Walmart-Flipkart Deal: Govt Policies  Hamstring Our Entrepreneurs

But first, a salute to the Bansal boys for fighting a hostile govt that threw them to the wolves of competition.

3 min read

Video Editor: Mohd Ibrahim

Let me begin with a huge salute to the entrepreneurial spirit of the Bansal Boys (Sachin and Binny) and their team of Flipsters for miraculously succeeding against a hostile government which handcuffed and threw them to the wolves of competition.

So I must deconstruct the lie which is being peddled aggressively by our government: Walmart’s acquisition of Flipkart has triggered $16 bn as the largest foreign direct investment in India.

I have used the italics to highlight the lies.

What Are the Different Lies About “India’s Largest FDI”?

Yes, it’s “foreign”, because the asset being sold is a Singapore company, not an Indian one.

No, it’s not “direct”, because cash is not coming into the company, but going out to shareholders. In classic stock market terminology, it’s not a primary (FDI), but an indirect, secondary (FII) market transaction.

Heck, it’s not even an “investment”, because the dollars are not creating any new asset; instead, these are being used to purchase the old shares of existing investors.

And now to the biggest untruth, ie: that all of this moolah is coming “in India”; no sir, close to $14 bn out of the $16 bn could be flowing out to Japan, America, China and South Africa. Only a measly couple of billion dollars could be working their way back into India. And yet we are the fools who are dancing!

The brutally honest headline should be this: ‘India Impoverished as Flipkart, the E-Commerce Kohinoor From the Digital Colony, is Sold; Cash Salted Away in Foreign Investment Empires’.

Born with an Original Sin

Unfortunately, Flipkart was born with the Original Sin. In October 2007, two bright-eyed young IIT-ians launched Flipkart, a simple website of book titles, and started delivering to buyers, going door-to-door on two-wheelers.  They shipped 20 orders in their first year.

Before long, private equity knocked with tens of millions of dollars in investment. But there was a problem. India had banned FDI in online retail. It was a foolish, outdated policy, but it was the damn law.

The boys knew that if the ownership stayed “Indian”, they would have to rig a new ruse every day to dodge the bureaucrats.

In October 2011, they flipped the shareholding into a new Singapore company called Flipkart Pvt Ltd. In one swift hack, India’s policy makers had outlawed their most promising tech-and-commerce start-up. Indian capital could no longer invest in an asset which would derive its entire value from India! Now tell me, have you ever encountered a more absurd, value-destroying policy architecture?

Flipkart’s Woes Spilled over into the Courts

Before long, Flipkart’s woes spilled over into the courts. Traditional trade associations sued the government, alleging “circumvention of FDI rules”. The Delhi High Court ordered an investigation into 21 e-commerce companies, with Flipkart its prime target. Just see how perverse “policies” kill Indian entrepreneurship.

About the time that the Bansal boys launched Flipkart, other first-generation founders were springing up in Silicon Valley and Shanghai.

A chap called Mark Zuckerberg started Facebook; Jeff Bezos began tiny new adventures at Amazon; Jack Ma launched a quaintly named operation called Alibaba; and Pony Ma got Tencent off the ground.


Now Here's the Tragedy

  • While the Indian government has virtually forced the Bansal Boys to sell their dream for a relatively paltry $21 billion, the American/Chinese governments have abetted Jeff/Mark/Jack/Pony to continue controlling their ambitions, in hot pursuit of a trillion dollars of value.
  • Now, $21 billion may sound like a lot of cash to idea-starved, small-thinking Indians, but frankly, it is trivial for global capital. As Indians, we are often happy with what we’ve achieved, never exercised about what we could have done

Imagine If Our Policy Makers Had Taken a Different Track

  • Allowed them to have special controlling rights/votes on their equity holdings
  • Allowed them to list on Nasdaq without insisting on an Indian IPO
  • Not outlawed them from India, forcing them to migrate to Singapore
  • Not threatened them with criminal prosecution for doing a terrific job
  • Crafted a globally bench-marked architecture of e-commerce in India

Today, Flipkart’s founders would have been in substantial control of their brave enterprise. Their eyes would be fastened on creating a half-trillion-dollar company by 2025. And their names may have been taken in the same breath as Jeff, Mark, Jack, and Pony. Alas!

Shame on you, GOI (both UPA and NDA).

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