In a major blow to Flipkart, the Indian government has rejected Walmart-owned e-commerce firm's proposal to enter the nation's fast growing food retail market, citing regulatory hurdles. The online retailer has set up a new local entity Flipkart Farmermart, with an authorised equity capital of Rs 1,845 crore, to take on arch-rival Amazon in food retail business in India.
The Department for Promotion of Industry and Internal Trade (DPIIT), a part of Ministry of Commerce and Industry, told Flipkart that its plan to foray into Indian food retail business does not comply with regulatory guidelines.
Following the government's order, Flipkart is trying to understand the reason behind this step and aims to re-apply for the license at the earliest.
"At Flipkart, we believe that technology and the 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 in boosting farmers' income and transform Indian agriculture," a company's spokesperson said.
"We are evaluating the department's response and intend to re-apply as we look to continue making a significant impact on small businesses and communities in India," the spokesperson added.
In October last year, e-commerce giant Flipkart Group CEO Kalyan Krishnamurthy had announced that the company planned to invest $258 million in the newly registered local entity to focus on food retail in India. 'Flipkart Farmermart' will focus on food retail and is an important part of the company's efforts to tap into food processing industry in the country.
"In line with the Government of India's FDI policy, which allows 100 per cent foreign direct investment (FDI) in food retail for food produced and manufactured in India, Flipkart is applying for appropriate licenses from the government," Krishnamurthy had said in a statement.
Rival Amazon had received the government's nod for its $500 million investment proposal for retailing of food products in India in 2017. The American retailer - through Amazon Retail India - now procures and sells grocery items like packaged foods, cooking and other items.
Grocery segment accounts for a significant portion of the unorganised retail segment in the country.
Over the last few years, players like BigBasket and Grofers have expanded their presence in the online grocery segment in the country as people became comfortable buying even milk and bread online. Flipkart and Amazon are also betting heavily on the online grocery segment that is projected to witness a strong growth over the next few years in India.
By Chitranjan Kumar with PTI inputs