In a boost to retailers and grocery startups such as Bigbasket and Grofers, the government on June 20 allowed 100% FDI in food retail, including through e-commerce, provided such items are produced, processed or manufactured in the country.
This will allow multi-brand retail giants such as Walmart to look at their food business here closely and perhaps even foray into B2C food retail. Currently, the US giant operates a B2B business here since FDI in multi-brand retail is not allowed. The US retailer has built a strong backend infrastructure in food. Similarly, the move will help Indian hyper-local grocery startups raise funds more easily.
“The decision by the government to allow up to 100% foreign direct investment (FDI) through FIPB in marketing of food products produced or manufactured in India, including through e-commerce, is very progressive and will help in reducing wastage, helping farm diversification and encourage industry to produce locally within the country. This far-reaching reform will benefit farmers, give impetus to food processing industry and create vast employment opportunities. We will study the policy document when government finalises and issues it,” said a Walmart India spokesperson.
The decision comes without any riders, department of industrial policy and promotion secretary Ramesh Abhishek said. The Food Processing Ministry wanted the food retailers to mandatorily invest in back-end infrastructure besides being allowed to sell some non-food goods.
“This initiative (FDI in food retail) could bring in investments in food infrastructure by global players and provide a platform to sell those products manufactured in India, thus opening up the domestic food market,” said Sreedhar Prasad, Partner-e-commerce, KPMG in India.
“Further, this could enable some of the existing e-commerce players to attract FDI in food category where they are selling only products manufactured or produced in India.”
The government expects it to curb food wastage as well, said Abneesh Roy, associate director at Edelweiss Securities. Food Processing Minister Harsimrat Kaur Badal has been seen rooting for FDI in the sector citing heavy food wastage. She said India has been wasting food and agricultural produce worth Rs 92,000 crore and foreign funds can build infrastructure at farm gate level for benefit of farmers.
As for grocery startups, the government’s move comes with a catch since it allows FDI in only retailing of food products, while most grocery startups sell household items such soap and incense sticks apart from food. It remains to be seen whether they hive off a separate food business from their existing one, said industry experts.
“It is a possibility, although at present, food accounts for around 70% of our business,” said Hari Menon, Co-Founder-CEO, Bigbasket. “If we manage to separate our food business from the rest of our portfolio, it will allow us to raise funds easily from foreign players.”
Source: The Times of India
