The Facebook-Jio Deal - The Largest Foreign Direct Investment Amidst A Pandemic

Amidst the pandemic outbreak, when the world is facing an economic downturn, Facebook, the social media giant invested $5.7 billion (Rs. 43,573Cr) for a 9.99% stake in Reliance Jio Platform, one of India's biggest telecom operators. The deal has made Facebook the largest minority stakeholder of Reliance Jio and is perceived as a powerful partnership that will provide market dominance in the social media, eCommerce, and retail sectors.  The alliance is predicted to strengthen Reliance's e-commerce venture JioMart to compete with Amazon and Flipkart. The e-commerce venture has already been rolled out in areas of Mumbai and started testing an "ordering system" on WhatsApp, giving users the first peek of the collaboration of the two behemoths.  The deal will help Reliance cut its spiraling debt pile while providing the social media giant with a strong foothold in India's fast-growing market. Facebook's decision to move ahead with the investment despite the looming risk of a global economic meltdown signals its confidence in the Indian economy.

What Went Behind The Deal

Back in August 2019, when Reliance was tackling rising debt levels, Chairman Mukesh Ambani had assured investors that the company had a clear roadmap to become a zero net-debt company within 18 months. Fast forward to April 2020 - the Facebook-Jio deal fructified that plan by trimming about Rs 43,574 Cr from its outstanding debt as of September 2019 of Rs 2.92 lakh crore.  The other key contributors to the debt-depleting strategy will be a potential Rs 1.05 lakh crore deal with Saudi Aramco for a 20% stake in the Reliance Petroleum business and Rs 7,000 crore from a 49% sale in its fuel retail joint-venture to British firm BP.  Apart from the debt reduction, the timing of the deal is vital for another reason. Before the pandemic, a mere 1% of India's Rs 80,000-crore grocery market was represented by online players. However, post the lockdown, e-commerce companies selling essential items experienced an upsurge in demand. 

What The Deal Implies For Facebook

At the core of their partnership is thousands of offline small businesses, whom both Reliance Jio and Facebook have been planning to integrate into their ecosystems. But this isn't the first time Facebook attempted to venture into India's proliferating digital space. Previously, it introduced Free Basics, a free but restricted internet service, which was later banned in India following the telecom regulator ruled that it violates the principles of net neutrality. Joining hands with Reliance Jio provides the social media company to put its stake on India's emerging digital landscape.  According to industry experts, the market opportunities for online commerce in India is predicted to reach $200 billion by 2028 from $30 billion in 2018. The valuation of Jio Platforms of $65.95 billion places the company in the league of India's biggest FMCG like Hindustan Unilever Ltd.  Reliance Jio said, "The partnership between Facebook and Jio is unprecedented in many ways. This is the largest investment for a minority stake by a technology company anywhere in the world and the largest FDI in the technology sector in India. The investment values Jio Platforms amongst the top 5 listed companies in India by market capitalisation, within just three and a half years of the launch of commercial services, validating Reliance Industries' capability in incubating and building disruptive next-generation businesses, while delivering market-defining shareholder value."

A Game Changer In The Digital Payment Landscape

The alliance is also expected to help Reliance and Facebook to take on the Indian digital payment space, which is expected to rise five-fold to reach $1 trillion by 2023, and compete with the likes of PhonePe, Amazon Pay, Paytm, and Google Pay. India is home to the largest user base for Facebook, with around 328 Mn monthly users, while the company's messaging app WhatsApp has 400 million users in the country, also the highest in the world. The partnership is expected to fortify WhatsApp's plan to secure approval to roll out its digital payment service. At the same time, the company also has plans to come up with dedicated digital payment services to small grocers. In February, WhatsApp got the formal approval from the National Payments Corporation of India (NPCI) for payment services in India - potentially a game-changer in the digital payment landscape.  The transaction which is the most significant non-control minority stake by any technology company also sets the scene for prospective fundraising rounds for Jio. The RIL stock surged by as much as 12% post the announcement of the deal and closed 10.3% higher on Wednesday.

The Bottomline

The Reliance Jio & Facebook deal amidst the current economic condition can be viewed as a step forward for U.S. - India trade ties. Moreover, the deal comes right after a few days after India revised its FDI standards that could affect Chinese investments. The investment which comes amidst a time when the world is facing an economic crisis provides a peek into India's future as the next foreign investment destination and opens up newer avenues of growth.  The deal between Jio and Facebook will definitely speed up India's digital push. Amidst the pandemic outbreak and the resultant economic downturn, the deal comes with a two-fold benefit for India – accelerating the "Digital India" movement and adding a stimulus to the economy.