Economy Insights: Jio-Facebook Deal

Past several days, a highlighting step has taken by Facebook and Jio in this jolted and disrupted Indian economy by the Coronavirus. It’s worth analysing who the potential winners and losers are in this deal, as well as any possible red flags. Facebook has a good reason to focus on Indian market, as it is banned from China and Indian digital sphere is growing rapidly. This is considered as the biggest investment in any Indian company up till now so this blog worths mentioning it.

What is Jio-Facebook Deal?

Facebook invests Rs 43,574 crore in Jio Platforms, a unit of Reliance Industries Ltd (RIL), for a 9.99% stake, an allcash deal that will help the oil-toretail conglomerate reduce debt and strengthen the social media company’s presence in its largest market, especially for its WhatsApp unit. That means, Facebook is investing $5.7 billion in 9.99 per cent of Jio thus valuing Jio at roughly $57 billion.

Jio Platforms is the parent of phone and data unit Reliance Jio Infocomm and various digital app platforms such as JioMart, Jio-Saavn and JioCinema. Facebook will get a seat on the board of Jio Platforms, along with that of an observer, Jio strategy head Anshuman Thakur said on a conference call with reporters. He added that WhatsApp and Jio will remain independent entities with their own business models and compete where necessary, in line with respective business models and collaborate in other areas where they see synergies.

How this deal benefits the people of India?

Jio Platforms, Reliance Retail have signed a commercial pact to cross leverage ecommerce platform JioMart and WhatsApp, to grow both businesses as the two companies stated. The companies will work closely to ensure that the consumers are able to access the nearest kiranas (grocery stores) who can provide products and services to their homes by transacting seamlessly with JioMart using WhatsApp. This deal will help millions of small businesses and people relying on them.

Ambani says, “In the very near future, JioMart, Jio’s digital new commerce platform and WhatsApp will empower nearly 3 crore small kirana stores to digitally transact with every customer in their neighborhood. This means all of you can order and get faster delivery of day to day items, from nearby local shops.”

The investment by Facebook will focus on collaborating with Jio to create new ways for people and businesses to operate more effectively in the growing digital economy. Facebook said, “One focus of our collaboration with Jio will be creating new ways for people and businesses to operate more effectively in the growing digital economy.”

Also, massive investment by Facebook values Jio Platforms amongst the top 5 listed companies in India by market capitalization (within just three and a half years of launch of commercial services).

What the two companies say about their deal?

Reliance Industries Limited, Jio Platforms Limited and Facebook, Inc. today announced the signing of binding agreements for an investment of Rs 43,574 crore by Facebook into Jio Platforms,” RIL said. “This investment by Facebook values Jio Platforms at Rs 4.62 lakh crore pre-money enterprise value.” RIL said that this was the world’s largest investment for a minority stake by a technology company and the largest foreign direct investment in technology sector in India.

At the core of our partnership is the commitment that Mark Zuckerberg, founder of Facebook, and I share for the all-round digital transformation of India and for serving all Indians… In the post-corona era, I am confident of India’s economic recovery and resurgence in the shortest period of time,” said Mukesh Ambani, Chairman and MD of RIL, in the statement. “The partnership will surely make an important contribution to this transformation.”

While on either side, Facebook counts India as its largest Market with 388 million monthly users. WhatsApp has 400 million users in the country, also the most in the world. Zuckerberg said, “This is special important right now, because small businesses are the core of every economy and they need our support. India has more than 60 million small business is and millions of people rely on them for jobs.”

He added, “With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their businesses. We’re looking forward to get started.”

Will the deal really benefit India? Cons of deal?

I think this is the best question arises after listing all the mentioned benefits for the people. In this situation of coronavirus crisis, losses (human life or property) are faced by everyone making this as very important to know.

The Facebook – Jio deal is purely commercial in nature as it will help reduce RIL’s debt burden. So, will it be only commercial deal to provide relief from debt for RIL? – is an unanswered question till now. As I mentioned earlier, in less than four years, Jio has brought more than 388 million people online, fueling the creation of innovative new enterprises and now planning to connect people in new ways. Facebook seems to also spread its hands wide over!

Contradicting above sentences, Mukesh Ambani has grown a sprinter’s pace to become India’s largest telecom company. We’ve seen that he offered cut-throat mobile internet prices and including chat services, movies, games and music. If properly planned and implemented, the Facebook-Jio deal may turn the table in favour of Indian Economy. The Government of India, TRAI and other regulatory authorities have important role to play in this regard.

References:

https://economictimes.indiatimes.com/tech/internet/facebook-buys-9-99-stake-in-reliance-jio-for-5-7-billion/articleshow/75283735.cms

JioFacebook Deal on Awaaz Adda at CNBC Awaaz

Disclosures:

The purpose of this article is to provide information in quite readable way. The information is true to the news reports and references mentioned. The Awaaz Adda show clipping is provided to have more detailed information as CNBC TV18 is a part of Reliance Industries.

12 thoughts on “Economy Insights: Jio-Facebook Deal

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Create your website at WordPress.com
Get started
%d bloggers like this: