India's small businesses are against Walmart’s acquisition of Flipkart

While discount-hungry consumers might be rejoicing at news of the Walmart-Flipkart deal, wherein the US retail giant plans to purchase a majority stake in Flipkart for $15 billion, it also has a major detractor for the very same reason.

The Confederation of All-India Traders (CAIT), a national association of small businesses and traders, has said that the proposed deal will hurt competition and encourage further loss leadership and “predatory pricing” tactics in India’s e-commerce market. It also observed that Walmart was choosing to enter India via the e-commerce route after being denied entry to the country’s multi-brand retail sector.

The trade body called on the Indian government to form a national regulator exclusively for the e-commerce sector and to put the Walmart-Flipkart deal on ice until such a body had been formed.

Flipkart’s board is said to have already approved a sale to Walmart, leaving competitor Amazon in the lurch. The deal, which is the largest in India’s retail sector, will have widespread implications for the country’s fast-growing online shopping market, which is shaping up to be a duopoly featuring Flipkart and Amazon. The Indian e-tailer will get access to Walmart’s products while the latter will be able to leverage Flipkart’s well-oiled logistics and supply chain network.

However, the deal could harm India’s small businesses, especially given Walmart’s habit of driving down its suppliers margins in order to keep prices low.

Earlier this week, another trade body, the All India Online Vendors' Association (AIOVA ) said that the 3,500 sellers registered with it were uncertain as to their future in light of the deal. If Walmart were to introduce its own private labels in general merchandise to the online shopping platform, it could crowd out domestic suppliers, the AIOVA said. There are also concerns that Flipkart’s algorithm could give an unfair advantage to Walmart’s labels.

The Indian government, which has been aware of these issues for a while, is set to launch a regulatory framework for the e-commerce sector in six months. The policy framework is expected to address the issues of discounts, foreign investments and a lack of competition.

The protests from trade bodies are not the only hurdle that the Walmart-Flipkart deal is facing. Japan’s Softbank, which owns a 20% stake in Flipkart, is looking for ways to offload its holding to Walmart without incurring a heavy tax bill. It could even delay the stake sale until next year in order to reduce its tax liability.