Google is reportedly working on a search engine for China. Credit: Cesar Solorzano.

Technology major Google is planning to collaborate with Alibaba-backed Indian online marketplace Paytm Mall to form a consortium to acquire a 7% to 10% stake in Future Retail with an investment between $49.97m and $57.11m.

The new consortium will compete against Amazon’s plan to buy up to 15% in the Future Group with an investment of $600m to $700m, reported Economic Times, citing people familiar with the matter.  If the Amazon deal materialises, it could be a mix of cash and stocks.

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Through its Indian unit, Amazon has recently submitted a non-binding agreement for the deal, reported Business Standard.

Future Group has been exploring options to raise funds through a strategic partnership as it looks to boost profitability against the onslaught of offline and online retailers such as Walmart, Reliance Retail and Amazon.

“As players get bigger, you need alliances.”

Various domestic and international retail players are aiming to access the country’s changing demographics and growing online economy, which is estimated to reach $1tn by 2025.

Furthermore, offline and online retailers are entering each other’s space to counter shrinking retail margins.

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Future Group CEO Kishore Biyani was quoted by ET as saying: “Ultimately, it’s all about how formidable we all are. As players get bigger, you need alliances.

“We can’t sell more than 10% and foreign portfolio investor (FPI) is the only route available. It should take two-three months for any deal to fructify.”

According to overseas investment laws in India, foreign players can have only up to 51% in multi-brand retailers as a foreign direct investment (FDI). This rule can, however, be sidestepped by setting up holding companies in cash-and-carry retail segment, where the country allows 100% ownership for overseas companies. These holding companies can, in turn, operate stores as franchisees.

Although spokespersons of Future Retail, Paytm, Alibaba and Google did not divulge details, one of the persons told Economic Times that a private equity fund may also join the Google-led alliance.

In the last six years, Future Retail purchased more than six supermarket store chains, which has increased its presence in 255 cities through more than 1,000 stores.

In 2014, Future Group signed a strategic alliance with Amazon to focus on its fashion brands.