The Department for Promotion of Industry and Internal Trade (DPIIT) has rejected Flipkart’s proposal to enter the food retail sector citing a regulatory issue in a setback for Walmart, which owns majority of the e-commerce firm.

As per reports, the DPIIT told Flipkart that its proposal to enter in the food retail business does not comply with the current FDI norms, though it did not elaborate.

The government permits 100 per cent foreign direct investment in food retail for food produced and manufactured in India.

This decision comes as a setback for Walmart as it had counted its business in India as one of the worst affected by the Covid-19 pandemic.

Commenting on the development, a company spokesperson said that Flipkart intends to re-apply for the permit.

“We are evaluating the department’s response and intend to re-apply as we look to continue making significant impact on small businesses and communities in India,” the spokesperson said.

Last year, the company had set up a new local entity – Flipkart Farmermart – to focus on food retail in India, and had applied for requisite licences from the government.

Flipkart Group CEO Kalyan Krishnamurthy, at that time, had said that the move an important part of the company’s efforts to boost Indian agriculture as well as food processing industry in the country.

Interestingly, Amazon had received the government’s nod for its USD 500 million investment proposal for retailing of food products in India in 2017.

Grocery segment accounts for a significant portion of the unorganised retail segment in the country. Estimates suggest the market be worth over USD 200 billion in India.

The grocery segment has witnessed significant growth amid the COVID-19 pandemic. Many people turned to e-commerce platforms like Grofers, BigBasket and Amazon India for their grocery purchases during the lockdown as they looked at maintaining social distance.

Market watchers feel that grocery segment would continue to scale in the coming months in view of the COVID-19 situation.