Is Flipkart an Indian Company?
What a silly Question? We all know that it is an Indian Origin company based out of Bangalore. Is it so? If you check the Wikipedia page of Flipkart (link) you will be quite surprised to know that it is a Singaporean company, which operates in India. You don’t trust me , have a look yourself.. Flipkart is currently valued at $ 15 Billion.
Well the hard fact is that Flipkart was registered in Singapore in 2008. Tax rates in India is 33% whereas in Singapore it was 17 %. So it was a very logical decision to register in Singapore. But as their major operations are in India it cannot evade taxes. So why Singapore? FDI and FEMA are not so transparent in India, they change with change in ruling parties. So lets say Flipkart was registered in India , it would not have got investments from foreign investors and VC’s with the current business model. Singapore has a zero export duty. This keeps a window open for Flipkart to have vendors from Singapore.
Apple, most people think it of as an American company. Records say it is registered in Ireland , where the corporate tax rates are 12.5 %.
Let us go in to technicalities. What is FEMA. It is Foreign Exchange Management Act. as defined by the Govt of India it is “An Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India ” . FEMA contains the general rules and principles applicable to transactions between Indian residents and non residents and the manner of dealing with foreign exchange. FEMA is is regulated by the Reserve Bank of India. It constitutes the law relating to foreign exchange transactions in India. Some of the things covered by this are investments by residents in foreign countries and investments by foreigners into India, opening of bank accounts in India by non residents, borrowing in foreign currency, lending by residents to non-residents and acquisition of immovable property in India.
So when does FEMA comes into picture? Lets say any authorized entity receives funding from a non Indian market. FEMA will be the regulator of this transaction. Complicating things further FDI comes into play when foreign money pours in and hence it is also regulated by FEMA. So if Flipkart was registered in India it would not have been able to receive foreign investments due to FDI norms. The only way to expan Flipkart would would be to sell its stakes to a liquidity rich company ,which they were not ready for.
On November 2012, Flipkart became one of the companies being probed for alleged violations of FDI regulations of the Foreign Exchange Management Act. So the allegation was that Flipkart has a lot of foreign investors and as per regulations it cannot be involved in B2C (business to consumer) operations.
Now WS retail comes into picture. WS retail was fully owned by Flipkart. As per FDI norms it cannot do a B2C . When the govt enforced the new FDI rules, WS Retail could not sell any other brand of products in India other than its own(Digiflip). Decathlon for example is setting up its own retail stores in india and is only selling its own family of brands and nothing else, while their e commerce website is only meant for a B2B transaction.
So in 2013 Flipkart adopted a marketplace model like Snapdeal, the reason why we now see so many different sellers. WS retail is now analogous to Cloudtail of Amazon. 51% stake is owned by Narayanmurty. So if WS retail is owned by Flipkart as per the e-retail law it cannot sell products to Indian consumers because flipkart has foreign investors on board.
So WS retail was made a separate entity, registered in India and it is a wholly owned subsidiary of Flipkart. WS retail is a packaging, logistics and warehousing entity for flipkart, in short term ekart.
** any suggestions or corrections is entertained.