05 November Tuesday

Walmart’s Acquisition of Flipkart and What it Means for India

Prabir PurkayasthaUpdated: Monday May 21, 2018

WALMART’S 14 billion dollar acquisition  of Flipkart has sent the Indian  financial press into a tizzy: the biggest  deal in India ever, the biggest ever  global ecommerce acquisition, etc.  What it means for the Indian retailers,  who employ about 40 million people,  having Amazon and Walmart, two of  the most brutal employers in the world  dominating the Indian market, does  not find place in these writings. Or  that the BJP government has been in  clear violation of its election promise of  not permitting foreign capital to  enter multi-brand retail. They let this to  happen under the guise of “ecommerce”.  Amazon and Walmart, both global  monopolies, will now completely  dominate the retail sector in India. 

Just to see the extent of the disaster  that is waiting to happen in India, we  need to only look at the number that  Flipkart, the biggest ecommerce platform  in India, employs. It employs only  8,000 full time employees and 20,000  part time employees as against 40  million, mostly self employed or  employing family labour, in the India  retail sector. 

Indian capitalist class or its  mouthpieces may be immune to the  woes of the workers, either in their  factories or at large. But will this 14  billion dollars flow into the Indian  economy? The answer is no. Only about  2 billion dollars may come into the  company, and therefore the Indian  economy. The rest, about 12 billion  dollars, will simply be the amount  paid to various shareholders – mostly  venture capital – directly and will not  enter the Indian economy. As the sale  will take place in Singapore, India will  not even be able to tax the bumper  profits accruing to these venture funds  from the sale of Flipkart shares. This is  the consequence of the Supreme Court  judgement in the Vodafone case, which  Pranab Mukherjee as finance minister  in the UPA government tried to rectify,  and then Jaitley scuttled. 

To see who are the big beneficiaries  of the Flipkart sales, let us look at its  current shareholdings. We give in the  table below, the current shareholdings  in Flipkart:  Soft Bank (Japan) 23.6 %  Tiger Global (US) 20.5%  Naspers (US) 14.6 %  Accel India (Subisidiary  Accel US) 6.4%  Ebay (US) 6%  Tencent (China) 6%  Microsoft (US) 6%  Sachin Bansal (Indian  and promoter) 5.2%  Binny Bansal (Indian  and promoter) 5.2%  Others, largely foreign  venture funds 6.2%  (Source: Shareholding figures from  https://yourstor y .com/2018/04/  will-flipkart-walmart-deal-marksignificant-  exit-biggies-softbanktiger-  global/)  As can be seen from the above,  about 90 of existing shareholdings are  from what are called venture funds – in  reality vulture funds – all of whom are  headquartered abroad. These will get  huge windfall profits from Flipkart’s  sale. Most of these companies are going  to exit completely. The Indian economy  will not see a cent from the sale of these  shares. 

Why do I call these funds vulture  funds? The Softbank’s example will  make this clear. They made 2.5 billion  dollar investments in Flipkart only  eight months back and are now set to  make a $1.5 billion profits (60 per cent  profits) in just eight months! 

This is the pattern of venture  funds, make investments in struggling  business which has real market value,  and help sell it quickly, making huge  profits. 

After the sale of 77 per cent of its  shares for 14 billion dollars, the market  value of Flipkart is 20 billion dollars.  How is it that a company that has been  consistently making losses – cumulative  losses of Rs 24,000 crores or about 3.5  billion dollars in ten years – be worth 20  billion dollars? 

In the digital ecosystem, or what  is being called as the tech sector, it  is not immediate profits that matter. What matters is building monopolies in  specific segments of the market.  Amazon took nine years before it made  a profit. Google had no business model  when it launched its search engine, and  created a monopoly in the search engine  market. It is only then that it hit upon  the idea of using advertisements as its  business model. It is the same model  that Facebook also followed.  Venture capital, the latest avatar of  finance capital, invests in companies  that they think will create a monopoly.  Once this monopoly is created, they  know that this monopoly can be used to  create super profits. It is the expectation  of super profits, once the monopoly is  created, that gives these tech firms or  digital monopolies their market value.  This is why the five top companies in  the world today, as can be seen in the  table below, are digital monopolies. 

