Government Denies Flipkart Permission to Enter the Food Retail Space

The world knew that something big was in motion when Walmart bought a majority stake in Flipkart. The major e-commerce platform had become extremely popular in India in recent years. Since India has a large population in need of household supplies and other goods, Flipkart was booming. Walmart, a major wholesale and retail player in the US with thousands of stores, wanted to become a part of this massive industry. However, a recent landmark decision by the Indian government has made things difficult for them. Here’s a look at what the decision and what it means for the retail giant. 

India Says No

The Indian government dismissed Flipkart’s plan to make its entry into the retail food business. This move will serve as a considerable setback for Walmart, which was planning on expanding into this space in India. The American retain giant owns the majority of the e-commerce firm and was hoping to use this plan to get back on its feet. Due to the unprecedented COVID-19 pandemic, the e-commerce platform was facing a massive downturn. The company recently released a statement that Asia, which was the world’s third-largest market, had been one of the worst-hit by the pandemic. 

Laying Down the Law

The Ministry of Commerce and Industry, through its wing, the Department for Promotion of Industry and Internal Trade rejected Flipkart’s proposal. Flipkart competes directly with Amazon India and wanted to enter the retail food space to make up for their losses and gain a better foothold in the Indian market. The government body turned down this proposal by stating that it violated regulatory guidelines. The proposed new business, titled Flipkart FarmerMart, cannot be accepted as it is structured on 100% FDI funding. The Chief Corporate Affairs Officer of Flipkart, Rajneesh Kumar, said they would re-evaluate their proposal and reapply soon.

Flipkart’s Response

Rajneesh also said that Flipkart focuses on building an innovation-driven platform and marketplace. He also said that the company believes it can significantly help India’s farmers and even its food processing sector through this initiative. The proposed plan would help boost the retail food chain supply and make the entire process more transparent and credible. Furthermore, Flipkart also believes that the scheme would help Indian farmers improve their income, and therefore, support the Indian agricultural sector. 

Flipkart’s Plan

The e-commerce giant had come out with such a plan last October. Flipkart’s CEO, Kalyan Krishnamurthy, had said that the company would invest over $258 million in this new venture. The investment would majorly go into supporting and improving the local agriculture-ecosystem. The company would also help develop the supply chain by working with thousands of farmers, farmers’ associations, and the food processing industry. The plan was to help improve the agricultural sector while also making high-quality food available to millions of Indians across the nation. 

Indian Government’s Stand

Other e-commerce platforms, such as Zomato, Grofers, and Amazon, had entered this space and gotten approval for the same. Up until recently, the government had permitted 100% foreign direct investment in this sector. However, it has since reevaluated those guidelines and made changes. As per the new decision, food retail functions as any other marketplace that bridges the gap between third-party sellers and buyers. Therefore, such agencies can only provide a platform for business to occur. They cannot offer their own products or have equity in any firm that sells on its platform. 

Most of these e-commerce platforms want to enter the food and grocery sector as it enables them to engage with customers frequently. As per studies, this sector remains relatively untouched, as it accounts for only 1% of total online sales. Walmart recently stated that the government’s strict lockdown measures and the overall effect of the pandemic had affected global growth. Most states in India had restricted e-commerce platforms from delivering in a bid to stop the spread of the novel coronavirus. It will be interesting to see how the international retail giant will bounce back from this setback.