Million Jobs will be Created with the Flipkart-Walmart Deal

Flipkart Chart1

Million Jobs will be Created with the Flipkart-Walmart Deal

In what is now the biggest M&A deal in Indian e-commerce sector, Walmart on Wednesday announced it will buy a near 77 percent stake in Flipkart for about $16 billion (Rs 1.05 lakh crore). Technically speaking, Flipkart India's shares haven't been sold at all but, Flipkart Singapore, the report added. Citing sources in the know, The Economic Times said that the Japanese conglomerate is still undecided on whether to sell its 21 per cent stake in India's leading etailer given the tax liability involved if it exits less than a year after investing in Flipkart.

Walmart's investment includes $2 billion of new equity funding that would help Flipkart accelerate its growth pace amid stiff competition from Amazon, which is also pouring money into its India operations. The reason for this potential flip-flop is being attributed to a hefty tax burden that a short-term exit from Flipkart will attract for Softbank. "Son is a big believer in India and thinks that the valuation of the company (Flipkart) can go up further".

The CPI-M said it was common knowledge that Walmart sourced its products from global markets and now these will be sold in India, further destroying the small scale and medium scale sector which is the largest provider of employment after the agricultural sector.

Accel Partners, the venture capital firm, that was one of the first investors in Flipkart, would be taking about $1.2 billion if they sell their entire stake of 5.9%. It will take a call on the exit in the next 10 days and discussions regarding the transaction, as well as SoftBank's role in the homegrown ecommerce company going forward, are still on with Walmart. Sachin Bansal, who met Binny Bansal in 2005 at the Indian Institute of Technology, Delhi, is not related to Binny, but both had worked for Jeff Bezos led company Amazon.

In this case, apart from domestic income tax laws, articles from a number of income tax treaties signed by India with the US, Singapore, Mauritius, South Africa, and a comprehensive agreement with China will also be invoked. To avoid the short-term taxation issue, SoftBank may hold the Flipkart stake for 6-12 months.

"Since the deal has a greater ramification on India's retail trade, a closer scrutiny is certainly warranted".

The value of the employee stock options would be around $1 million each, said an Economic Times report, which also suggested that the United States retail giant may look to buy back all such shares owned by Flipkart staff, thereby making them rich by at least a million USA dollars.

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