A case of policy flip-flop? No permission to Flipkart for online food retailing, while others are doing it

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June 20, 2020 5:15 AM

It is difficult to Understand why the govt has refused permission to Flipkart for online food retailing, citing FDI policy, while other e-com players are doing it.

Touting the government’s liberal attitude to foreign investment, the agriculture minister had reiterated the FDI policy on food retailing in reply to a question in the Rajya Sabha on February 7.Touting the government’s liberal attitude to foreign investment, the agriculture minister had reiterated the FDI policy on food retailing in reply to a question in the Rajya Sabha on February 7.

While the government can claim to be the Great Liberaliser—with three ordinances that defang the Essential Commodities Act, facilitate contract farming and permit licence-free (for now) and licence-lite (presumably, in the future) bulk purchase of farm produce outside the regulated market yards without payment of cesses and fees—its stance on food retailing by e-commerce platforms is baffling.

The ordinances mentioned were notified in the first week of June. But, a week earlier, the department for industry and internal trade (DPIIT) rejected the application of Flipkart FarmerMart Private Ltd (FFMPL) seeking approval for retail trading of food products on the e-commerce portal, www.flipkart.com, owned by Flipkart Internet Ltd, a Walmart company. The department said FDI rules allow e-commerce platforms only to be marketplaces. That is, they can be virtual venues for transactions, but can’t themselves be the sellers. The policy, it said, disallowed the inventory model for e-commerce portals; they can’t own or control goods stocked for sale.

But the policy also says that 100% FDI with government-approval is allowed for retail trading of food products manufactured or produced in India, including through e-commerce, “notwithstanding the FDI policy provisions on the trading sector.”

Touting the government’s liberal attitude to foreign investment, the agriculture minister had reiterated the FDI policy on food retailing in reply to a question in the Rajya Sabha on February 7.

The conditions attached to foreign investment in single- and multi-brand retail stores are quite onerous, but as the policy clarifies, they do not apply to online or offline retail trading of India-made food products.

Clarifying the FDI policy in June 2018, the commerce and industry ministry said the food product retail trading business should be kept separate and distinct from any other businesses of the investee company. The books of account, bank accounts and sales records, including invoices, must be separate. In a store or a warehouse, the food products must be physically separate and distinguishable from inventory of any other business of the investee company. But storage or warehousing facilities, staff, and infrastructure can be common.

It is by invoking this provision, presumably, that Amazon Retail India Private Limited sells agricultural produce under the brand name Amazon Pantry and Amazon Fresh on the portal, www.amazon.in. The portal is owned by Amazon Seller Services Private Limited.

Amazon Retail is a three-year-old company in which Singapore-based Amazon Corporate Holdings Private Ltd. has invested Rs 804 crore for an equity stake of 99%. The rest is held by Amazon.com.incs Ltd of Mauritius. It commenced business in FY18. Amazon Retail describes its business as retail sale of cereals and pulses, tea, coffee, spices and flour. For FY19, its revenue from operations was Rs 139 crore and expenditure Rs 266.8 crore. The loss before depreciation and tax was Rs 126.4 crore.

The shareholders of Amazon Seller Services are the same as that of Amazon Retail. Amazon Corporate Holdings has 99.99% equity in it. It has invested Rs 35,695 crore. The rest is held by Amazon.com.incs Ltd, which has invested Rs 1.65 crore. Amazon Seller Services says its business is web-based information-technology-enabled services and business-to-business wholesale trading. Its revenue from operations for FY19 was Rs 7,593.5 crore—65% more than in the previous year. The total expenditure was Rs 12,460 crore up from Rs 10,620 crore.

In its application, FFMPL had disclosed that it is part of the Flipkart group. Filings with the ministry of corporate affairs show that its equity of Rs 360 crore is contributed almost entirely by Singapore-based Quickroutes International. Flipkart Marketplace Private Limited, also registered in Singapore, has just one share of Rs 10 in it. While rejecting FFMPL’s application, the government cited the FDI provision which disallows a company from selling in an e-commerce marketplace if its equity is owned or its stock of goods controlled by the marketplace company or its associates.

DPIIT secretary Gurudas Mohapatra said the FDI policy on e-retailing has “conditions attached.” He said FFMPL’s application had some inadequacies. The company’s memorandum of association does not mention food retailing as an activity it can undertake.

“We are evaluating the department’s response and intend to re-apply as we look to continue making significant impact on small businesses, farmers and communities in India,” Rajneesh Kumar, Flipkart Group’s chief corporate affairs officer said in a statement.

In reply to questions on whether Amazon Retail India had obtained government permission for food e-retailing and whether it had obtained approval also for trading on www.amazon.in, the group’s spokesperson Minari Shah merely said the food retailing company had got the trading licence in 2017. “We are engaging with farmers and government bodies to develop a sustainable farm-to-fork model by investing in technology,” she added.

Shah said the company was sourcing mainly from wholesale market yards and through aggregators, but it would eventually like to procure most of its products directly from farmers. At a pilot in Pune, farmers were supplying onions, tomatoes and okra directly to the company’s warehouse. She said the conditions stated in the 2018 clarification were being complied with.

It is unlikely that Amazon Retail will engage in food e-retailing on its group’s portal without obtaining regulatory clearances, or the government would allow a violation of the FDI policy. The clarification of 2018 on food retailing does not refer to internet marketplaces and ownership or control of inventory. If there is a change of stance, investors who have already sunk money will have reason to be anxious.

Author blogs at smartindianagriculture.in
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