Trader associations want the deal to be withheld till there is an ecommerce policy in place and a regulatory body is formed to look into such deals.

Walmart is bypassing FDI laws with the Flipkart deal Indian traders rise up in protest
Atom Ecommerce Monday, May 07, 2018 - 15:59

Walmart is all set to buy over 70% stake in India’s largest ecommerce player Flipkart for nearly $15 billion. While this is being touted as Walmart’s biggest acquisition yet and the largest deal in the Indian ecommerce space, trader bodies and seller associations in India are opposing the deal with the fear of predatory pricing. Traders fear that the deal will create a powerful company which does not provide them with a level-playing field. They also accused Walmart of bypassing Retail FDI laws through the deal. 

The Confederation of All India Traders has demanded a government scrutiny of the merger. CAIT, which has written to Commerce and Industry Minister Suresh Prabhu, claims that the deal shouldn’t be allowed since it will encourage more loss-funding and predatory pricing by ecommerce majors.  It wants the deal to be withheld till there is a policy formed for Indian ecommerce and a regulatory body is formed to regulate such deals.

“Such a deal will encourage all kinds of malpractices, loss funding and predatory pricing on ecommerce in the absence of an even level playing field and it will give rise to unhealthy competition where traders, whether offline or online, will not be able to compete,” the letter states.

The letter claims that it is unfortunate that in spite of having a clear FDI policy, foreign companies are finding ‘escape route’ through ecommerce. “Same is the case of Walmart that after failing to enter India in retail sector through FDI, it has chosen the ecommerce route, which will be quite harmful for the trading community. Unfortunately, the government, in spite of well knowing the intent and hidden agenda of companies like Walmart is keeping its eyes and ears shut. Rather government is laying red carpet for them,” the letter states.

Currently, the FDI Policy of 2016 allows 100% FDI under automatic route in marketplace model of e-commerce, but does not permit FDI in inventory based model of e-commerce.

The policy states that an ecommerce entity providing a marketplace will not exercise ownership over the inventory. Such an ownership over the inventory will render the business into inventory-based model.

“E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field,” it further states.

However, Praveen claims that ecommerce players in India such as Flipkart have bene holding inventory through offshore entities and nearly 90% of the goods sold are by their own sellers. They feel that through this deal, Walmart will influence prices by holding inventory, which isn’t allowed under the FDI policy. Influencing prices will then lead to an uneven level-playing field, defeat competition and prevent local players from equally competing against other sellers.

Through this deal, Praveen claims that Walmart is looking to use ecommerce as a route to try and control and dominate the retail trade in the country.

The All India Online Vendors Association (AIOVA) too, is against the deal for similar reasons. It has expressed its reservation saying Walmart may look at bringing in its own private labels via Flipkart to Indian consumers at hyper-competitive prices, which will cannibalise the market and make it difficult for other sellers to operate.

“Currently Walmart and its products are not present on Flipkart’s marketplace. This deal will enable Flipkart to give benefits to Walmart products, which will lead to unnatural gain and diluting the B2C market both online and offline where Walmart has zero presence. The retail market will have another big giant after Amazon Wholesale, Flipkart India, which prices products predatorily in its whole sale arms, as admitted by one of their counsels as “marketing strategy” in a recent Income Tax hearing. This will cause a pricing pressure to sellers not only in online medium but also in finding an alternate channel,” an AIOVA spokesperson says. This has also been mentioned in the letter CAIT wrote to Suresh Prabhu.

AIOVA also claims that sellers have not been given any importance in the deal and there has been no approach to address concerns of sellers before finalising the deal.

“Sellers have contributed products, data, working capital and inputs in improving systems in order to bring marketplaces to a scalable level. The consumers are entering their market just because they have been given service on the platform by the sellers in the past,” he adds.

AIOVA also wants the marketplace Flipkart Internet Pvt Ltd to either be left out of this deal or be the only asset included in the deal and bought out independently by buying out the stake of Flipkart Singapore. Meaning, Flipkart.com is owned by Flipkart Internet and is a marketplace in India as per DIPP norms. It is a part of the group company, which is based out of Singapore. Flipkart Singapore invests the funds raised by it into its multiple entities.

AIOVA wants Walmart to clearly disclose how much of the amount invested by them in Flipkart Group goes to the Indian marketplace entity.

Praveen Khandelwal, Secretary General of CAIT, also says that given the credit system abroad, where sellers receive credit at interest rates as low as 1.5-2.5% as against India, where credit interest rate starts from 11%, Indian sellers are bound to lose out against financially stronger sellers from other countries.

Claiming that there is a huge gap in finance procurement in India, CAIT wants the government to make available technology and finance to help local sellers compete at a global level with a level-playing field.

They have objected to the fact that there is no policy, or rules and regulations for ecommerce. Till the policy is finalised and a regulatory body is put in place, CAIT wants the deal to be stopped.

“If there is a level playing field with the government giving us the required financial support and technology to equally compete with global sellers, we don’t mind international players coming to India,” Praveen says.

AIOVA, on its part, has requested the government to monitor inflow and outflow of funds in marketplaces during and after such deals in order to ensure that funds collected on behalf of sellers are not siphoned off.

“Flipkart Internet Pvt Ltd shall be taken by our organization to CCI and other required legal avenues if any unnatural benefits are passed on to any entity related directly or indirectly as a result of such a deal which happens in or outside India. Government should step in to ensure transparency in working of marketplaces,” the spokesperson added.

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