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Walmart-Flipkart Deal: Traders To Challenge Competition Commission's Approval

Fair trade regulator said in its order that Flipkart’s competition-distorting practices like deep discounting and preferential treatment to select sellers are ‘already prevalent’ in the e-commerce marketplaces even without the proposed acquisition by Walmart.
Walmart Flipkart

Indian traders’ organisations have slammed the order of the Competition Commission of India (CCI), which approves American retail giant Walmart’s acquisition of Flipkart while opining that the deal is “not likely” to have an adverse impact on market competition in the country.

The country’s fair trade regulator — in its order dated 8 August — also washes its hands off the complaints about the competition-distorting practices of Flipkart as well as violations of the Foreign Direct Investment (FDI) rules by the Walmart-Flipkart deal.

The CCI said these complaints “may merit policy intervention”, but have “no nexus to the competition dimension” of the acquisition and, therefore, fall beyond the scope of the Competition Act 2002 and so cannot be examined by the Commission.

However, trade associations — including the Confederation of All India Traders (CAIT) and the All India Online Vendors’ Association (AIVOA) — are set to challenge the CCI order in court, as their representatives told Newsclick.

Also Read: Traders Across India Protest Against Walmart-Flipkart Deal, Impending Doom For Indian Retailers

On 9 May, Walmart — the world’s largest brick-and-mortar (offline) multinational retail corporation — announced its acquisition of 77% stake in Flipkart, India’s largest e-commerce company, for $16 billion. Flipkart already had majority foreign investment — close to 90% of its shareholders are foreign firms.

Since the acquisition — which was pending approval from the CCI — traders and retailers across the country have been protesting, mainly on the grounds that the deal would damage India’s domestic retail trade and especially destroy the small manufacturers and traders.

Complaints were lodged with the CCI by several associations of traders and retailers — including by CAIT and AIVOA.

These associations raised concerns — as noted in the CCI order — about compliance of FDI norms by Flipkart, ‘predatory’ practices and preferential treatment to specified sellers in Flipkart’s online marketplaces” as also about the deal’s impact “on employment, entrepreneurship, small and medium scale enterprises, retailing, etc.” .  

What The CCI Order Says

The order states that a “combination” (which includes mergers, amalgamations and acquisitions) of two companies poses competition concerns if there is a “horizontal overlap” or a “vertical overlap” between the parties.

Horizontal overlap happens when the two parties are “close competitors in similar lines of business” while vertical overlap happens if the combination is “between a manufacturer and distributor who are at different stages or levels of production chain in different  markets”.

The CCI observed that the Walmart-Flipkart deal does not harm competition in either the horizontal market or in the vertical market.

It is important to note here that Walmart in its application to the CCI had proposed the “relevant market” as “pan-India  market  for  B2B  sales” — but more on that in a bit.

The CCI agreed that there is some horizontal overlap between Walmart and Flipkart, it says that “the parties are neither close competitors in the B2B (business to business) sales nor have a combined market share that raises competition concern”.

The Commission noted that Flipkart was “relatively strong in mobile and electronics  products, which constituted substantial  majority of its business. However, operations of Walmart in the same products was insignificant.” As for Walmart, the CCI said, its operations “were focussed on groceries but Flipkart was not present in this segment. Both the parties do have some horizontal overlap in lifestyle products… But again, the combined value of sales of the parties in this segment is low and relatively insignificant to the size of the markets for the said products.” Therefore, the acquisition “does not alter the current market structure”. 

Also Watch: Prabhat Patnaik: Walmart Deal Would be a Colonial Style Deindustrialisation of the Economy

The CCI also did not find any vertical overlap “between B2B business of Walmart and the online marketplaces of Flipkart.” 

It is based on these two parameters that the CCI gave a green signal to the Walmart-Flipkart deal.

However, the Commission did take note of anti-competitive practices by Flipkart by way of “deep discounting” and “preferential treatment to select e-tailers [electronic retailers] in the online marketplaces of Flipkart”.

As per the FDI policy, “an e-commerce platform cannot influence market prices directly or indirectly”, as the CCI order noted.

