FDI in e-commerce: Can an Amazon hold food stock in India now?

By: and | Updated: June 24, 2016 6:53 AM

n After the 100% FDI announcement, norms may be tweaked

The key players in the food segment of e-commerce in terms of grocery delivery are Bigbasket, Grofers, Zomato and Amazon. The key players in the food segment of e-commerce in terms of grocery delivery are Bigbasket, Grofers, Zomato and Amazon.

The government could soon tweak guidelines to allow foreign direct investment (FDI) in e-commerce players holding the inventory of locally produced food products, sources told FE.

While the extant policy stipulates that FDI is allowed only in the market-place format of e-tailing, and not in inventory-based models, the government’s announcement on Monday that 100% FDI will be permitted in trading — including through e-commerce — of food products produced in India has necessitated a review of the blanket ban on FDI in the inventory-based model.

The latest move could not just enable an Amazon to hold stocks of food products while marketing them, but also help legitimise the business model where e-commerce players hold inventory of grocery and food products and sell directly to consumers.

Although the exact nature of the government’s decision will be fully clear once the details are notified, it could nevertheless encourage companies to set up specialised verticals in food. However, much depends on the fine print of the policy, said analysts.

Future Group founder Kishore Biyani reportedly said recently that the Bengaluru-based online grocery store and supermarket Bigbasket should be shut as it had no sellers and was directly selling goods to consumers. Bigbasket, however, maintained that it had always complied with the FDI rules.

An Amazon India spokesperson said: “We welcome the move by the government to permit 100% FDI in trading, including e-commerce, of food products manufactured or produced in India. We believe this will positively impact the food and food processing industry to reach a wider customer base with ease.

The 100% FDI in the marketing of food products in India will be allowed, subject to the approval of the Foreign Investment Promotion Board (FIPB).

The decision to allow it was part of the government’s announcement in the 2016-17 Budget.

The move comes as a major boost to e-tailers in terms of fresh funding and technological know-how.

Bigbasket chief executive Hari Menon said, “It (the FDI policy announcement) is a good thing and will certainly help the sector. However, “we will know how to approach it” once details are out, he added.

Sreedhar Prasad, partner (e-commerce) at KPMG, said, “The move could enable some of the existing e-commerce players to attract FDI in the food category where they are selling only those products manufactured or produced in India. The key would be the strength of their supply chains, especially sourcing.”

The key players in the food segment of e-commerce in terms of grocery delivery are Bigbasket, Grofers, Zomato and Amazon.

The segment has also seen some churn with players like Grofers and Peppertap downsizing their operations and entities like Flipkart and Paytm shutting down their grocery delivery business.

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