Understanding the Walmart-Flipkart Deal: Part III (Pondering Over the Arguments Against the Acquisition)

By: Ahkam Khan & Alok Chaurasia

In this final part of this editorial series, the authors explain the arguments presented by the parties objecting to the deal. The post seeks to analyse the merits in the arguments raised against the acquisition and tries to find out their validity while highlighting the effects that the combination is likely to have on the Indian retail industry.


Over the last few weeks, there have been widespread protests throughout the country with traders demanding nullification of the Walmart-Flipkart deal. At the same time, in order to gain public support, they are also planning to organize a strike throughout India. Walmart, apprehensive of the situation, filed a caveat in multiple courts across the country to pre-empt any move by trade organisations to obtain an interim order against CCI’s decision.

The Confederation of All India Traders (CAIT), in its petition at NCLAT, has alleged that the proposed combination will result in malpractices with the resultant entity employing predatory pricing, heavy discounts and loss funding to exercise better control over the market. Moreover, CAIT also expressed concerns regarding the impact of the proposed Combination on employment, entrepreneurship, small and medium scale enterprises, retailing, etc.

The misconduct alleged by CAIT already exists with the difference that such conduct has no detrimental effect on the competition in the relevant market. Flipkart indulges in discounting practices with its sellers who are common to both the online marketplace and the B2B segment. These common sellers avail significant discounts from Flipkart in both B2B as well as the online marketplace but it was also noted by CCI that the revenue earned through these common sellers on the online marketplace was relatively less than the non-common sellers whose Sales figures were considerably low on the platform.

Now, when CCI is to evaluate the possible effects of the combination, it is to address potential adverse implications of the proposed deal and not contemplate upon existing practices of the parties that are prevalent in the relevant market. The CCI in its order stated that issues regarding common sellers availing heavy discounts have no bearing directly or indirectly upon the proposed combination. Further, the issues and concerns raised by third parties do not lie within the purview of the power of investigation granted to the commission under Section 6 of the Competition Act and that recourse must be taken to proper instruments. Attention must be paid to the fact that if the resultant entity indulges in any anti-competitive practices subsequent to the consummation of the proposed combination, the CCI can at any point of time initiate an investigation under Section 3 and 4 of the Act.


The CAIT wrote to the Commerce and Industry minister Suresh Prabhu, claiming that the government should not allow the acquisition as it would lead to preferential selling, exclusive tie-ups, predatory discounts, and Walmart’s indirect entry into the Indian retail market. The latter is the greatest cause for concern for political bodies like ‘Swadeshi Jagaran Manch’ who insist that not only is the deal illegal, but also anti-farmers, anti-entrepreneurs, and a way for MNCs to make a backdoor entry into Indian multi-retail Industry. The CCI dismissed these allegations labelling any such investigation as policy intervention that needed regulation by enforcement authorities. It noted that its investigation could only be based on competition merits of the proposed combination. The authors believe that most of the allegations are very improbable in the face of time, and competition analysis could not be based on remote possibilities of conducts harmful to competition in certain markets; therefore, business and trade cannot be hindered by sabotaging combinations on flimsy grounds.

Predatory Discounts

CAIT’s concerns noticeably arise from the meeting of two giants, though present in different markets but carrying on related businesses. The international presence of Walmart in the consumer retail industry irks them on the ground that Walmart might be trying to enter the Indian consumer retail industry indirectly through a marketplace based e-commerce platform in India that facilitates sales in the B2C market.

Walmart has been topping the Fortune 500 list for some years now and such business figures reflect only a part of the economies of scale it enjoys. Its business model as explained in detail in Part I works on the principle of ‘every day low prices’ for consumers. Its entry into the Indian markets, in any case, is likely to be marked by drastically reduced prices to capture the consumer base through its deep pockets; but such a situation does not seem plausible in light of the FDI restrictions in place right now.

However, Walmart is likely to push for the consumer base through its already dominant marketplace, i.e., Flipkart. It is further going to inject the US $ 2-3 million as equity to solidify Flipkart’s position in the market. This might mean reduced commission percentages for retailers on its platforms, which in turn would drive out small, unorganised and offline traders unlisted on online marketplaces due to their inability to offer heavy discounts, cheap prices and services like doorstep delivery. However, such a practice is highly unlikely in the near future, owing to huge losses posted by Indian e-commerce companies in the highly competitive race for customer acquisition. In such a situation, Walmart would definitely not cut down its commission through Flipkart when the platform’s losses were almost double of the closest competitor Amazon.