The Commission also “found that a small number of sellers in Flipkart’s online marketplaces contributed to substantial sales,” which is not allowed. The FDI rules do not permit more than 25% of the sales through an online marketplace from one vendor or their group companies.

These rules were notified by the Department of Industrial Policy & Promotion (DIPP) via Press Note 3 (2016).

However, the CCI order said these practices “are already prevalent in the market even without the proposed acquisition by Walmart.”

The Commission said while these practices could be examined under the Competition Act 2002, they were not a consequence of the Walmart-Flipkart deal alone. Therefore, these issues are not covered under Section 6 (Regulation of Combinations) of the Act, under which the CCI was examining the Walmart-Flipkart deal, it said.

The CCI said its endeavour in the present case was “not to address pre-existing conditions that are not attributable to the proposed combination or problems  in the markets, in general.”

Instead, the regulator said “this is a matter of consideration for the appropriate regulatory/ enforcement authority.”

“The issues concerning FDI policy would need to be addressed in that policy space to ensure that online market platforms remain a true marketplace providing access to all retailers,” the order said.

In fact, the CCI order praised the acquisition saying that “Flipkart marketplace platform will remain under the operation of Walmart, thus not only preserving a successful e-commerce platform but also enhancing the financial strength of the platform. This would enable the combined entity to compete effectively with competitors in a dynamic e-commerce market characterised with network effects.”

Opposition by Traders, Retailers

Praveen Khandelwal, general secretary of CAIT, told Newsclick, “We are going to move court against the CCI order. The issues and objections raised by us, including that of predatory pricing, etc., have not been considered by the Commission. The deal is undoubtedly going to adversely impact competition. Anything that affects competition is under the ambit of the CCI. So, the order is baseless.”

Parminder Jeet Singh, who is part of the Joint Action Committee Against Foreign Retail and E-Commerce told Newsclick that the least the CCI should have done is ask for clarification from the central government on whether the Walmart-Flipkart deal violates the FDI policy.

“The CCI cannot say that this matter is not under its ambit. Why were the policy interventions regarding FDI made in the first place? To protect competition in domestic retail. It is indeed a competition issue, and the CCI has taken an extremely narrow view, which is wrong,” Singh said.

Regarding the CCI’s justification that the anti-competitive practices are “already prevalent” in e-commerce marketplaces, he said, “If two people are doing a crime and you give them more money to do the crime, it is criminal. If something illegal is happening and there are complaints about it, and then you allow new FDI into what is already a violation, without even clarifying that it is a violation, it only amounts to compounding a violation.”

Moreover, a representative of AIVOA, who spoke to Newsclick on condition of anonymity, pointed out that Walmart had submitted the “relevant market” for the deal as “B2B” (business to business) market of India, which is wrong.

“We sent a letter to the CCI objecting to this, asking them to change the relevant market for the deal has to be the ‘e-commerce marketplaces’ market of India. But the CCI did not clarify what action was taken on our petition and they did not change the relevant market,” he said.

Also Read: The So-called “Consumers’ Interest”

“The Commission did not find “appreciable adverse effect on competition” (AAEC), but we are going to challenge the order in court and prove that AAEC will indeed take place.”

He added, “The CCI said the matter needs to be taken up by the appropriate regulatory/ enforcement authority. The DIPP violations do not directly go to court but to an investigating agency. It will go to the police, or the Enforcement Directorate (ED), or the Reserve Bank of India (RBI). We have already raised these concerns before the RBI and ED. There are already PILs filed in court. There have been many complaints over the past two years. But nothing has happened so far, because it is a political decision. So where do we go now?”

In fact, on 30 July, the Delhi High Court issued notices to Amazon, Flipkart and the central government — acting on a public interest litigation (PIL) by Telecom Watchdog, a non-governmental organisation — over these violations of the FDI norms for e-commerce. The PIL gave details of how Amazon and Flipkart circumvented FDI rules — through the common mechanism of creating a number of “name-lending” companies and/or through “controlled sellers” — and demanded that the Centre investigate and punish these e-commerce behemoths. The matter is listed for hearing on 19 November.

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