1. Food retail reforms: Narendra Modi government mulls relaxing FDI rules

Food retail reforms: Narendra Modi government mulls relaxing FDI rules

The move to relax the rule comes after several global retailers conveyed to the government their willingness to set up shops here

By: | New Delhi | Published: May 11, 2017 6:50 AM
The non-food items could be related products like personal care or kitchenware that consumers would usually like to pick up along with food items in a supermarket.

The government is considering a proposal to ease foreign direct investment (FDI) guidelines in the retailing of food products to allow a certain percentage of locally-produced non-food items along with the edible products. Food processing minister Harsimrat Kaur Badal told FE her ministry has suggested that a foreign retailer be allowed to sell locally-produced non-food items worth 25% of its investments at the farm-gate level. However, a final decision will likely be taken after comprehensive consultations among ministries, including commerce and industry, food processing, and finance.

The move to relax the rule comes after several global retailers such as Walmart, Tesco, Metro Cash and Carry and Auchan Group conveyed to the government their willingness to set up shops here, provided the rules are relaxed to add more items to the shelves, official sources had told FE early last month.

Even a Brazilian retailer is learnt to be exploring opportunities to invest in India with a local partner. Although these retailers haven’t submitted details of investments that they may make in India, the food processing ministry believes potential investments could be as much as $5-10 billion if rules are suitably relaxed.

According to the food processing ministry proposal, if a foreign retailer invests, say, 20% of its total FDI in setting up infrastructure at the farm-gate level, it would be allowed to sell locally-produced non-food items worth 5% of the total FDI, along with the food items that must have been manufactured in the country.

The non-food items could be related products like personal care or kitchenware that consumers would usually like to pick up along with food items in a supermarket. In June last year, the government notified that 100% FDI will be permitted (with government approval) in trading— including through e-commerce— of food products produced or manufactured in India to boost the realisations for farmers. Critics, however, pointed out that no supermarket would attract massive footfall and be profitable with just food items on its shelves.

Recently, e-commerce players Amazon, Big Basket and Grofers applied for approval for retailing locally-produced food products, promising a combined investment of $695 million. Although a final approval by the government is expected soon, the food processing ministry—the administrative ministry in this case—has endorsed the proposals, setting the stage for the first lot of investments to flow in since the government tweaked FDI rules for the sector last year.

Already, the food processing sector has started to see a jump in foreign investments. FDI inflows (in equity) in the sector touched $663.20 million in the April-January period, which were much higher than those of $506 million in the entire 2015-16 fiscal.

The decision to allow 100% FDI in marketing of locally-produced food items was important as food and farm items worth Rs 92,651 crore go waste annually in India due to a low level of processing and inadequate infrastructure for scientific storage.

The Narendra Modi government has already announced two big rounds of relaxations in the FDI regime, first in November 2015 and then in June last year, easing rules in over a dozen sectors ranging from real estate, pharmaceuticals, food marketing, aviation, defence to e-commerce and banking.

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