FDI in food retail will draw global giants


100% foreign investment in multi-brand food retail will also raise farm incomes

The government’s move to allow 100 per cent FDI in multi-brand retail of food and food products produced and manufactured in India may find takers among global retail giants such as Walmart, Tesco, and Marks & Spencers.

It may also attract niche and speciality players such as Mueller and Shortbread House, and could prompt the food multi-nationals such as Nestle and Heinz, already present in the country, to take the retail plunge, market observers said.

Better infrastructure The government has stipulated that FDI be allowed into the food retail sector only through the Foreign Investment Promotion Board (FIPB) route.

“The objective of the proposal is to enable big multi-national retail chains in the food and food processing sectors to create back-end infrastructure and bring in the latest technology to the farm sector. This would increase the level of food processing in the country, reduce wastage, control food inflation, create employment opportunities and increase income of farmers,” said Minister for Food Processing Harsimrat Kaur Badal in a written reply to Parliament on Tuesday.

“The presence of multi-national food retailers would also provide an assured market to farmers and small enterprises to sell food and food products,” she added.

At present, around a tenth of the fruits and vegetables produced in the country are processed, and FDI is expected to help increase that.

“The idea is to attract foreign investments to better utilise food produced in the country, help farmers realise better prices and create back-end infrastructure. Any proposal for FDI in food retail will be vetted by the FIPB, which will examine whether it fulfils the given set of objectives before clearing it,” an official in the Department of Industrial Policy & Promotion said.

All-India Food Processors Association’s S Jindal sees this as globalising the agri-food sector that will have a multiplier effect on growers, the cold chain and retailing of products. Jindal said it could prompt food multi-nationals in the country to invest in retailing. According to some analysts, the new policy could play a key role in attracting investments from players such as M&S that have entered the retail segment in the country but have avoided the food sector.

“In food retail it is difficult to stick to the concept of single brand. By allowing multi-brand retail of food manufactured and processed in India, companies such as M&S will be encouraged to get into food retail,” ICRIER professor Arpita Mukherjee said.

Investment flow Analysts said more clarity needs to come from the Department of Industrial Policy and Promotion (DIPP) on the issue. “We will need more clarity on this from the DIPP. Going by the announcement, besides international companies, 100 per cent FDI will also help Indian retailers who are in multi-brand retailing of food products to tap into foreign capital,” said Arvind Singhal, Chairman and Managing Director at management consulting firm Technopak.

Further, they feel that the move is aimed at giving a marketing push for the products manufactured under ‘Make in India’, not only in the domestic market but also overseas.

The Government is encouraging the processing of farm produce through the creation of food parks and cold chain infrastructure.

Rajat Wahi, Partner and Head of Consumer Markets, KPMG in India, said more investments are expected to flow in, especially for the downstream supply chain, while allowing foreign multi-brand retailers to set up food-only stores.

(With inputs from Amiti Sen)

Published on March 01, 2016
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