Exclusive Tie-ups and Preferential Selling

As highlighted in Part II, preferential selling and exclusive tie-ups could act yet another roadblock for small retailers. The CCI had already observed in the combination order that Flipkart engaged in preferential selling on its platform by charging low commissions from sellers on its platform who were also customers to Flipkart in its B2B business. Such a situation could severely aggravate with Walmart’s expanded B2B business, buying power, and its heavyweight image and funding. Walmart, while not exploiting the B2C sector on its world model due to FDI restrictions may instead choose to exploit the B2B sector changing tides in its favour, capturing both online B2B sales and diminishing the unorganised wholesale sector in the process.

If Walmart chooses to go after the B2B market through expansion of its already widespread brick and mortar network of ‘best price stores’ and online sales, it can lay claim on a developing market; a market that is still dominated by the unorganised sector and less powerful domestic players who are focussed in other sectors. The task here for Walmart would be boosting its sales in the B2B sector through heavy discounts and by using Flipkart for its bargaining power in providing almost an essential and important platform facilitating customer sales.

Flipkart could reduce its commission percentage for retailers who obtain most of their requirements from Walmart’s B2B stores. This would essentially work as an indirect rebate to sellers, who would prefer Walmart to other wholesale traders, to gain either easier access or higher profits from selling on Flipkart. In this way, restrictions on access to Flipkart for retailers who don’t buy their goods from Walmart would be a tie-up, and granting a reduction in commission charged by Flipkart to retailers who obtain their maximum requirements from Walmart could be called preferential selling.


Major concerns of the trade associations have been centred on how Walmart is trying to enter the interfere with the Indian retail market indirectly through Flipkart because it cannot implement its global model in India due to FDI restrictions highlighted in Part I. There have been cries of government not interfering with an indirect violation of its policy, even when a foreign corporation is allegedly trying to take up the industry and jobs in India by bending the rules. The slogans of ‘Swaraj’ are drifting across the skies again as the trader associations take roads for demonstrations and roadshows, a 90-day protest, and even call for a ‘bandh’ (a complete shutdown of trade and commerce).

However, the authors believe that the restrictions under the current policy are enough to provide a sufficient safeguard against any possible anti-competitive practices that the acquisition might bring about. As much clamour there is regarding this combination, there are legitimate grounds to believe that the proposed deal will in no way harm small and medium enterprises. As per India’s FDI policy, of all the procurement made by an entity, operating in multi-brand retail, at least 30% of manufactured/processed products is to be procured from Indian Micro, Small and Medium Enterprises. Further, entities operating as a marketplace in the e-commerce space can do so only on a B2B basis with sellers registered on its platform, FDI is prohibited in the inventory-based model which allows entities to sell their own goods directly to consumers. These marketplace entities are not allowed to exercise ownership over the goods sold since such situation will render it to be an inventory based model. They can merely act as an interface for sellers and consumers to interact. Moreover, the FDI policy restricts e-commerce entities from letting a single vendor affect more than 25% of the sales value in a financial year and it shall have no role in influencing the sale price of goods or services, either directly or indirectly, while maintaining a level playing field.

In order to regulate the growing online market, the government last month announced a new draft e-commerce policy that aims to provide a 49% FDI in the inventory based model which has been vehemently opposed by CIAT calling it a regressive step. The government dropped the first draft and a formed a new committee for careful perusal. The draft policy has been 3 years in making and government is in no mood to shelve this issue. It is pertinent to note that, for the said policy, the government consulted only Indian entities like Reliance group, while entities like Flipkart and Amazon who make up a major share of India’s online market were excluded from the deliberations. Now, Flipkart and Amazon are lobbying to scrap the entire draft, which also restricts deep discounts and interference with the pricing of goods and services.


The authors believe that the combination has several pros in store for India, as a foreign investment destination in the retail industry. India’s e-commerce retail business is just 2.5% of the total US $ 750 Billion worth of retail sector thriving across the country. Walmart’s heavy investment in this industry could attract significant investments in other such businesses across India. The acquisition would be a great stimulant in the race for e-commerce glory in India between Amazon and Flipkart. With Walmart injecting around the US $ 2 Billion, Amazon almost immediately sent a multi-billion dollar package to its Indian Unit for competition. Such heightening of competition would only benefit the Indian consumer, who besides getting more choices would also enjoy cheaper rates. Finally, this deal has also been an immediate trigger for the Indian government to review its FDI Policy considering the valuable FDI investments that might and are very likely to flow into the Indian retail industry in the near future. Therefore, while the resentment may be resounding and spread afar, the deal has more positives in store for the Indian retail sector than meets the eye.

(Ahkam and Alok have served as the editors of The RMLNLU Law Review Blog. Both the authors are currently students at Dr. Ram Manohar Lohiya National Law University, Lucknow.)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s