Business

Setback For Walmart, As Government Strict Policies On FDI

NEWS WORLD INDIA | 0
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| March 6 , 2019 , 18:17 IST

Recently, the Indian government changed norms for Foreign Direct Investment (FDI) in E-commerce abruptly, Walmart believes that the country is “an important growth market” for its business.

In fact, according to executive vice president and chief financial officer Brett Biggs, Walmart was prepared for such “legislation change” even before it spent the eye-popping $16 billion (Rs1 lakh crore) to pick up a 77% stake in Indian E-commerce major, Flipkart, in May last year.

Biggs said, during a conference call with investors on March 05, “When you make an investment in India, note, things are going to change. They did the first time we were in India and they will again, we know that. We knew that going into an investment.” 

“We don’t feel any different than how we did about it Flipkart acquisition just six months ago. It’s disappointing that you have a law like that changed that quickly, but we’ve made the adjustments and we are moving forward" Biggs added.

On Feb 01, Indian government implemented several restrictive changes to its FDI policy for E-commerce, which disproportionately hurt foreign-owned online retailers such as Amazon and Flipkart.

Among other things, the new rules bar online marketplaces from entering into exclusive deals to sell products and from having a single vendor supplying over 25% of their inventory. Restraint has also been put on online marketplaces from manipulating prices.

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This came as a blow for India’s $22-billion E-commerce industry, which has so far thrived on deep discounting and exclusive launches.

To meet the new regulations, major portals like Amazon and Flipkart had to overnight delist thousands of items and scores of sellers, which hammered their businesses for several days.

Even as most products have made a comeback on Amazon and Flipkart, estimates say, by 2020, the new rules could lead to a revenue loss of up to 40% each for the two companies, amounting to between Rs35,000 crore ($5 billion) and Rs40,000 crore.

The change in norms was considered to be a major setback for Walmart, which has struggled with India’s fickle regulations for over a decade now. In 2007, the company had first entered India in partnership with a local firm Bharti Retail.

However, the venture failed to gain much Momentum, and the partnership fell through in 2013 following differences between the two companies.

Post that, Walmart could not really establish itself in India as the country does not allow 100% FDI in supermarket chains. However, according to CFO Biggs, the opportunity in India is too big to forgo.

Biggs also stated that “I’ve been going to India personally for, like 15 years. I was…a part of the original joint venture within India. So, it’s an interesting market…there are still 1.3 billion people in India. There is still a growing middle-class.E-commerce penetration is getting bigger in a very rapid fashion.” 

“We’ll have legislation changes, we know that and you work your way through it. But in the long-term, this is a great opportunity for Walmart” Biggs added.