Amazon, Big Basket and Grofers have crossed a crucial stage to get approval for retailing locally-produced food products, as the food processing ministry is learnt to have endorsed their investment proposals totalling $695 million. This sets the stage for the first lot of investments to flow in since the government tweaked foreign direct investment (FDI) rules for the sector in June last year.
The food processing ministry has sent its recommendations to the department of industrial policy and promotion (DIPP), official sources told FE. A final approval by the government is expected soon, said one of the sources. Big Basket and Grofers want to invest $155 million and $25 million, respectively, said the sources. Last week, food processing minister Harsimrat Kaur Badal said Amazon has proposed to invest $515 million. Amazon has told the government that it wants to invest in the marketing of food items, both online and offline (through its own brick-and-mortar stores), said the sources. Amazon, Big Basket, Grofers are poised to be the first set of e-commerce players to get such an approval.
The clearance by the ministry is crucial, especially when the government is planning to abolish the Foreign Investment Promotion Board (FIPB), likely offering more power to administrative departments to decide on FDI proposals relating to its sectors.
While the DIPP has been the nodal department for potential investors to submit their FDI proposals for approval, the inter-ministerial FIPB has been the final authority to decide on such proposals. Earlier this week, Big Basket and dozens others were chosen to build a total of 101 cold chain projects with limited government grants.
Last year, the government allowed 100% FDI in trading — including through e-commerce — of food products produced or manufactured in India, subject to the approval of the FIPB. The decision to allow it was part of the government’s announcement in the 2016-17 Budget. The move was aimed at helping farmers, offering a much-needed leg-up to food processing in the country and creating massive employment opportunities, Badal had earlier said.
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The decision was also a shot in the arm for e-commerce players in the food segment who were earlier accused of operating illegally by running inventory-based models. Last year, Future Group founder Kishore Biyani had reportedly said that Big Basket should be shut as it had no sellers and was directly selling goods to consumers. Big Basket, however, maintained that it had always complied with the FDI rules. Before the FDI rules were relaxed for locally-produced food products, the government had in March 2016 permitted 100% FDI through automatic route in the market-place format of e-tailing. However, it barred e-commerce players from holding inventories to be eligible for FDI.
Amazon India had termed the move as something that would “positively impact the food and food processing industry to reach a wider customer base with ease”. Big Basket CEO Hari Menon said it “will certainly help the sector”. The move comes as a major boost to e-tailers in terms of fresh funding and technological know-how. It will also attract greater interest to strengthen supply chains, especially sourcing, and improve the processing level of food items.