Economy

FDI in retail: mandatory investment in food infra?

AMITI SEN MEENAKSHI VERMA AMBWANI New Delhi | Updated on January 20, 2018 Published on June 21, 2016

Stacking up As per the norms, companies can open multi-brand retail stores to sell food and processed food, as long as sourcing is done in India

Govt clears 100% foreign investment in sector but keen to channelise funds in the back-end





The Centre has allowed 100 per cent FDI in retail of food products manufactured in India, but some riders, including mandatory investment in infrastructure, may be added later, a government official has said.

“The announcement made on FDI in food retail is in keeping with the Budget announcement. But concerns raised by the Food Ministry on channelising investments into infrastructure are valid. Necessary amendments could be made after due discussions,” an official from the Department of Industrial Policy & Promotion (DIPP) told BusinessLine.

As per the policy announcement, 100 per cent FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India, will be permitted.

What it implies

This means that companies can open multi-brand retail stores to sell food and processed food, as long as sourcing is done in India. The Centre hopes to attract investments from multinational companies such as Marks & Spencer, Tesco and Walmart into the sector.

But, the policy falls short of the caveats Food Processing Minister Harsimrat Kaur Badal wanted incorporated. “We do not want a situation where MNCs open retail outlets but procure things from the regular mandis. This will only hurt farmers. Hence, my ministry has proposed for 15 per cent funds to be invested for infrastructure developments,” Badal had earlier said, while addressing the media on completion of two years of the NDA government.

Badal’s proposed conditions were debated at length by the Union Cabinet when the proposal for FDI in the food sector was taken up. “The matter was discussed but a decision could not be taken on exactly how funds should be channelised for infrastructure development. I am sure the discussion will be carried forward now,” the official said.

Interestingly, the condition of investing partly in infrastructure may not be an irritant for companies like US-based Walmart India, which have already invested significantly in the back-end to run their Best Price Modern Wholesale stores across the country.

Analysts said for such companies it would not be a challenge to build the front-end. The company has said in the past that it is awaiting final guidelines and will evaluate it. Dhanraj Bhagat, Partner, Grant Thornton India, said: “Allowing 100 per cent FDI in food retail is a significant initiative introduced by the government. Since it will require sourcing products from India, I don’t think that following conditions set by the government on investments in back-end infrastructure will be a challenge.”

Industry cautious

Players and analysts also said that it remains to be seen whether the government putting mandatory clauses on infrastructure would mean companies need to put in their own investment, or they can partner with local players that may already have set up this infrastructure.

The Food Ministry is keen on channelising investments in back-end infrastructure, as it was one of the big reasons why the government had considered opening up the sector to foreign investments.

It was hoped that investments in cold storage and warehousing would help reduce wastage and losses in the food sector, estimated at about 40 per cent of production, valued at over ₹50,000 crore annually.

There is, however, an apprehension that conditions attached to investments in food retail may act as a disincentive. “It is important for the government to know that global retailers cannot change their business models to meet the conditions imposed on FDI in retail. As India competes with other countries to get FDI, it should also have similar FDI policies. The retail policy should not impose restrictions on store and non-store retail formats,” according to a recent joint report by research body ICRIER and D&B Tangram.

Siraj Chaudhry, Chairman of Cargill India, said: “This step puts India on the radar of global companies that are into the business of distribution of food, especially fresh foods and vegetables. They will evaluate and consider India as a market now.”

Published on June 21, 2016
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