One of India’s leading e-commerce companies Flipkart has raised US$3.6 billion in a funding round that has attracted the support of an array of state-owned investors, demonstrating the enduring attraction of the country’s digital economy despite a sluggish recovery in household consumption.

The funding round was led by Canadian public pension fund CPP Investments and Singaporean sovereign wealth fund GIC along with Walmart (the largest shareholder in Flipkart) and Softbank. Others joining the investment included Abu Dhabi state investor ADQ, Malaysian SWF Khazanah and Qatar’s QIA. Global SWF estimates that these state-owned investors contributed US$1.9 billion of the funding, representing one of the biggest investments by SOIs in India.

Launched in 2007, Flipkart has 350 million registered users. Agus Tandiono, Managing Director, Head of Fundamental Equities Asia, CPP Investments, said in a statement, “One of the key investment themes for CPP Investments has been Asia's domestic consumption. We believe India will be a leading source of global growth in the decades ahead, supported by positive demographics, a growing middle class and deepening Internet penetration. This investment in Flipkart builds on our program to provide long-term capital to industry leaders. We look forward to supporting Flipkart's efforts in growing India's e-commerce market."

SOIs have turned their attention to fast-growing emerging markets where an already rapid process of retail digitalization was boosted by the impact of lockdown. In 2020, ADIA, GIC, Mubadala and PIF featured prominently in fund-raising by Reliance Retail Ventures Ltd (RRVL), which intends to link neighborhood stores for online deliveries of groceries, clothing, and electronic goods through its JioMart platform. The move linking SMEs to e-commerce is a direct challenge to Flipkart, to Amazon India and to Big Basket. Beyond RRVL, Temasek devoted up to US$160 million to restaurant delivery service Zomato ahead of its planned IPO in 2021, and ICD invested US$ 121 million in meat and fish retailer Freshtohome. Even RE became oriented towards e-commerce with GIC taking an 80% of a US$ 750 million JV with ESR in December.

Yet, the Indian market is not without challenges. The economic impact of Covid-19 has rocked Indian consumer confidence and the retail and consumer sector is unlikely to return to pro-pandemic rates until 2022.

At the same time, the government is looking to tighten rules on e-commerce platforms with a potential ban on flash sales and preventing affiliate entities from being listed as sellers. Proposals by the Ministry of Consumer Affairs come amid complaints by brick-and-mortar retailers over alleged unfair practices by Amazon and Flipkart; both platforms are the subject of an ongoing antitrust probe in India.

The government may also prevent them from running their in-house brands and require that e-commerce firms ensure that none of their associated entities are listed on their platforms as sellers for selling to customers directly. E-commerce firms have sought to get around the ban on e-commerce firms holding inventory or selling items directly by creating joint ventures with local companies that operate as inventory-holding firms.

SOIs are following the tide of confidence that India’s economic transformation, supported by digitalization, will support massive growth in the economy’s size.  This week Indian industrialist Gautam Adani, chairman of Adani group, predicted that India will become a US$5 trillion economy within four years and US$15 trillion within two decades.

He said, “India will emerge as one of the largest global markets, both in terms of consumption size and market cap. “There will be bumps along the road, as has been the case in the past, and is expected to be the case in the future. However, there cannot be any doubt that the largest middle class that will ever exist, augmented by an increase in the working age and consuming population share, will have a positive impact on India’s growth very much in line with the demographic dividend India enjoys.”