After incessant media speculation on the impending acquisition of Flipkart by Walmart (with an occasional comment about Amazon also being in the fray), the deal has finally been formally announced. How this acquisition will pan out for Flipkart and Walmart will only be known in the next few years, and would surely be the subject of many a case study then. However, beyond its impact on the shareholders of Walmart and investors in Flipkart, there are many possible interesting implications of this deal, which will not only affect India’s retail sector but also the larger e-commerce ecosystem, and then probably several other important sectors that intersect with retail, such as the agriculture, food processing, manufacturing of consumer goods ones, and even the exports sector.

Five of the more interesting implications include:

* Flipkart has, for long, been the poster boy of Indian e-commerce start-up space. In the early years, the business—and its founders—had more than its fair share of admirers and detractors. Some time during the last two years or so, it seemed that the ranks of detractors were growing with some even penning down, or tweeting, obituaries now and then. An acquisition by Walmart, at over $20 billion in value, is a ringing endorsement of the kind of business Sachin and Binny Bansal (no relation) have built, since Walmart itself is the world’s biggest retailer and, by most measures, is one of the most successful ones even today.

At the same time, Sachin and Binny Bansal have also demonstrated the arrival of a new breed of Indian entrepreneur—audacious, brash, and excessively confident. It is a refreshing addition to the ranks of the more traditional, and generally more risk-averse, entrepreneurs that India saw in the past. This should inspire many other Indian entrepreneurs to dream really, really big, and perhaps, also give a reason to many of the older, much larger Indian business houses to do some introspection as to how an 11-year-old start-up can actually become more valuable than some of the most venerable Indian companies that include Tata Motors and Mahindra.

Further, all investors in Flipkart, from the earliest ones right through some of the later ones such as Softbank and eBay, have made highly profitable exits. This should further encourage more Indian and international investors to look at and invest much more in India’s e-commerce businesses, giving the overall Indian e-commerce ecosystem (start-ups included) a further fillip.

* India’s e-tail business is still just about 2.5% of the ~$ 750 billion merchandise retail sector of India in 2018. The fact that Walmart has chosen to invest over $ 16 billion and valued Flipkart at over $20 billion gives a sense of the tremendous potential of retail (and e-commerce) in India as perceived outside India. This should lead to a further upwards re-rating of the value of several existing retail businesses in India (both brick-and- mortar and pure-play e-tailers).

* Competition in Indian retail will further intensify since a Walmart-Flipkart partnership will challenge not only Amazon and other e-tailers, but also most of the large physical brick-and-mortar retailers that include Reliance, Future Group, Tata Group, D’Mart (Avenue Supermarkets), Aditya Birla Group, Landmark, Metro (Germany) and Shoppers Stop. Overall, this increase in competition will be very good for Indian consumers who would not only get an even wider assortment of goods to choose from, but would also benefit from generally lower prices and better service. Walmart, like Amazon, has its own range of some good private-label products that offer value for money. Through Flipkart, Walmart can selectively offer these products to Indian consumers once it builds a robust India centric supply chain for the same.

This will also benefit the larger retail supply-side ecosystem in the country, with manufacturing of consumer goods getting a much-needed boost. Walmart can also take advantage of some of Flipkart’s own private label successes, especially in the fashion category, and can potentially even take some of Flipkart’s private labels outside India.

* The fight for maintaining or increasing the share of consumer (merchandise-related) spending is now likely to shift towards the food and grocery segment, keeping in view that it is by far the largest segment of overall consumer spending. This should imply that the next few billion dollars of collective spending by Walmart-Flipkart and Amazon (and others that also include Big Basket, besides all major brick-and-mortar retail groups that are present in this category), will be focused on building more efficient farm-distribution centre supply chains, and a much bigger thrust on food processing.

* Finally, this deal (and its humongous size), should make the Union government take note, yet again, of the tremendous FDI potential India offers directly in retail sector (and then also in the larger retail ecosystem that includes cold chains, food processing, logistics, warehousing), and review its completely dysfunctional FDI policy in retail. Many of the current government’s flagship schemes such as Startup India and Make in India, and many of its promises such as that relating to doubling of farmer incomes, and creation of tens of millions of new jobs per year can all get a big boost from a modern, organised, vibrant retail sector. As long as the economy continues to grow upwards of 7% y-o-y in real terms, there is no reason for anyone to fear any negative impact on the traditional independent retail stores and, thereby, on the tens of millions of existing jobs in the so-called unorganised, mom-and-pop retail outlets.

The government should immediately remove the distinction between various formats of retail (brick-and-mortar, e-tail, cash & carry, single brand/ multibrand), and have a pragmatic and holistic policy that attracts both domestic as well as international investment without any impractical riders and ridiculous restrictions. If Walmart’s bold bet on Flipkart is any indication, India can attract tens of billions of dollars in fresh FDI each year for several years to come.

So, will the race (at least in e-tail) now be essentially a two-horse one (Amazon, and Flipkart backed by Walmart)? This is most unlikely. Hence, while the current spotlight is deservedly on Flipkart (and Walmart), we should be looking out for at least two other formidable challengers to emerge out of the relative shadow in the near future. One would most probably see a more visible (and a more aggressive) backing of Alibaba (and even Softbank), and the other is likely to be the homegrown Reliance Retail. If the government were to fully open up FDI in multibrand retail, we are also likely to see the entry of a few more major global retailers into India, and a flurry of consolidation/M&A activity in the retail sector that could throw up new retail entities that should be able to provide a stiff challenge to Amazon and Walmart-Flipkart.

Chairman, Technopak