The deal between India’s largest e-tailer, Flipkart and that of the Bentonville-Arkansas retail giant, Walmart at 77% stakes has created a furore in the Indian e-commerce sector. Off late, there have been several narratives about how the deal would be beneficial for the startups and also on how it had several shortcomings.
Amidst talks of Walmart investing $3 billion more in Flipkart within a year of completing the purchase of 77 percent stake in the Indian e-commerce company, let’s look at the latest developments after the deal was sealed:
- The AIOVA and other traders’ bodies, including the Confederation of All India Traders (CAIT) and RSS-affiliate Swadeshi Jagran Manch (SJM), have been reiterating their dissent over the deal. India’s online traders’ bodies opine that this deal could promote predatory pricing in the absence of an e-commerce policy in the country. The sellers suspect that Walmart, which is known for its discounts, might push them to provide more discounts. The top executives of Walmart India and Flipkart have met with CCI member Sudhir Mittal to explain their activities in India after the $16 Bn Walmart-Flipkart merger. They have assured that there would not raise any competition issues. However, the retailer bodies have claimed that merger might result in massive job losses in the retail industry. They opine that the deal would be transgressing the FDI policy of the country.
- The Department of Industrial Policy and Promotion (DIPP) has forwarded to various government agencies complaints made by SJM over the deal. The list of agencies includes the Reserve Bank of India, the Enforcement Directorate, the Competition Commission of India (CCI), and the tax authorities.
- The Income Tax Department has started examining the most-talked-after deal of the e-commerce sector. It is to be noted that according to the Income Tax Act if the amalgamated company is Indian, it is exempted from capital gains tax. However, the exemption is not available when cross-border M&A takes place unless the resultant company is an Indian outfit. Shareholders of the acquired corporation are supposed to pay capital gains taxes on their gains post the deal. Also, Walmart may have to pay a 10-20% withholding tax on the deal. Also, the Indian government is studying the Flipkart-Walmart deal closely to consider required changes in the bilateral tax treaties.
- In spite of legal complications with the deal, media reports claim that Flipkart will be launching grocery services in five cities by July with Walmart support. People familiar with the plans have stated that Flipkart’s grocery operations would start in Hyderabad, followed by Chennai, Mumbai, Delhi-NCR, and Pune. It also plans to offer steep price cuts on groceries at the beginning and end of each month, similar to the offers made by Amazon India and BigBasket, with discounts of 25-50% on groceries.
- A recent media report has also pointed out that Walmart no longer harbours plans of food retail in India. The global retailer plans to rather have a presence in the food products market through third-party retailers on Flipkart, which in turn would enable it to escape the scrutiny and riders associated with the foreign direct investment of up to 100% in food-only retailing ventures.
