart has already made its presence felt in B2B segment and has opened 21 stores and has plans to open 50 more such stores. Acquiring Flipkart at a very high valuation is only on account that through this it would be able to come into B2C segment.


We have noticed that Flipkart promoters initially transferred the ownership of the companies operating in India to Singapore and in subsequent years made changes in ownership of the holding company at different valuations without paying any taxes in India, as happened in the Vodafone Case.


Flipkart promoters also segregated B2C business from the B2B business by creating companies apparently owned by independent persons but actually controlled by them only. Our records show that the directors of these companies are mostly employees of Flipkart group of companies. The operations of WS Retail Services Pvt. Ltd and Tech Connect Retail Private Limited can be clearly seen as camouflage for showing that B2B and B2C business are independent of each other.

Flipkart India Private Limited, operating in B2B segment has confirmed before Income Tax authorities that it has been selling goods at prices lower than their cost to build brand, which is actually Flipkart.com, which is an e-commerce platform. The goods are sold to the so-called independent companies at prices less than the cost, with the conditions that they would be selling those goods only at the e-market places of the same Group.


Even the prices of the products offered on e-commerce platform are determined by either the B2B company or e-commerce platform owned and operated by the same Group. This clearly establishes that transactions between B2B companies and B2C companies shown as independent companies are sham transactions and are in contravention of government policy on establishing ‘market place’.

Another indicator of the fact that these companies are being operated under one management is that these so-called independent companies are able to carry on business to the tune of Rs. 8000 crore (approx.) annually, with a paltry investment of Rs. 1.5 crore as share capital.


It is further submitted that Walmart has earlier also made an unsuccessful attempt to come into multi-brand retail trade in India and wanted to capture and control the retail business in India. But strangely, Walmart is using the e-commerce route to circumvent the rules to attack the Indian market. It is to be noted that nowhere in the world does Walmart have a market place model.


This deal is their second unholy attempt which must be foiled. Via Flipkart this is not only a backdoor entry, but they are barging into the Indian market. This will further eliminate the small and medium businesses, small shops, and opportunity to create more jobs. Most of these small entrepreneurs are already battling for their existence; entry of Walmart will further create problems for them.


We need to ensure that the interests of those at the bottom of the pyramid are safeguarded. Walmart is the world’s largest importer of Chinese goods - after top six countries, they are seventh - they will continue to pump in these products, killing our small and medium enterprises further and kill our ‘Make in India’ dream too. We all know that they have interests in the multi-brand retail of food and the combination of both will kill the interests of farmers.


Indian farmers are in process of getting trained to deal with Farmer Producers Organisations. It will still take time to make them understand the value of their produce and to acquire negotiation skills to deal with the MNCs. Unleashing Walmart will destroy their space. The Government is committed to the farmer to double his income.

These MNCs will not only bind the farmer, but will also kill his appetite to experiment with new crops and newer markets. SJM believes that the nation can prosper only if the farmer earns more, and is independent to sell his produce. This scenario will take India to an ultimate situation of food security. This deal is counterproductive to achieve this end; it will make more farmers dependent on the designs of MNCs. Certainly, this is not in our national interest.


India is strategically opposing the introduction of e-commerce in the World Trade Organization (WTO) and we support this decision. The biggest reason behind opting for this strategy is: we need to strengthen our laws and regulations so that Indian interests could be best protected. But this entry of Walmart will defeat our purpose. At present, the absence of watchdog, regulator, ombudsman and the connivance of certain bureaucrats has allowed many violations to become a norm. There are no rules set for e-commerce, so there is no check and balance. In absence of rules and regulations, companies such as Flipkart India Pvt Ltd, Myntra Jabong India Pvt Ltd and companies of similar nature should not be allowed to raise any funds directly or indirectly from existing or new investors.


Swadeshi Jagran Manch, therefore, demands from the government to -

-        Immediately initiate an enquiry into the dubious deal between Flipkart owners and Walmart which has been written outside India but for all the tangible and intangible assets placed in India,

-        Immediately initiate enquiry into the nexus between Flipkart companies and the so-called independent B2C companies and how they were allowed to carry on their activities without any objections from the regulators including DIPP in the past,

-        Make a strong representation before the Competition Commission of India (CCI) not to approve the takeover deal before the results of the enquiries being initiated by you are available,

-        Instruct the tax authorities to enquire the modus operandi used by the promoters of Flipkart to take away ownership of companies and their brands outside India; the various valuations at which ownership changes happened over the period and taxes involved in the transactions.


The author is All India Co-convenor of Swadeshi Jagran Manch 

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