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A few weeks ago, the Singapore International Arbitration Centre (SIAC) passed a ruling in favour of Amazon that could further sharpen battle lines for control of India's retail market.

The ruling concerns the proposed$3.8 billion takeover of Future Retail, founded by Indian retail icon Kishore Biyani, by Reliance is a distressed sale of sorts. The COVID-19 pandemic had been unkind to Future, consigning it to the ropes with enormous working capital problems and impending loans that it could not possibly service. Reliance seemed like the perfect white knight to take over the company.  

But with the new SIAC decision, the arbitrator concluded that the Reliance-Future Retail deal should be put on hold. It reinforces SIAC's original order last year for the deal to be paused. 

Beyond the unfavourable outcome, the latest SIAC decision is doubly bitter for Reliance as it vindicated another ruling by the Supreme Court of India that, similar to this most recent verdict, upheld the original SIAC order too.

If the decision lasts, it will blunt Reliance's goal of dominating India's retail market -- at least, for now. 

Future Retail has 1,200 retail stores India-wide and would have fit nicely into Reliance's 12,000 store sprawl across 6,500 cities and towns. Beyond adding size, a Future Retail acquisition would have also bolstered Reliance's one weakness: Electronics, including smartphones, and fashion apparel which are dominated by Amazon and Walmart's Flipkart.

Another juicy bonus would have been gaining the rights to Future Retail's crown jewel, Big Bazaar, India's largest grocery chain.

Not quite a done deal

When Reliance and Future Retail first announced the deal, the two companies acted like a pair of cozy chums. But with various legal decisions coming to the same conclusion that the deal should be paused, it seems both companies blithely ignored the elephant in the room.

The elephant in the room being Amazon indirectly holding a near-3.65% equity stake in Future Retail. Amazon gained that equity stake through it previously getting a 49% stake in Future Coupons, which owns 7.3% of Future Retail. 

Almost immediately after the Reliance-Future Retail deal was announced, Amazon called foul. It stated that it had a non-compete clause that would prohibit the deal from going through. 

Since then, both Indian companies have tried to ignore Amazon but the various arbitrations have put a spanner in those plans. Amazon's actions also have done little to impress India's regulators.

In November 2020, the Reliance-Future Retail deal was greenlit by the Competition Commission of India (CCI), which was followed by another thumbs up from the Security and Exchanges Board of India (SEBI). When giving the tick of approval, the CCI went one step further and accused Amazon of hiding and falsifying things when it applied for investment approval into Future Retail.

This is what should worry Amazon. Looking at the track record of the Indian BJP government, headed by Narendra Modi, it has targeted a long list of relatively powerless citizens such as octogenarian activists, climate change proponents, comedians, youth leaders, directors, farmers, and actors in the Hindi film industry among many others. Many have spent time in jail where their health has deteriorated. Some have died. Blocking Amazon's India powerplay, by comparison, would be easy.

In fact, Amazon has sat firmly in Modi's crosshairs for a few years now. Modi's Commerce Minister Piyush Goyal, once an investment banker, has been railing against foreign firms like Amazon regularly and snubbed its founder Jeff Bezos by declining to meet with him when he visited India.

Some of this disdain can be explained by the voting power of India's millions-strong retailers, who are a crucial BJP vote bank that sees Amazon as an evil corporation intent on turfing them out by pricing goods lower than the cost to grab market share. In this, the retailers are not far off the mark, especially when you look at the much-publicised impact Amazon has had on mom-and-pop shops in the US or its ruthlessness in giving as little pay and incentives to its employees as possible in order to protect its vast bottom line. The retailers are not to blame for this tension in India's retail market.

There's also the obvious alliance between Reliance and the Modi government. For anyone that denies the existence of such a relationship, please look at the Narendra Modi cricket stadium in Ahmedabad, Gujarat where one end of the stadium is called Reliance. But considering how almost every country lobbies, protects, and promotes its local businesses to the detriment of more capable ones from other nations, Modi's stance, if true, can hardly be viewed as unique. 

This is all to say Amazon can win all the arbitration disputes it wants, but the Indian government still has to recognise and accept the verdicts. Two notable instances where this has not happened are when Vodafone and Cairn Energy were levied retroactive taxes by the Indian government that didn't go away despite international courts ruling in their favour. 

Considering the size of the markets, and that Amazon is a non-entity in China thanks to established, nimbler local rivals such as T-Mall, Amazon will have to hope its most recent win is here to stay.

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