Bengaluru: The Indian government on Monday proposed to allow 100% foreign direct investment (FDI) in the marketing of food products made in Asia’s third-largest economy.
“Hundred per cent FDI will be allowed through FIPB (Foreign Investment Promotion Board) route in marketing of food products produced and manufactured in India," finance minister Arun Jaitley said in his budget speech on Monday.
Retail industry executives and experts struggled to make sense of the proposal and some wondered if it could eventually let foreign chains set up food stores in India.
“Hundred per cent FDI in marketing of food produced in India may be a way to partly open retail for foreign retailers especially relating to fresh produce. However, fine print will need to be seen on how ‘marketing’ is defined," said Amarjeet Singh, partner at consultancy firm KPMG India.
The move will benefit farmers, give a fillip to the food processing industry and create vast employment opportunities, Jaitley said.
“It is still not clear whether this will be permitted for retail marketing or only wholesale marketing," said Dhanraj Bhagat, Partner, Grant Thornton India Llp. “We will need to study the fine print before concluding on the same. In the event that this applies to retail marketing, then it could be a prelude to opening of multi-brand retail marketing, beginning with the food sector."
The proposal could also help those foreign players who are planning to come to India to produce themselves but want to test the market first, said Anil Talreja, partner at Deloitte India.
Future Group promoter Kishore Biyani said he found the proposal hard to grasp but guessed that “marketing" probably implied retailing of such products. “Today, 100% FDI is allowed in food processing. So marketing has to be linked to retail," Biyani said by phone.
FDI in multi-brand retail has been a hot-button political issue and has seen ruling governments in the past sparring with opposition parties over opening up of the retail sector, a move seen as a threat to both small traders and domestic retailers.
To be sure, the current FDI policy in retail allows multi-brand retailers to invest only 51% while opening retail stores in the country. However, 100% FDI is allowed in wholesale cash and carry retail. American multi-brand retailer Wal-Mart Stores Inc. welcomed the proposal.
The move is “very progressive and will help in reducing wastage, helping farm diversification and encourage industry to produce locally within the country," said Krish Iyer, president and chief executive of Walmart India.
Wal-Mart currently operates wholesale stores in India.
Union minister for food processing Harsimrat Kaur Badal has been batting in favour of 100% FDI in retailing of processed food items that are indigenously sourced.
“My party has reservations. Our intention (on FDI proposals in Budget) is to let foreign companies buy products from our farmers, process it and sell it domestic or international market, it will help farmers," a PTI report said, citing the finance minister’s comments during an interview with Doordarshan later on Monday.