India’s e-commerce major Flipkart’s ambitious plan to enter the retail food sector is likely to be canned as the country’s foreign direct investment (FDI) rules require it to set up a separate entity, which the company believes would create synergy issues between the new entity and its flagship marketplace.
According to local media Economic Times (ET), that cited two executives directly aware of the development Flipkart is unlikely to set up an entity as it would be difficult to drive traffic from its new firm to Flipkart.com.
Last year, Walmart-owned Flipkart had approached Department for Promotion of Industry and Internal Trade (DPIIT) to register Flipkart FarmerMart, the new entity that would become a seller to sell groceries as well as processed food on Flipkart. However, DPIIT reportedly rejected its application and instead asked Flipkart to set up a separate company as according to the updated foreign direct investment rules, specifically Press Note 2, a foreign online company can not hold inventory or own equity directly or through group companies, in their seller entities.
It is to be noted that Flipkart’s rival Amazon India already operates a food retail platform on its e-commerce marketplace without having to register a separate entity. Amazon received approval for its food retail venture from DPIIT in 2017, two years before India changed the rules via Press Note 2.
But things are going to shake up for Amazon India and Flipkart both, as India is working on yet another round of changes in FDI norms for the e-commerce sector. A Reuters report cited Yogesh Baweja, the spokesperson of the Ministry of Commerce and Industry, who said the government has been in discussions with various stakeholders for over a month. Amazon India is one of the companies that have made representations to the government.
In 2019, Amazon India and Flipkart had to rejig their shareholding patterns to comply with the Press Note 2 that prohibits foreign ecommerce companies from listing products from sellers in which the companies have an equity stake, either directly or indirectly.