 "Customers buy vegetables from a stall at a market in Ahmedabad")
The latest policy on opening the food trading sector to foreign investment might not be very different from the one on multi-brand retailing, sector watchers say.
The primary difference would be the cap on foreign direct investment (FDI). While 100 per cent FDI has now been permitted in food trading, it was 51 per cent in multi-brand retailing. Of the Rs 30 lakh crore retail pie in India, food constitutes Rs 4 lakh crore.
Although the policy fineprint or guidelines are still to come, the indication is, many of the conditions that came with multi-brand retail FDI will be retained for food trading. In such a scenario, companies getting into this area will have to invest a minimum of $100 million upfront, with half of that in back-end infrastructure. Both conditions were seen as hurdles for multinationals wanting to open multi-brand retailing stores.
In addition, the multi-brand retail policy had mandated that of their total sales in the country, companies must source 30 per cent from Indian small and medium enterprises. As for the latest policy, food products manufactured or produced in India can get up to 100 per cent FDI, which puts local sourcing at 100 per cent.
Even as multinationals, including Walmart, sounded enthusiastic about the new policy, saying they were waiting for the government guidelines, experts say it might be a non-starter. “This is no opening up of the retail sector,” argued Arvind Singhal, founder of management consultancy Technopak.
Traders across the country are, however, agitated. They fear loss of business from food trading FDI, as much as from multinationals operating multi-brand retail. Many say FDI in food trading is being brought to please farmers in Punjab, due for legislative Assembly polls next year. They add the same rulebook might have a political fallout on the other upcoming elections, especially in Uttar Pradesh, which has an estimated eight million traders of a pan-India count of around 60 million, as in 2013 National Sample Survey data.
Praveen Khandelwal, national secretary-general of the Confederation of All India Traders, told this newspaper: “We have sought an appointment with Finance Minister Arun Jaitley to convey our concerns over the food FDI policy.” His members are looking for corrective action.
There are no answers yet on whether the new policy would actually benefit farmers or not. According to Ajay Jakhar, chairman, Bharat Krishak Samaj, a farmers’ advocacy group, "If the conditions that apply to multi-brand retail are retained for food FDI as well, then it’s a useless policy. However, if the policy genuinely promotes food produced by Indian farmers, it is a positive step,” he said.
On whether multinational food retailers would have direct access to farmers for procuring their produce or not, Jakhar said, "Those are things that are best left to the private sector.’’ He added that direct sourcing from farms is often difficult.
Khandelwal said the new policy was unlikely to help farmers. Initially, multinationals offer a better price than wholesale markets (mandis) for farmer produce when accessed directly. Later, he alleged, farmers lose their mandi contacts, while multinationals get more demanding.
The earlier government had in 2012 allowed 51 per cent FDI in multi-brand retailing but that policy is opposed by the current government.
So far, only UK-based Tesco, in partnership with the Tata group’s Trent, is present in multi-brand retailing, in Maharashtra and Karnataka.
SECTOR WATCH
- Policy on FDI for food trading may not be very different from the one on multi-brand retailing
- Many conditions with multi-brand retail FDI may be retained for food trading
