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American retail giant Walmart is in the news for its stake in Bengaluru-based e-commerce firm Flipkart, which has now crossed the 80 per cent mark. In a Securities and Exchange Commission filing, the Bentonville-headquartered chain confirmed a few days ago that it had paid $3.5 billion to acquire additional shares, including those from Binny Bansal, who had co-founded Flipkart along with Sachin Bansal (not related to each other) way back in 2007. The latest deal values Flipkart at around $35 billion, ahead of its potential initial public offering. In 2018, when Walmart had acquired a majority in Flipkart for $16 billion, the Bengaluru firm was valued at around $21 billion.
But, the story here is not about Flipkart’s valuation rising from $21 billion to $35 billion in five years. Indeed, valuation markups and markdowns are the biggest constant in the startup universe, if Flipkart can still be counted as a member of that fickle club. What is striking is Walmart’s ownership of over 80 per cent in a company that’s become a household name for a wide range of products in the Indian market, spanning electronics, fashion, groceries, books and much more. While having 80 per cent or even 100 per cent foreign holding in any online marketplace business is within the remit of current policy, it’s still striking because the recent increase in Walmart’s stake brings back vivid memories of a little over a decade ago, and the stark contrasts between then and now.
Here’s a synopsis of the well-known saga of retail foreign direct investment (FDI) in India: After years of deliberation and flip-flops, in September 2012, the Manmohan Singh government cleared a proposal allowing up to 51 per cent FDI in multi-brand retail, which held great promise for foreign chains, especially Walmart. There were others too like Tesco and Carrefour that were waiting to open their big-box stores in the country. It was a big deal for a foreign retailer to be able to tap the Indian market for all the good reasons. And then came the disappointment — the United Progressive Alliance (UPA) government’s multibrand policy was peppered with multiple conditions that were tough to execute and the foreign chains grew restless with their business plans turning topsy-turvy. The stringent conditions were built into the policy to protect mom and pop businesses (also called kiranas or neighbourhood stores) from being affected by the entry of international chains with deep pockets. The biggest concern was job losses in traditional retail trade. When the Bharatiya Janata Party-led government came to power in 2014, the FDI policy was kept in abeyance, putting an end to the multi-brand dream of Walmart and others.
In that backdrop, it’s striking that almost a decade after a policy ban on retail FDI — for all practical purposes — Walmart now owns more than 80 per cent in Flipkart, which it itself describes as a “one-stop shopping destination’’. While policy hurdles stopped the American retailer from holding even a 51 per cent stake in any physical one-stop shopping destination (multi-brand mega store), it now owns way beyond in an online one-stop shopping destination, possibly catering to a similar customer base. And while its physical stores — anything from hypermarkets to supermarkets — would have been limited in number if permitted, Walmart’s online presence through Flipkart’s marketplace model stretches to every pin code in India, covering both urban and rural areas.
The turnaround in Walmart’s India story is not just about the retailer’s survival instinct in a market that it believed would be priceless. It is as much about India emerging as a preferred destination for businesses, despite the odds — red tapism, bureaucracy, policy hurdles, you name it. And this happened much before the geopolitical changes, including the “China plus” narrative. While Walmart has been the face of foreign retail for years, some others — mainly Amazon and Apple (representing different formats) — have also made a difference in pushing the India story.
If Walmart has rejigged its India business priorities over and over to opt for e-commerce marketplace as its primary focus, Amazon, a fully-owned foreign firm, too, made a choice to get the best of India. As inventory-based format was a no-go area for foreign e-commerce firms in India, Amazon became a marketplace-only business in the country, like Flipkart/Walmart. Apple, which comes under single-brand retail with a more lenient FDI regime than multi-brand retail, firmed up its India manufacturing plans through third-party vendors after years of dialogue with the government. More recently, it started opening its signature stores in the country.
All of this, along with Walmart’s strong India presence in terms of FDI, is striking because of the changing retail landscape. Walmart, Amazon and Apple are indices to measure consumption in the India market, just as much as Nestle, Unilever, Reliance Retail or the mom & pop universe do. The marquee foreign retailers are not only stepping up sourcing from India to export to the world but their boardrooms, whether in Bentonville, Seattle or Cupertino, are discussing India prominently, as their top executives have attested.
More than anything else, however, it is striking that the foreign behemoths who were feared for potential job losses in Indian retail, have raised their pitch about creating employment — not in hundreds or thousands but in millions. And yes, Diwali is built into their respective businesses now as much as Christmas is, irrespective of how the e-commerce policy shapes up or how the FDI rule-book changes.
In 2013, then chief executive of Walmart Asia Scott Price had deemed the joint venture with the Bharti Group as untenable, saying that “FDI has passed’’. Mr Scott had announced the breakup while citing a faulty FDI policy. Ten years later, it may not be wrong to say that the FDI policy has really passed as things have progressed in a different direction and on a grander scale. Why else will a minister talk about the Chandrayan mission at an Amazon traders’ summit in New Delhi or Walmart hold its mega sellers’ meet in India for the first time?
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