High Potential With Barriers: Walmart Now in Indiaby Opinion Express May 11, 2018 0 comments
India’s potential knows no bounds and Walmarts entry into the Ecommerce space is live proof.
Flipkart’s valuation at $20.8 billion or Rs 1.4 lakh crore and the subsequent acquisition of a majority stake by American retail giant Walmart is a great Indian success story. A success story that many are finding odd, given that Flipkart has never made an iota of profit, but is one of India’s most profitable companies. Although this deal will also be a test of India’s tax laws, since Flipkart is actually based in Singapore, but given that the underlying asset is based in India, Flipkart’s founders and investors will have to pay Capital Gains Tax in the country to avoid a repeat of the Vodafone-Hutchinson case. And then there is the problem that India’s two largest e-commerce players will be American companies, Walmart and Amazon. One can only hope that both companies will continue to plough in funds and resources into the country, which is estimated to become a trillion-dollar e-commerce market within a decade, creating jobs and opportunities to grow more Indian entrepreneurs who will be able to sell their products on either platform. At the same time, this battle will be a win-win for consumers in the short-term with discounts and offers likely to explode.
What is interesting though is that all this action in the e-commerce space has made a mockery of India’s rules against Foreign Direct Investment in retail; although those were nothing but crude protectionism in the first place. Amazon versus Walmart battle that will now ensue in online commerce should make the Government relook at allowing Foreign Direct Investment in physical ‘offline’ retail while making provisions to protect small traders. The deal to acquire Flipkart is proof that the world has moved on and Indian policy cannot keep pace. There is no reason why Walmart should not be able to operate their large supercentres in India. Much like the arrival of McDonalds led to the establishment of a proper cold chain, organised retail will help in improving logistics, reducing waste and keeping costs down.
While this is a success story of two classmates Sachin and Binny Bansal, the fact that they had to sell out is both good and bad. Good because it proves that India is open for business, but bad because it proves that few Indian online companies will manage to keep control of their own destinies. Other Indian ‘unicorns’ like Ola, PayTM and Zomato while having raised money from abroad still have some semblance of control of their own destinies. Ola and Zomato have both been expanding aggressively in new geographies and show that an Indian multinational can be built by new entrepreneurs much like China has been able to do over the past decade albeit in manufacturing. One reason for this is that rules and regulations, and ‘tax terrorism’ by authorities have made like unnecessarily difficult for Indian companies. Lessons have to be learnt from Walmart’s takeover of Flipkart, both good and bad and the Government should not just pat itself on the back, but should look at driving policy changes in retail and taxation going forward.
Courtesy: The Pioneer