While the government can claim to the great liberalizer with three ordinances that de-fang the essential commodities act, facilitate contract farming and permit licence-free (and presumably in future license-lite) bulk purchases 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, reports Vivian Fernandes.
The ordinances were notified in the first week of June. But just a week earlier, the department for industry and internal trade a.k.a 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 the foreign direct investment policy (FDI) allowed e-commerce platforms only to be marketplaces. That is, they can be virtual venues for transactions in goods and services, but can’t themselves be the sellers. The policy, it said, disallowed the inventory model for e-commerce portals; they cannot own or control goods stocked for sale.
But the policy also says that 100 percent 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 reiterated the FDI policy on food retailing in reply to a question in the Rajya Sabha on 7 February.
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 cr for an equity stake of 99 percent. The rest is held by Amazon.com.incs Ltd of Mauritius. It commenced business in financial year 2017-18. Amazon Retail describes its business as retail sale of cereals and pulses, tea, coffee, spices and flour. For the financial year ending on 31 March, 2019 its revenue from operations was Rs 139 cr and expenditure Rs 266.8 cr. The loss before depreciation and tax was Rs 126.4 cr.
The shareholders of Amazon Seller Services are the same as that of Amazon Retail. Amazon Corporate Holdings has 99.99 percent equity in it. It has invested Rs 35,695 cr. The rest is held by Amazon.com.incs Ltd, which has invested Rs 1.65 cr. Amazon Seller Services says its business is web-based information-technology-enabled services and business-to-business wholesale trading. Its revenue from operations for the year ending on 31 March, 2019 was Rs 7,593.5 cr ─ 65 percent more than in the previous year. The total expenditure was Rs 12,460 cr up from Rs 10,620 cr.
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 cr 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 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 license 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 bhindi 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.
(Top photo of Flipkart’s packaging line courtesy of the company).