The Indian government has rejected Flipkart’s proposal to enter the food retail business in a setback for Walmart, which owns majority of the Indian e-commerce firm and which recently counted its business in Asia’s third-largest economy as one of the worst impacted by the global coronavirus pandemic.
The Department for Promotion of Industry and Internal Trade (DPIIT), a wing of the nation’s Ministry of Commerce and Industry, told Flipkart, which competes with Amazon India, that its proposed plan to enter the food retail business violates regulatory guidelines.
Flipkart’s proposed food retail business, called Flipkart FarmerMart, cannot be structured on a 100% foreign direct investment, the Indian agency said. Rajneesh Kumar, chief corporate affairs officer at Flipkart, told TechCrunch that the company was evaluating the agency’s response and intended to re-apply.
“At Flipkart, we believe that technology and innovation driven marketplace can add significant value to our country’s farmers and food processing sector by bringing value chain efficiency and transparency. This will further aid boosting farmers’ income & transform Indian agriculture,” he added.
While announcing the plan to enter the nation’s growing food retail market, Kalyan Krishnamurthy, Flipkart Group CEO, said in October last year that the company planned to invest $258 million in the new venture.
Flipkart planned to invest deeply in the local agriculture-ecosystem, supply chain, and work with tens of thousands of small farmers, their associations, and the nation’s food processing industry, Krishnamurthy said. The food retail unit would help “multiply farmers’ income and bring affordable, quality food for millions of customers across the country.”
Several e-commerce and grocery firms in India, including Amazon, Zomato, and Grofers, have previously secured approval from New Delhi, which earlier permitted 100% foreign direct investment in food and a handful of other sectors, for entering the food retail business.
The Indian government has since revisited the guidelines to clarify that food retail, like any other e-commerce sector, can only operate as a marketplace that allows third-party sellers to engage with buyers — and not offer their own inventories, nor have equity in any of the players who sell on the platform.
Food and grocery are compelling categories for e-commerce businesses in India as it enables them to engage with their customers more frequently. According to research firm Forrester, India’s online food and grocery market remain significantly tiny, accounting for just 1% of the overall sales.
In the most recent quarterly earnings call, Walmart said limited operations at Flipkart had negatively affected the group’s overall growth. New Delhi announced one of the world’s stringent lockdowns across the nation in late March that restricted Amazon and Flipkart from delivering in many states and only sell “essential items” such as grocery and hygienic products.
India maintains the stay-at-home orders for its 1.3 billion citizens, though it has eased some restrictions in recent weeks to resuscitate the economy.