Company Market Valuation in $  Billion (Dec 31, 2017)  Apple 867  Alphabet (Google) 727  Microsoft 660  Amazon 564  Facebook 513. Since then, Facebook has gone down  the eighth position, with the Chinese  social media giant and venture fund  Tencent rising to the fifth position. 

BJP’s violation of its election  manifesto on the issue of not allowing  global multinationals to compete  with Indian retailers is a repeat of its  violation on all other fronts, be it  farmers, workers, students. BJP has  never been serious about not allowing  foreign multi-brand retailers to enter  the Indian market. It allowed Amazon,  and after the acquisition of Flipkart  by foreign venture capital, to operate  freely in the Indian market. These are  obviously multi-brand retailers. The  fact that they sell through their websites  or apps, does not change the simple fact  that they sell all possible goods through  their websites. 

What is the fiction that the BJP and  its finance minister crafted to bypass  the regulations that Foreign Direct  Investment (FDI) is not allowed in the  Indian multi-brand retail market? An  issue that the Retailers Association of  India have raised repeatedly, including a  petition in the Delhi High Court. 

BJP’s “answer” is that these  ecommerce companies are not selling  directly to customers but are only acting  as a “meeting place” for buyers and  sellers. The buying and selling apparently  is not being done by Amazon or  Flipkart. Even if we, as much as the  finance ministry, know that this is just  a figment of finance ministry’s  imagination. 

Mr Jaitley, after his four year stint  as finance minister, should start writing  fiction. He seems to have perfected this  art while dishing out fictional figures  on employment, GDP growth, non  performing assets of banks, etc. 

The other part to note is the labour  practices of companies such as Amazon  and Walmart. Both have been identified  as the most abusive of employers.  Amazon work place is stated to be toxic  by a number of employees who got  burned due to extremely long work  hours, abusive bosses including sexual  harassment (The flaw in Amazon’s  management fad: https://www.  theguardian.com/commentisfree/  2015/aug/17/amazon-managementfad-  rank-yank-jeff-bezos). Walmart  has a similar record, with its employees  now starting to unionise, and going  on strike for better conditions of work.  Walmart’s anti-union policies are  notorious, and have made Walmart the  worst company to work for in the US  (10 reasons Walmart is the worst  company in America: https://www.  dailydot.com/via/walmart-laborunions-  bad-company/) 

Both these companies pay below  subsistence wages to the bulk of its  employees, reserving fat salaries for  its top bosses and the technical team  that run the websites; or (wo)man its  technical infrastructure. The bulk of  their US employees depend on food  stamps and various other social security  schemes to survive (Amazon gets tax  breaks while its employees rely on  food stamps: https://theintercept.  com/2018/04/19/amazon-snapsubsidies-  warehousing-wages/;  Report: Walmart Workers Cost  Taxpayers $6.2 Billion In Public  Assistance: https://www.forbes.  com/sites/clareoconnor/2014/04/15/  report-walmart-workers-costtaxpayers-  6-2-billion-in-publicassistance/#  4323e671720b). The welfare  schemes do not subsidise the workers,  they in fact provide hidden subsidies to  big capital. This is apart from various  other benefits that the neoliberal  governments are providing to big  capital: from tax reductions to allowing  money laundering through tax  havens. Not surprisingly, the biggest  beneficiaries of tax havens are the digital monopolies. 

The BJP government’s policies are  clones of the US policies that provide  tax breaks for the rich, and offer casual  employment for the working people.  This is also why India’s business  press and journalists are gaga over  the Flipkart acquisition. For them,  economic journalism means reporting  on big capital and how great they are;  or the equivalent of page 3 or celebrity  news of big business. 

The duopoly of Amazon and Walmart  in Indian retail spells doom for lakhs  of retailers who supply our everyday  needs. Welcome to Modivision for India:  the vision not for the Indian people,  but for big capital, Indian or foreign.  For the Indian nation and its people,  his government has only hate to offer:  against minorities, anti-nationals such  as secularists, liberals and the Left.   

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