OVERVIEW OF JIO-FACEBOOK DEAL:
Indian billionaire business magnate, Mukesh Ambani is all set for ‘Digital India’. After Microsoft’s Azure Cloud deal with Reliance’s Jio last year, this Wednesday Mark Zuckerberg’s Facebook Inc. joins hands with Reliance Jio. This is the largest FDI in India’s tech sector. FB will pick up a 9.9% stake in Reliance digital arm Jio Platforms and for this, it will shell up Rs 43,574 crore. The deal values Reliance digital arm at Rs 4.62 lakh crore making it one of the top five listed companies in India based on market capitalization.
With this Facebook becomes the largest minority shareholder in Jio Platforms. Simultaneously, Jio platforms Reliance Retail and Whatsapp have entered into a commercial partnership. This looks to further accelerate reliance retails new commerce business on the JioMart platform using Whatsapp. The idea is to use an online grocery delivery platform to bring local vendors and Kirana stores online.
Commenting on the partnership Mukesh Ambani said it will help accelerate India’s digital economy. “In the near future JioMart and WhatsApp will empower nearly 30 million small Indian Kirana shops to digitally transact with every customer in their neighborhood,” Mukesh Ambani stated.
WHY FACEBOOK INVESTED IN RELIANCE’S JIO?
Facebook sees a lot through this partnership. India is home to 400 million WhatsApp and 300 million Facebook users. While since 2016, Jio has become the largest carrier in India, with more than 400 million subscribers. Facebook, having a local partner could help it in working over various regulatory issues. Which includes those related to local storage and privacy In a post.
“The country is within the middle of a serious digital transformation. Organizations like Jio have played an enormous part in getting a lot of Indian people and small scale businesses online” ~ Mark Zuckerberg
WHAT FACEBOOK GAINS?
India’s online grocery market is highly remunerative but competitive with Amazon’s pantry, Walmart owned Flipkart and Alibaba-backed BigBasket. According to retailers association of India, the untapped value of the Indian grocery industry is nearly 375 billion dollars.
Also, WhatsApp has applied for a digital payment license to facilitate UPI-based transactions. However, it is yet to receive permits due to security issues flagged by the Ministry of Electronics and IT. Mukesh Ambani is a prominent voice in India and many conclude that he shares close ties with the ruling government. If true, this could help Facebook leave a bigger mark in India. Experts report, others can’t compete with Jio-FB because they don’t have an edge on data, thus it is a win-win for Facebook.
RELIANCE CUTTING OUT DEBTS
Reliance has expanded its telecom retail business as profits at its oil refining business have taken a hit. But the massive investment has meant that the company’s gross debt has risen to Rs 3.06 lakh crore as of September. At AGM, Ambani presented a debt resolution plan and said he wants to cut net debt to zero by March 2021.
“With crude prices where they’re, most of the oil and gas business will be struggling. (The Facebook deal) allows them to chop off some debt, and also establish a valuation for the Jio business,” said experts.
Also, Reliance was all set to sell stakes in its refining business to Saudi Aramco, But the deal is likely to get delayed because of COVID-19 and the crude price crash, the American crude trading at a negative value. Thus, FDI would be welcome in the strained balance sheet of the too-big-to-fail Reliance.
BOON TO THE AILING ECONOMY
The Facebook investment is welcome news for the ailing economy during this COVID-19 crisis. With Government investment being constrained, and a large scale corporate investment drying up, Facebook’s bid would attract plenty of eyeballs globally.
“Coming because it does during the virus-crisis, it’s a powerful signal of India’s economic importance post the crisis. It strengthens hypotheses that the planet will pivot to India as a brand new growth epicenter. Bravo Mukesh!” Anand Mahindra said in a tweet.
USISPF has estimated that for India to become a $ 5 trillion economy, it needs roughly $ 100 billion-dollar investment on an annual basis. At the moment, not only US companies but other companies too are looking for an alternative to China.
“And If India plays its cards right, a lot of that (companies) can move into India”, he said.