Mukesh Ambani may be the surprise winner from India's new rules hurting Amazon and Walmart

• India’s new e-commerce rules may be a setback for global players like Amazon and Flipkart.
  
• The biggest beneficiary will be large Indian retailers and the largest of them all is Mukesh Ambani’s Reliance Retail.
  
• While his physical stores benefit from less pricing pressure, his e-tail venture will get a level playground to fight established giants, at no extra cost.
  

E-commerce in India is gearing up for some massive changes from February 1. Foreign e-commerce players — like Amazon and Flipkart — will no longer be able to offer consumers ‘deep discounts’ or sell their own brands through their respective platforms.

It’s a big blow to Jeff Bezos’ and Walmart, and not the best news for consumers in India. Local vendors are voicing their support for the new policy, hoping they can regain some market share, without having to lose more money by offering discounts.


However, the biggest beneficiary of the new policy may not be a broke Snapdeal or the now-jaded Shopclues. It is likely to be India’s largest retail chain operator Reliance Retail, owned by Mukesh Ambani — the richest man, not only in India, but in Asia.

The facts

Physical retailers — with the brick-and-mortar stores— are the immediate benefactors. The new rules are expected to boost sales for offline vendors by taking away the discounts available to consumers online. CRISIL estimates that it could increase revenue for offline retailers by ₹100 billion to ₹120 billion by 2020.

Just as the loss of business for e-commerce is the gain for retail chains, the advantage is usually with the larger players in the space — because of the sheer scale, reach and resources at their disposal. And the largest of them all is Reliance Retail.

“The impact on e-tailers would be largely in the electronics and apparel segments, which account for a bulk of their revenues,” says Anuj Sethi, the senior director at CRISIL Ratings.

Coincidentally, 34% of Reliance Retail’s revenue comes from its electronics arm — Reliance Digital. It’s also the largest holder of foreign brand licences for apparel in India. Some of its top brands include Diesel, Hamleys, Kenneth and Steve Madden.

Reliance Retail’s offline avatar served 3.5 million customers a week through 9,146 stores across 5,800 cities as of September 2018. Brokerage house CLSA further estimates that the company’s revenue may grow nearly 12-fold to $138 billion in the next 10 years.


If CLSA’s estimate were to come true, Reliance Retail alone will be making over a quarter of all revenue from retail — both online and offline — in India, expected at about $550 billion, in the next decade.

The timing

There is no doubt that online retail still has a lot of potential in India. Nasscom and PricewaterCoopers (PwC) estimate that the market will balloon to $150 billion by 2022.

Online players still make for only 3% of the total retail market in India, and the prospects are still huge.

So for Mukesh Ambani, as the chairman of Reliance Industries, it’s an unavoidable opportunity. One part of Reliance Retail— the apparel brand Ajio — is already online. Now, he is looking to expand the offerings beyond apparel, with a pilot programme in the state of Gujarat.

Before Ambani’s entry, Amazon had invested over $4.7 billion in India over the last six years, primarily because it identified the potential of a market with a population of nearly a billion and half people.

For the same reason, Walmart bought Flipkart in 2018 for a whopping sum of $15 billion, paying a heavy premium for joining the game late.

Over the years, Amazon, Flipkart and other early birds have burnt billions of dollars giving discounts, getting people used to shopping online and creating a market.

Then, the government revised its policy on foreign direct investment (FDI) in e-commerce on December 26, 2018, changing the rules of the game, which would bring the likes of Amazon and Walmart on a level playing field with new entrants.

Less than a month later, Mukesh Ambani took the stage at the investor summit Vibrant Gujarat and unveiled his plan to expand his online retail business.

The government’s new e-commerce rules are essentially trying to protect India’s retailers — including Reliance Retail — from the deep discounts offered by e-commerce giants. That is how Ambani’s physical stores gain.

What’s more, as a new entrant to e-commerce, going against established players with equally deep pockets, Ambani will not have to burn money through discounts. In fact, he is not allowed to.

He gets a level-playing field to fight established giants like Amazon and Walmart-owned Flipkart, at no extra cost.

The spin

Ambani had his own spin on why the change in rules was justified.

"In this new world, data is the new oil. And data is the new wealth. India's data must be controlled and owned by Indian people and not by corporates, especially global corporations,” Ambani said at the Vibrant Gujarat Summit in January 2018. He was alluding to the fact that two biggest e-commerce companies in India are owned by foreigners, and they have access to priceless data on Indian consumer behaviour.

Even people from the government echoed the ‘nationalistic’ spin to the story that Ambani offered. “We don’t want to build walls, but at the same time, we explicitly recognize and appreciate that data is a strategic asset,” Aruna Sundararajan, the nation’s secretary of telecommunications said last year at a press conference.

The other view can be equally convincing to Ambani’s critics. John Elliott, the author of “Implosion: India’s tryst with reality” begs to differ. “The idea that Reliance is any safer at protecting Indian people’s data than Amazon or Walmart is ludicrous,” Elliott told Business Insider.

See also:
India’s new e-commerce policy has rivals Flipkart and Amazon teaming up to counter the new directive — and the ‘Republic Day’ sale will probably be their last

The Indian government just dealt a serious surprise to Amazon and Flipkart — Here’s what that means for online shoppers

Amazon's newest challenger may be the richest man in Asia