The food processing ministry wants at least 15% of the proposed 100% foreign direct investment (FDI) in the marketing of food products to be used to create back-end infrastructure. In recent meetings with stakeholders, the ministry has also suggested that food products, to be marketed by a foreign retailer under the new regime, should be not just manufactured in India but also made entirely of local inputs, a senior government official told FE.
The department of industrial policy and promotion (DIPP), the nodal agency for FDI policy, is currently in discussion with the ministries of food processing, agriculture and finance to finalise the guidelines.
Investments in back-end infrastructure, the official added, would mean “capital expenditure on all activities, excluding spending on front-end units”, which will include distribution, logistics, storage, warehousing, agriculture market produce infrastructure, quality control, design improvement and packaging.
Under the extant norms governing multi-brand retailing, the FDI is allowed up to 51% and at least 30% of the inputs have to be sourced locally from small and medium enterprises. In the Budget 2016-17, the government permitted 100% FDI in the marketing of food products through the FIPB (Foreign Investment Promotion Board) route. “This will benefit farmers, give impetus to food processing industry and create vast employment opportunities,” finance minister Arun Jaitley had said in his Budget speech.
Another official said creating the back-end infrastructure for retailers will be easier than ever as the Budget has announced a slew of incentives for this purpose. The basic customs duty on imports of certain items to create cold chains has been proposed to be reduced to 5% from 10%, while that on refrigerated container will also be cut by a half to 5%. The excise duty on refrigerated containers has been reduced to 6% from the current 12.5%.
The food processing sector has received FDI worth $6.7 billion between April 2000 and December 2015, accounting for 2.4% of the total FDI inflows during the period, according to the DIPP data. It is ranked 13th among the sectors that have attracted the highest FDI since April 2000. Services, construction development, computer software and hardware, telecoms and automobiles have attracted the highest FDI over the years.
Earlier this month, food processing minister Harsimrat Kaur Badal said the government’s move to help double the level of processing of food items to 20% over the next few years. This will also drastically reduce wastage of food and farm items, estimated at R92,000 crore annually due to low levels of processing and inadequate infrastructure for scientific storage, she added.