Flipkart's venture FarmerMart gets rejected by DPIIT to get into food retail sector

The Department for Promotion of Industry and Internal Trade (DPIIT) is a wing of the nation’s Ministry of Commerce and Industry. In a recent rejected deal, it told Flipkart that its proposed plan to enter the food retail business via FarmerMart violates regulatory guidelines.

Flipkart FarmerMart had proposed to sell retail food products made or produced in India through Flipkart app. The Government also stated that the MoA of the company does not allow it to venture into the food retail sector. Further, the proposed food retail business cannot be structured on a 100% FDI, said DPIIT.

Rajneesh Kumar, chief corporate affairs officer at Flipkart, told TechCrunch that the company was evaluating the agency’s response and intended to re-apply. He also said that such technology will add to the efficiency of the country’s farmers and food processing sector. It will bring value chain efficiency and transparency. This will further aid in boosting farmers’ income & transform Indian agriculture.

About FarmerMart

Kalyan Krishnamurthy, Flipkart Group CEO, announced in October last year that the company planned to invest $258 million in the new venture. He announced the plan to enter the nation’s growing food retail market and invest in the local agriculture-ecosystem, supply chain. He further proposed to work with tens of thousands of small farmers, their associations, and the nation’s food processing industry.

Have other firms forayed into the venture?

The Government had earlier approved 100% foreign direct investment in food and a handful of other sectors, for entering the food retail business. During that time, many e-commerce and grocery firms in India, including Amazon, Zomato, and Grofers have previously secured approval.

The Indian government has since revisited the guidelines to clarify that food retail. Now, e-commerce sector can only operate as a marketplace that allows third-party sellers to engage with buyers. The updated guidelines state that these firms will not offer their inventories. Further, they will not have equity in any of the players who sell on the platform.

Food and grocery are compelling categories for e-commerce businesses in India. 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. It just accounts for 1% of the overall sales.