Walmart And Flipkart Deal - Impact on Indian Economy

After trying for more than 15 years, the retail giant Walmart finally managed to enter Indian market. Till now, the Indian e-commerce

After trying for more than 15 years, the retail giant Walmart finally managed to enter Indian market. Till now, the Indian e-commerce landscape was dominated by two firms: Flipkart and Amazon but Walmart-Flipkart deal is determined to shake things up.

After three months of cerebration, Competition Committee of India (CCI) approved the proposed acquisition of Bangaluru based Flipkart Private Limited by Walmart International Holdings Inc. Walmart acquired 77 per cent controlling stake in Flipkart for $16 billion, making this the biggest ecommerce deal in the world. The remnants will stay with its earlier investors Tiger Global Management LLC, China's Tencent Holdings Ltd, Microsoft Corp and Flipkart’s co-founder Binny Bansal. Post this deal the Indian E-commerce market will be a war field between Walmart, Amazon and Paytm Mall.

The deal will set a different momentum for the Indian startup ecosystem. The entry of kart into the mart validates the potential of the Indian retail market. As per Morgan Stanley’s analysis the Indian online retail is set to rise by 1,200% to $200 billion (30% CAGR) by 2026 from $15 billion in 2016. Average wages are increasing by 2% annually and internet penetration is also mounting as data costs are becoming more competitive. This makes Indian e-commerce space lucrative for business and investments.

Rajiv Kumar, Vice Chairman of NITI Aayog announced that the Walmart-Flipkart will have a constructive impact on India’s foreign investment inflows as it per the norms of India’s Foreign Direct Investment (FDI). CEO of Walmart Doug McMillon is of the opinion that India is one of the most striking retail markets in the world (considering how it managed to became Amazon of India). This deal with Flipkart is to applaud the company’s leading role in transforming the Indian e-marketplace. This deal might also help Flipkart to accomplish its dream of being a publicly listed company.

To Flipkart, this deal brings more than just money. This will give Flipkart the opportunity to expand its market beyond smartphones and fashion. In 2017, Amazon got permission to function in grocery and perishable food items which Flipkart was lagging behind till now. Now, Flipkart can re-furnish its structure using the Walmart’s expertise of running offline stores, access to sellers and manufacturers, supply chain and the know-how to get into the grocery segment.

Through this deal Walmart will leverage Flipkart’s e-commerce presence in India with an active base of 54 million customers. Till now Walmart was able to maintain strong global physical presence only in retail space for years but was lacking e-commerce. This deal will spur both Flipkart’s offline presence and Walmart’s online presence in India as both have planned to maintain separate brands and operating structures for now.

Walmart-Flipkart deal will end the domination of Amazon in the Indian E-commerce Industry. This will create more competition which leads to additional benefits to customers in the struggle of attracting larger customer base. The competition will bring more selection options creating diverse product availability at low prices to the customers. Moreover, the principal beneficiary is the farmer. The reason Walmart challenged Amazon is because Walmart has leading edge in something that Amazon doesn't and that is the ability to take fresh farm produce through very sophistically developed cold chains. This will also prevent the losses caused by spoiling of significant percent of fruits and vegetables due to insufficient logistics and warehouses.

Director of CRISIL Research, Ajay Srinivasan also commented on the same saying that “The deal indicates the attractiveness of India’s consumption market for global majors. With Walmart acquiring stake in Flipkart, we expect enhanced thrust on the online grocery segment. We expect online grocery to be the fastest growing segment in the e-retail space, growing at 65-70 per cent to touch Rs 10,000 crores in revenues by fiscal 2020.”

Walmart is famous for its culture of innovation and service. With the revamping of the business models, Indian E-commerce market is expected to witness expansive growth with improved productivity. Boost in productivity will increase the employment opportunities for both skilled and unskilled labor ensuing economic growth and capitalism.

After demonetization and GST, the E-commerce market faced major slow down. This deal will usher brand new funds and revive the Indian e-commerce market. This will attract more foreign firms and venture capitalists to enter India. Moreover, this deal will be subject to tax leading to rise in domestic revenue gains.

The world's biggest retail deal between Walmart and Flipkart will impact the whole segment of the competitors and the consumers. Where customer is the sovereign, the online venders on Flipkart are panicky of the fact that Walmart can wipe them off as it has a notoriety of slaughtering independent small companies with ultra-low costs. Small companies anticipate that Walmart may get its own private brands and labels through Flipkart to the Indian customers which will lead to more pressure. The products could be brought in at hyper-competitive costs, which will rip apart the market and make it troublesome for other sellers.

Even though Walmart-Flipkart seems very thriving for Indian economy but still it witnessed protests and warnings from trade bodies, retailer associations as well as political organizations. They are apprehensive of the fact that India, as of now, does not have any National E-commerce policy or a regulatory body for E-commerce in India. Enormous information and data of Indian clients like personal details, purchasing history, search history, etc can go under the control of US company. This can be abused by personal stakes which happened in recent Facebook-Cambridge analytica case too. Therefore, there is a need to keep a system of checks and balances to evade any instance of data breach of Indian customers.

Both Flipkart and Walmart will be profited by this arrangement. Indian economy will have a rising graph with more investments coming in house. But to avert exploitation and maximize benefits, essential steps should be taken to bring uniformity in E-commerce marketing structures for bug free future.