The Flipkart-Walmart deal is a game changer
The Flipkart-Walmart deal is expected to create jobs and efficient agriculture supply chains, and increase the flow of FDI through a cascading effect on other industries
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Walmart’s jaw-dropping investment in Flipkart is the summer blockbuster we have all been waiting for—a marriage between the iconic American brick-and-mortar company and an Indian e-commerce start-up that has shaken up the retail and e-commerce scene in India and beyond. Beyond the sheer size of the investment—a whopping $17 billion for a 77% stake—the deal is a game changer for US-India commercial ties. Walmart’s investment demonstrates India’s growth as a formidable marketplace, one with the potential to transform the entire retail and e-commerce sector, connect with consumers efficiently through a robust e-commerce platform, and create jobs for the rural economy through Walmart’s immense brick-and-mortar supply chains. The deal also underscores the American business community’s new approach to investment in India, focused not only on profit-generating investments, but also on creating impact for communities at large through long-term sustainable partnerships.
This dramatic shift in the investment climate would not be possible without Prime Minister Narendra Modi’s pro-business agenda and his clarion call to replace the red tape with a red carpet for investors, supported by efforts to improve India’s performance across global economic benchmarks. These include measures to improve the ease of doing business, making it easier for entrepreneurs to start a business, reducing the length of procedures to obtain permits, protecting minority investors, easing trading across borders, and enforcing contracts. The government also spent significant political capital last year on implementing the goods and services tax (GST) and other structural reforms, such as revising the bankruptcy code, and pushing forward economic liberalization across sectors such as defence, civil aviation, railways and pharmaceuticals. Foreign direct investment (FDI) inflow was at an all-time high of $60.1 billion in 2016-17, and a recent Reuters poll of leading economists suggested that India will be the fastest- growing major economy this year.
These initiatives and reforms provide significant support for both Indian and the US companies seeking to boost their investment in the Indian economy, promising far-reaching benefits for the country. In fact, Walmart projections suggest that this deal alone can create 10 million jobs through partnerships with locally owned businesses, boost farmers’ income, create more efficient agriculture supply chains through introduction of digital technology, improve service delivery and access for consumers, and support initiatives like Skill India and Startup India.
The Walmart deal may also have a cascading effect on other industries, catalysing investments by US companies seeking inroads into India’s rapidly growing markets and increasing the flow of FDI. The investment made by Walmart would support the “Make in India" campaign by adding billions in revenue for Indian manufacturers, supporting an increase in incomes for farmers , and reducing food waste by $1.2 billion annually within the next decade. Organized retail is seen as an ecosystem to support growth in domestic manufacturing, consumption and as a job multiplier. The deal will go a long way in also achieving the government’s aim of doubling farmers income by 2022 by turning agriculture into “an enterprise".
Additionally, US companies, whether through retail or online retail, will continue to positively impact the micro, small and medium enterprises (MSMEs) in India by providing means of financing, technology, and training. With growing rate of internet penetration, MSMEs are also gradually changing their operations to avail the opportunities to trade through e-commerce.
It is a harsh reality that large-scale investments still need to be channelled into supply chain development that can link farmers directly and efficiently to markets, thus minimizing loss because of inadequate storage and transportation facilities. This is where the e-commerce marketplace model in India can truly touch its potential. Further, easing restrictions on FDI in the sector to allow an inventory model will spur growth, generate employment, and help develop India’s manufacturing and logistics sector to support growth.
India’s growing middle class and young demographic profile make it not just an attractive investment destination, but an inevitable one for companies with a vision for global growth. To maximize the impact of this deal, the government should consider further liberalization in multi-brand retail. If India is serious about transforming itself into a true international market, the government will also need to bolster e-commerce trade, a crucial element of the development agenda at the World Trade Organization, where negotiations on a global e-commerce trade pact are in full swing. Other issues impacting the growth of e-commerce include privacy rules and data localization, particularly as they affect digital payments.
The Walmart-Flipkart deal should set the stage for both countries to look past recent instances of economic friction and forge a collaborative trade framework—one that can move bilateral trade to $500 billion, create jobs, and spur domestic growth. It heralds a new era of US-India commercial ties, defined by partnerships in supply chain development, a skill-based retail sector, and the interplay between online and offline retail. More importantly, it sets a precedent for both governments and the business community, suggesting that more can be done to take our partnership to greater heights.
Nisha Biswal is the president of the US-India Business Council and former assistant secretary of state for South and Central Asia.
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