Amazon India gets govt approval for setting up food retail unit

E-commerce major Amazon has reportedly got green signal from Department of Industrial Policy and Promotion (DIPP) for $500 million investment in online-retailing of food products in India. The company has applied for the license early this year.

According to the Economic Times report, the company will open a wholly-owned subsidiary in India to carry out the business. It will stock food products and sell online. 

The company’s operation in India is likely to follow Amazon Fresh in the UK and US, where it delivers refrigerated food to customers on the same or next day for a fee.  

At present, Amazon acts as a marketplace in India, collecting and distributing foodstuffs and dry goods from grocers. With the new licence, things will change for Amazon as it can keep inventory.

Amazon is looking to tap India’s rapid shift to online and mobile shopping, which is expected to rise from $10 billion in 2015 to $47 billion in 2020 as per eMarketer, a US research group.

Currently, the government permits 100 per cent foreign direct investment (FDI) in the food processing sector. According to the new rule, a foreign company can open a wholly-owned subsidiary in India to retail food products produced and or manufactured in the country by way of opening stores or online.

Besides Amazon, online grocers - Bigbasket and Grofers also applied for the license. Meanwhile, Amazon also entered into a 60-day exclusivity agreement with Bigbasket for a potential acquisition.

In June last year, the Indian government had announced 100 per cent FDI in food retail pertaining to goods manufactured locally. The policy change aimed to offer boost to the food-processing industry and benifit farmers.

With 100 per cent FDI in food retailing, the government intends to encourage organised retailers to source goods directly from farmers and reduce the role of middlemen who usually eat-up major part of earnings and often inflate market prices.