1. Reforms in food retail: Narendra Modi government mulls easy FDI rules; kitchenware, beauty products on table

Reforms in food retail: Narendra Modi government mulls easy FDI rules; kitchenware, beauty products on table

The government is weighing further relaxing foreign direct investment (FDI) rules in the retailing of food products to make it even easier for top foreign retailers to invest in India, official sources told FE.

By: | New Delhi | Updated: April 10, 2017 8:09 PM
The shortfall in production led to calls by refiners and traders for scrapping or trimming the 40% import duty on sugar (both raw and white).(PTI)

The government is weighing further relaxing foreign direct investment (FDI) rules in the retailing of food products, to make it even easier for top foreign retailers to invest in India, official sources told FE.

The move 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 shop here provided the rules are relaxed to add more items to the shelves, said a senior government official. 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 may make in India, the food processing ministry believes potential investments could be as much as $5-10 billion if rules are suitably relaxed.

So, after initial reluctance, the government is discussing the possibility of adding some related items such as kitchenware and even beauty products to the list of food products for retailing to boost footfall at supermarkets, said another official. Discussions on allowing more items have started. But no decision has been taken on this matter so far, he added.

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.

The food processing ministry has been pitching for allowing more items to be sold, along with food products, to make it more attractive for investors. It also wanted a portion of the proposed investments to be committed for creating farm infrastructure to benefit farmers.

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It wasn’t, however, accepted when the department of industrial policy and promotion had notified the decision last year, as the government wanted to keep the regulations simple. It also wanted to take one step at a time, ostensibly keeping in mind the interests of both domestic and foreign retailers, and BJP’s traditional opposition to further opening up of the retail sector.

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.

A section of the government feels while the proposed investments by the e-commerce players in augur well for the sector (although Amazon has proposed to set up its own brick-and-mortar stores as well, apart from investing in e-commerce), for massive investments to flow in at a steady pace and change the retail landscape of the country, the entry of big players like Walmart and Auchan are essential. Amazon has proposed to invest $515 million, while Big Basket and Grofers want to invest $155 million and $25 million, respectively.

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. India is the world’s largest producer of milk and the second-largest grower of rice, wheat, fruit and vegetable, but the processing level of such items currently stands at just 10%.

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.

Total inflows of FDI (in equity) into India rose 29% in 2015-16 from a year before to $40 billion. Between April and December of 2016-17, the FDI inflows rose $46.40 billion, up 1% from a year earlier.

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