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Walmart may Back Out of Flipkart Merger Due to New FDI e-Commerce Regulations

NEW DELHI – The investment bank released a statement that following new FDI policy rules for online e-Commercemarketplaces, Walmart may exit its merger with Indian e-commerce giant, Flipkart. According to new FDI rules, online marketplaces with foreign investments cannot sell the products from sellers in which they hold a stake. The new FDI rules were implemented on 1 Feb and these rules also ban exclusive market arrangements.

Morgan Stanley said that this is not for the first time that such an exit would take place. Amazon had done the same in 2017 in China. It released its report titled, ‘Assessing Flipkart Risk to Walmart EPS’ on February 4. The group said, “an exit is likely, not completely out of the question, with the Indian e-Commerce market becoming more complicated.” Following the new FDI rules, the Indian e-commerce giant may have to remove 25 percent of its products from its site. The major effect will be on the smartphone and electronic inventory of the website as this is the high earning segment. But the government’s target on the exclusive deals will impact it heavily.

Walmart spokesperson released a statement and said, “Despite the recent changes in regulations, we remain optimistic about the e-commerce opportunity in India given the size of the market, the low penetration of e-commerce in the retail channel and the pace at which it is growing. As Walmart scales in India, the company will continue to partner to create sustained economic growth across agriculture, food, and retail. Future investments will support national initiatives and will bring sustainable benefits to the country.”

Amazon said that the Indian market offers good opportunities in the long-term and the new FDI rules need to be interpreted carefully in order to ensure that do not lead to unintended consequences. According to reports, both Amazon and Flipkart had tried to influence the government on this issue seeking an extension in deadline. They even took the help of associations and trade bodies to do so. Also, they sought more time from the government to understand the framework.

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