NEW DELHI: The government has rejected Flipkart’s proposal to enter the food retail business, citing regulatory issues.
Last week, almost a year after Flipkart FarmerMart filed its application, the department for promotion of industry and internal trade (DPIIT) wrote to the Walmart-controlled company that it cannot be allowed into food retail — which was carved out as a separate category for foreign direct investment (FDI) — as an entity that runs a marketplace, or has equity from it, and will not be allowed to sell product on its platforms.
Flipkart FarmerMart had proposed to retail food products made or produced in India through Flipkart and other online and mobile platforms. Besides, the department has said that Flipkart Farmer-Mart’s memorandum of association does not permit it to undertake food retail.
A few year ago, the government had allowed 100% FDI in food retail, to sell produced or made-in-India goods, through the approval route as it sought to push tieups with domestic manufacturers as well as farmers. The latest move will come as a setback to Flipkart, which was hoping to tap into farms to source goods directly from growers and sell it through its platform.
The plan was not just to boost food and grocery sales, which is a large chunk of the retail business, but also help farmers produce in line with the demand and assure a certain level of income by sourcing at the farm gate. The move was also seen as a window to enable to Flipkart to enter the physical stores format.
There are several e-commerce players such as Amazon and Grofers, which had got government approval to enter the food retail business almost three years ago.
Since then the government has tightened the FDI norms to ensure that e-marketplaces — the window through which Flipkart and Amazon operate in the country — do not turn into inventory-based models and remain a platform where third-party sellers directly engage with buyers. DPIIT has put Amazon under special scanner, while Flipkart and its associates have also come under the lens, prompting the Walmart-owned outfit to tweak its operations.
Allowing FDI in retail has been a taboo for the government as it has blocked repeated moves to allow giants like Walmart, Carrefour to enter multi-brand retail, while also seeking to restrict Amazon and Flipkart from violating the rules.