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Mar, 14 2017

New policy allows 100% FDI in stores that sell locally produced farm goods

The ministry of food processing was lobbying hard for letting these retailers sell every day-use products but other government agencies were not on board.

In his budget speech, finance minister Arun Jaitley had announced the government’s intent to ease foreign direct investment (FDI) rules further but had refrained from naming any sectors in the wake of assembly elections in five states.

Sources said that the broad contours of the FDI package have been prepared at the level of bureaucrats and there are two options for the retail sector, which is seen to be a key element of the Narendra Modi government’s job creation plan as it heads into the last two years of its five-year term.

One option is a limited opening up by allowing food retailers to generate around 20-25% of their sales from non-food items such as kitchen-use products or basic household requirements like toothpaste. The current policy allows 100% FDI in stores that sell only Made-in-India food products or locally produced farm goods. There have been no takers for the food retail business so far as several retailers are waiting for a further opening up.

The ministry of food processing was lobbying hard for letting these retailers sell every day-use products but other government agencies were not on board.

Later, however, the department of industrial policy and promotion, the agency that drives FDI policy, agreed to the proposal and has already communicated its backing.

The second option is more radical and is seen as an option that will translate into “real opening up” of the multibrand retail business. Sources said the government may look to allow FDI in retail with the rider that only India-made goods would be sold in these stores.

This proposal, they said, would be more palatable to retailers as it would give them greater operational flexibility besides providing an arrangement where the entire canvas is available.

While Carrefour and Auchan have exited India, Tesco has a tie up with the Tata Group. Walmart is studying its model in some of the Latin American markets to see if it can enter the food retail space but it would be more comfortable if given greater policy elbowroom.

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