Walmart-Flipkart May get Spared From FDI Norms

Flipkart’s acquisition by Walmart is expected to be spared from policy norms as the Indian e-commerce major runs a marketplace in which 100% foreign direct investment is allowed.

The $16-billion deal will see only $2 billion in fresh inflow into the Indian company. India allows 100% FDI in e-commerce marketplace subject to certain restrictions.

If Walmart continues the same model and Flipkart complies with all conditions after acquisition, there would no violation of FDI rules and the deal would not require any approval.

“It is a very strategic move by Walmart since there is a lot of scope for e-commerce even within current regulations in India,” said Paresh Parekh, partner, EY. The deal would reset future valuations of such mergers and acquisitions. Another comfort is that no exchange of shares has happened in India. Flipkart is controlled by a Singapore-registered entity and the acquisition of shares has happened in that company and not an Indian entity.

The riders that Flipkart would continue to face is that more than 25% of its annual sales cannot come from one vendor including group companies. Such marketplace platforms are also not allowed to directly or indirectly influence the sale price of goods or services and have to maintain level playing field.

They are also not allowed to keep inventory as FDI is not permitted in inventory-based model.