CCI: Discounting practice ‘already prevalent’ in Walmart-Flipkart deal

Having cleared global retail giant Walmart’s USD 16 billion acquisition of home-grown Flipkart, fair trade watchdog CCI has opined that complaints about the deal violating FDI rules “may merit policy intervention” but do not fall under its ambit. The Competition Commission also observed that the complaint about Flipkart’s discounting practice or preference to select e-tailers is not specific to this merger deal and is “already prevalent” in the market. 

It also made it clear that there is no bar on the regulator to examine these issues under relevant provisions of the Competition Act about anti-competitive agreements and abuse of dominance. 

The deal has triggered opposition from several quarters including traders lobby groups and the Swadeshi Jagaran Manch and several of them had submitted their complaints to the CCI, which was approached in May for approval of the acquisition.  In its detailed order clearing the deal, the CCI has said it is “not likely” to have an appreciable adverse effect on competition in India. 

It also said that a majority of the concerns expressed by various trade organisations on the impact of the deal in the country are beyond the scope of the CCI Act.  Walmart announced in May the acquisition of 77 per cent stake of Flipkart in its biggest takeover till date.

However, in the following month, more than 100 trader organisations opposed the deal stating it will cause “irreversible damage” to small traders and endanger jobs for thousands.  The regulator said it received representations against the proposed combination from various entities which had expressed concerns on compliance of FDI norms by Flipkart and pricing practices and preferential treatment to specified sellers in Flipkart’s online marketplaces, among others. 

“The Commission notes that majority of the concerns expressed in the representations...have no nexus to the competition dimension of the proposed combination,” the CCI said in its 12-page order. “Issues falling beyond the scope of the (Competition) Act cannot be a subject matter of examination by the Commission, though they may merit policy intervention,” it said. Noting that as per the foreign direct investment (FDI) policy an e-commerce platform cannot influence market prices directly or indirectly, the regulator said this is a matter of consideration for the “appropriate regulatory/enforcement authority”. 

It also observed that the discounting practice of Flipkart and its preference, if any, to select e-tailers in its online marketplaces are not specific to the proposed combination, as these are “already prevalent” in the market even without the proposed acquisition by Walmart. Section 6(1) of the Competition Act regulates combinations that are likely to cause appreciable adverse effect on competition. 

“The Commission deliberated extensively on the concerns raised in the representations but concluded that the instrument of regulation of combinations cannot address these and different policy and legal instruments maybe taken recourse to. “Thus, this review process cannot be a window to resolve concerns that are not incidental or arise from the proposed combination,” the CCI said. 

However, the regulator noted that there is no bar on it at any point of time to examine the issues regarding the deal under the relevant provisions of Section 3 and 4 the Competition Act and regulations made thereunder. Section 3 and 4 of the Competition Act deal with anti-competitive agreements and abuse of dominant market position, respectively.