CCI flagged offline retailers’ concerns while clearing Flipkart sale

India’s anti-trust regulator, while approving Walmart Inc.’s $16 billion purchase of Flipkart India Pvt. Ltd in early August, had asked policy makers to look into the grievances of offline traders about e-commerce companies.

Taking the cue from the Competition Commission of India (CCI), the department of industrial policy and promotion (DIPP), responsible for foreign direct investment policy, has taken steps that have caused angst among companies in India’s $41 billion online shopping industry, catering to about 100 million shoppers.

The CCI had then declined to look into complaints of alleged predatory pricing and preferential treatment to some vendors filed by brick-and-mortar retailers as these were not found to be relevant in deciding whether the Walmart-Flipkart deal stifled competition.

The regulator had said majority of the concerns raised by traders had no nexus to the competition dimension of the deal but those worries may merit policy intervention. “As per FDI policy, an e-commerce platform cannot influence market prices directly or indirectly. However, this is a matter of consideration for the appropriate regulatory/enforcement authority. The issues concerning FDI policy would need to be addressed in that policy space to ensure that online market platforms remain a true marketplace providing access to all retailers,” the regulator had said in its order.

Competition regulators typically approach such concerns primarily from the view of consumer benefit and do not bar exclusive tie-ups unless they lead to appreciable adverse effect on competition.

CCI, which examined the wholesale business-to-business operations of both Walmart and Flipkart in India, did not find the transaction to cause any adverse effect on competition in that segment either. “The deal will fundamentally not change the competition landscape. Within e-commerce, major players exist today and will continue to exist tomorrow despite the deal,” said Anurag Mathur, partner and leader, consumer goods and retail, PwC India’s strategy and management consulting practice.

A government official, said on condition of anonymity, said last week that the clarification on e-commerce FDI (Foreign Direct Investment) was meant to ensure a level-playing field among all vendors who sell their wares through such platforms. The market behaviour of online market places that foreign investors could acquire without government approval is a concern for their old school retail rivals as well as for policy makers as retail trade is the livelihood of a large number of people and is a politically sensitive issue.

India does not effectively permit FDI in offline multi-brand retail. Rules allow up to 51% FDI in this segment with government approval, but not a single proposal has been cleared so far.