No, Walmart will not be bad for India. This is why
Companies like Flipkart and Paytm will be principal beneficiaries.
Ever since the $21 billion (Rs 1.42 lakh crore) acquisition of Flipkart by Walmart was announced, passionate voices have decried the deal. Ironically, identical opposition to the acquisition has emerged from the Left and the Right. The common refrain: the East India Company is back and re-colonisation of India’s e-commerce marketplace has begun. Small Indian kirana shops will be driven out of business by Walmart’s notorious predatory practices and low-wage business model.
Collateral benefits
Walmart is the world’s largest company with annual revenues of $500 billion (Rs 34 lakh crore — eight times the turnover of the Reliance Industries). Its investment in Flipkart is the biggest M&A in India since the Vodafone-Idea merger. Walmart’s $21 billion valuation of Flipkart may seem high. It isn’t. The two Chinese Internet behemoths Alibaba and Tencent are valued at $500 billion each. Apple has a market value of over $950 billion (Rs 64 lakh crore) and Amazon of over $700 billion ( Rs 47 lakh crore). Flipkart has the potential, especially with its PhonePe and Myntra divisions, to rapidly scale up operations with Walmart’s large war chest. The US retailer has pledged to invest another $3 billion (Rs 20,000 crore) in Flipkart’s equity. Indian executives, including co-founder Binny Bansal and Kalyan Krishnamurthy, will continue to run Flipkart.
Critics say the money paid by Walmart to acquire a majority stake in Flipkart will go to foreign shareholders. They miss the point. Walmart’s acquisition of Flipkart will have collateral benefits. If the world’s largest company shows confidence in India’s economic future, then that will resonate across boardrooms globally. Will Walmart destroy the small Indian trader as many fear? Unlikely. Since liberalisation, foreign investments have strengthened rather than weakened local players. When McDonald’s entered India two decades ago, the fear was that small eateries would go out of business. In fact, McDonald’s was forced to Indianise its offerings with vegetarian burgers even as Indian fast food eateries offering dosas and traditional Indian fast food flourished. Similarly after Coca Cola acquired Parle’s soft drinks business in 1993, the US behemoth was forced to back local beverage Thums Up which continues to outsell Coca Cola — one of the very few cases worldwide where the local cola has overwhelmed America’s original Coca Cola.
By 2025, it is estimated that India will have nearly one billion Internet users. Companies like Flipkart and Paytm will be principal beneficiaries. Paytm’s largest investor Alibaba, along with its affiliate Ant Financial, holds nearly 50 per cent of Paytm’s equity. Japanese and other foreign investors hold another 38 per cent, making Paytm effectively foreign owned. Does that matter? It doesn’t.
Virtually the entire advertising industry in India has been foreign owned ever since 100 per cent FDI in the sector was allowed decades ago. Star Sports, which broadcasts the Indian Premier League (IPL), is owned by Rupert Murdoch who is in the process of selling parent company Fox to Disney, which in turn owns a large chunk of several film and entertainment channels in India. In short, foreign ownership of Indian companies is fairly common. From Vodafone to Hindustan Unilever, foreign-owned companies have long operated in India. They have provided jobs to Indians, created an enabling ecosystem for vendors and suppliers, and given consumers world-class products, services and technology.
Reverse colonialism
Critics point to how US President Donald Trump has blocked the acquisition of American chipmaker Qualcomm by Singapore-based Broadcom. Qualcomm is a rival of China’s Huawei in new generation wireless technology. If Qualcomm fell into Broadcom’s hands, Trump feared its technology could eventually land up with Huawei. That is the exception that proves the rule: barring high security sectors, the United States has among the world’s most open economies. Silicon Valley has been able to create world-leading innovations because it welcomes global investment, both inwards and outwards.
When foreign companies build infrastructure — bridges, highways, factories, housing, metros and sealinks — that infrastructure stays in India. During the British colonial occupation of India, Indian resources (labour and taxes) were exploited to benefit the British. Today, foreign investment in India deploys global funds to benefit Indians: employees, customers, suppliers, ancillaries, vendors. Opposing this reverse-colonialism shows how many Indian minds still remain prisoners of the past.
Growing economy
Ironically, the Left and Right are on the same side in opposing foreign investment in India. Communists despise open markets though their lodestars Russia and China have long embraced them. The Right, including the RSS, also opposes foreign investment in the wholly misconceived belief that it will subvert the Indian economy. In fact, India’s economy has been transformed following the PV Narasimha Rao-Manmohan Singh liberalisation of 1991-96. Though forced to open up the then bankrupt Indian economy by the International Monetary Fund (IMF), subsequent events have vindicated the move. The automotive, infotech and telephony sectors in India are today world class because international companies like Honda, Toyota, Vodafone and IBM entered a market dominated by rattling Ambassador cars and MTNL landline connections for which there were long waiting queues. In the 27 years since liberalisation, India’s economy has surged 30- fold from a GDP of Rs 6 lakh crore in 1991 to a GDP of Rs 180 lakh crore in 2017-18.
Those on both the Left and Right who worry about foreign investment damaging Indian firms are wrong. Obsessed with the East India Company syndrome, they overlook the fact that given its size and increasing sophistication, it is the Indian market that will reverse-colonise the world’s largest multinational corporations.
(Courtesy of Mail Today)