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E-Commerce

Indian Traders Protest $16 Bn Walmart-Flipkart deal

Aug 24, 2018 by Rashi Varshney
Indian Traders Protest $16 Bn Walmart-Flipkart deal

Traders’ body Confederation of All India Traders (CAIT) has called for a nation-wide retailers’ strike on September 28 to protest against the USD16 billion Walmart-Flipkart deal. They claim that the deal violates India’s FDI in e-commerce guidelines on multiple levels and that it would erode their market presence with the monopolistic approach of the company.

The organisation that represents seventy million traders across India also claims that the deal would hurt local traders by exploiting market leadership.

Speaking to The Passage at his office in Delhi, CAIT secretary-general Praveen Khandelwal claimed that transport vendors, local traders, hawkers, small industries, SMEs and MSMEs, consumers, self-employed groups, and The All India Online Vendors’ Association (AIOVA) will also lend support to their strike.

The traders’ body will also take to the streets in a nation-wide rally against the deal on September 15. It is unclear how the strike will affect consumers, and if deliveries would be delayed. Nothing is also known about how the e-commerce companies are preparing for the strike. Amazon and Flipkart did not answer emails sent by The Passage.

What traders want from the Government?

The traders’ body in India wants the government to interfere to “stop the deal from happening for larger interest,” Khandelwal clarified. He also stated “we will use all kinds of available legal avenues to oppose this deal.”

Reiterating what CAIT had said earlier, Khandelwal added that CAIT will appeal to the Prime Minister to intervene.

“If the government does not disallow the deal, the traders will challenge it in High Court as well as Supreme Court, and will keep opposing the deal until there is justice,” said Khandelwal.

The online vendors want the government to form the regulatory body for the sector before any changes are made in the ownership and control of the power of marketplaces.

Queries sent to Flipkart for a comment on the issue did not elicit any response at the time of publishing this post.

The deal that’s causing the noise In May, US retail major Walmart had announced its proposal for buying a controlling stakes in Flipkart. In a Tweet on August 8, anti-competition watchdog Competition Commission of India (CCI) had announced that it had approved Walmart’s proposed USD 16 billion acquisition of Flipkart. On August 18, Walmart Inc said in a statement that it has completed the deal with Flipkart and now holds 77% stakes in the Indian e-commerce major.

Why the movement against the deal? Explaining their position, the CAIT secretary-general said, “It (Walmart) will now first kill the competition, and then will dictate the market.” Khandelwal explained, “Walmart is ultimately a retailer, which has been eying India’s retail market since 10 years, but was not able to due to multi-brand retail FDI policies. Now it has found its way via e-commerce channel by acquiring Flipkart.”

The current retail FDI policy does not allow overseas investors to hold more than 51% in a multi-brand retail. Earlier in 2013, Walmart had failed to tap the market in India after an abortive wholesale market deal with Bharti.

The traders’ association fears that offline retailers or online vendors would not be able to compete with the combined power of Flipkart and Walmart due to their deep pockets, and access to cheap merchandise.

Speaking to The Passage, the CAIT chief said that with access to the best technology and capital, the combined entity would navigate consumers to their own in-house brands sell products at heavy discounts. He feared that despite being listed on Flipkart.com, the other vendors would not get any orders. “This is happening right now also", Khandelwal added.

Note that, the Government of India is expected to roll out a National E-commerce Policy by end of this year. As part of the process, the government had put out the first draft of the policy for consultation, which talks about restricting e-commerce marketplace for directly or indirectly influencing the price of sale of goods and services, to group companies of the e-commerce marketplace. The draft also talks about introducing a rule for a maximum duration of differential pricing strategies such as deep discounts.

Khandelwal claimed that Walmart, through Flipkart, would create an uneven playing field and wipe out competition due to their business model which he claimed would be based on predatory pricing and deep discounting.

He pointed out that these were against the spirit of competition law and also in violation of FDI norms.

The Ministry of Commerce and Industry had published FDI policies in 2016, under which it had ruled that FDI in B2C e-commerce in India is not allowed. It also said that FDI is not permitted in the inventory-based model of e-commerce. Khandelwal questions how Flipkart, which claims to be just an online marketplace, provides discounts up to 80%? “This means they already own the goods, and are violating the rule which has been overlooked by the government,” he added.

The FDI policies also rule that the e-commerce marketplaces, such as Flipkart, cannot influence the selling price of goods or services.

Explaining further, the CAIT’s general secretary said that Walmart will most likely source goods from countries where production cost is lower and dump it in India’s e-commerce and retail space. “For instance, China’s mega production is cheaper than India, Walmart will source products from China to sell on Flipkart.com, and consumers will not buy Indian products because of the price difference,” he added.

Khandelwal further accused that Walmart would sell its own inventory on Flipkart either directly or through a web of associated preferred sellers with the result. This would ensure the market share of such goods would rise exponentially. Offline retailers/wholesalers would have two options either exit the market or face discriminatory terms and conditions from Flipkart.com. “The combined entity would have affiliates in the entire supply chain,” he added.

However, Ankur Nigam, a partner at management consulting firm KPMG said that online shoppers in India are now becoming less-price sensitive and more experience sensitive. “Indians as consumers have grown over the last 5-8 years, and I don’t think cheap merchandise will have a big impact,” he said.

Deal legally flawed, traders say CAIT terms CCI’s approval of the deal to be “arbitrary, illogical and in utter disregard of the principles of natural justice.” Soon after the CCI’s approval of the deal, the traders’ body alleged that neither they nor any of the other bodies that had objected to the deal had been given a fair audience.

In statements issued then, the retailers’ association had said that the deal violates the Competition Act.

“Competition Act mandates the CCI to act in furtherance of the principles of natural justice. Despite repeated objections of CAIT and other trade associations, the CCI denied them an opportunity of being heard on the pretext that the same is not envisaged at this stage of combination approval explicitly under the Act.”

The association further maintains told that CCI also ignored ‘predatory activities carried out by both Flipkart and Walmart in the past. “The CCI, which is supposed to adjudge the likelihood of impact of a combination if it is approved on the market, completely disregarded the predatory activities undertaken by both parties in India and abroad in the past.”

Khandelwal had even accused the government of tilting balance towards MNCs at the cost of ignoring the domestic retail trade. In June, the All India Online Vendors Association (AIOVA), which represents about 3,500 sellers present on various e-commerce platforms like Flipkart, Amazon and Snapdeal reached out to CCI and wrote in a petition that Walmart has considered B2B market as the relevant market in India, and that after the completion of the deal, the US giant will dominate the market on Flipkart.com via a B2B company, which will affect other sellers on the Flipkart and may also lead to shutdown of their businesses.

Rashi Varshney

Rashi Varshney is a Delhi-based tech reporter. She focuses on emerging Indian startups and unicorns. She can be reached at rashi.varshney@thepassage.cc

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