Flipkart’s entry into food retail business has been stalled by the Government of India due to regulatory issues. Department for Promotion of Industry and Internal Trade (DPIIT) stated in a letter addressed to Flipkart FarmerMart that it can not be permitted into food retail which is a separate category for Foreign Direct Investment (FDI) and as an entity that runs a marketplace or has equity from it and it will not be allowed to sell products from its platform.
The Walmart-backed company receives this information almost a year after its filing its application for the food retail business. The proposal was to was to retail food products produced in India through Flipkart and other online and mobile platforms. DPIIT also told that Flipkart FarrmerMart’s memorandum of associations does not allow it to undertake food retail.
A few years ago, the government had agreed for 100% FDI in food retail allowing sale of produced or made in India goods via approval route as government wishes to push collaboration with domestic manufacturers and farmers. The news came as a shocker for Flipkart as it had plans to procure goods from farmers directly and sell on its platform.
FarmerMart was not only aimed to boost the supply of food and grocery sales also but also align the demand of goods with the farmers’ produce and assure a certain level of income by sourcing at the farm gate. This was also Flipkart’s chance to enter into offline stores space.
Ecommerce platforms like Amazon and Grofers received the permission to move into food retail business 3 years ago and post that the government has made the FDI rules more stringent to ensure that e-marketplaces like Flipkart and Amazon do not become inventory-based models and remain platform where third-party sellers can directly interact with buyers.
DPIIT has been monitoring the situation and has placed Amazon under its scrutiny. Flipkart and its associates have also come under DPIIT’s scanner forcing the company to alter its operations. FDI in Food retail has always been questioned by the government and it has stopped players like Walmart previously to enter multi-brand retail.