FDI in food processing could let govt come out of multi-brand logjam

The current government has however not altered the multi-brand retail FDI rulebook yet

Even before the government has given out the fine print on what it means by 100 per cent foreign direct investment (FDI) in the marketing of processed food, the interpretation in several quarters is that this is a backdoor entry for international multi-brand retailing.

These are early days and without a government notification spelling out the retailing implications, the jury is out on how FDI in food processing will play out on the ground. Foreign supermarket majors such as Walmart and Tesco might not gain much from this Budget announcement, as they might not opt to change their international format to only sell processed food products. However, Indian chains such as Reliance and Future Group might be able to benefit by operating food-only stores, said Arvind Singhal, founder of Technopak, a leading consultancy. Indian multi-brand groups could attract foreign capital in the food segment, which is more than 60 per cent of total retail merchandise in the country, he said. “Rules on foreign investment are not only meant for Walmart, Tesco and the like but for the entire Indian ecosystem.’’

At a time when the online-offline retailing battle is at a peak, full FDI in food processing retail could give some kind of a level playing field to brick and mortar players, according to analysts. In fact, Indian e-commerce is being run with foreign money from marquee investors. A prominent analyst with an international consultancy said the government should stop looking at bits and pieces and open the entire retailing sector to foreign investment, once and for all. He questioned the practical aspects of any international retail chain opening a food-only format to comply with the latest norms. However, single brand foreign chains such as Marks & Spencer and Ikea could sell food products at stores after this.  The condition is that any product sold in these stores should be manufactured in the country and that, analysts said, could prove problematic.

Rajesh Thakkar, partner, transaction advisory services, BDO India, an advisory firm, however said the government’s decision to allow up to 100 per cent FDI in the marketing of food products was a game changer for international retailing chains that have previously avoided investing in India. They could set up food-only outlets, he said.

"The move will encourage retail players to produce locally, which is in line with the government’s Make in India initiative. This will also augment better price realisation for the farmers,’’ he felt.

Shoppers Stop managing director Govind Shrikhande said the finance minister had been silent on the much-debated topics pertaining to the retailing sector. Among the things he waited to hear about were a level playing field for e-tailers and brick & mortar ones, and clarity on multi-brand FDI in retailing.

The earlier government had permitted up to 51 per cent FDI in multi-brand retailing, with the condition that every state could decide whether or not to let foreign chains set up shop. This government has said it is opposed to any international presence in the sector but has not altered the multi-brand retail FDI rule book. That is another reason analysts think the government is looking for ways to get out of the retail FDI logjam.