#Budget2016 : Retailers like Walmart, Tesco to gain as govt allows 100% #FDI in multi-brand processed food retailing

After years of vehemently opposing any foreign investment in multi-brand retail, the BJP-led government on Monday sprung a surprise with an unexpected announcement in the Budget that paves the way for retailers such as Walmart and IKEA to sell multi-brand food products as long as they are sourced and manufactured within India. Such ventures, however, must seek approval from the Foreign Investment Promotion Board (FIPB).

Top officials with the ministries of commerce and food processing confirmed that finance minister Arun Jaitley’s announcement in the Budget would allow overseas investment in multi-brand processed food retailing — an area considered sensitive as small retailers fear their businesses will be jeopardised by the entry of large corporations.

That’s welcome news for global retailers that have lately been confused by a growing anti-multi-brand retailing stand taken by the BJP-led government even as India, in 2012, had opened the segment for 51% FDI.

“This decision by the government to allow up to 100% foreign direct investment (FDI) through FIPB in marketing of (processed) food products produced and manufactured in India is very progressive and will help in reducing wastage, helping farm diversification and encourage industry to produce locally.

This far-reaching reform will benefit farmers, give impetus to domestic food processing industry and create vast employment opportunities, said Krish Iyer, CEO of Walmart India.

Walmart has so far shied away from investing in multi-brand retailing. In 2012, India allowed 51% FDI in multi-brand retailing. Such ventures come with a host of conditions such as 30% mandatory local sourcing, $100-million upfront investment and half of it in back-end infrastructure and many other restrictions.

Food processing industries minister Harsimrat Kaur Badal has been advocating FDI in the space and had written to the Prime Minister’s Office pushing for 100% FDI in multi-brand retail in the food processing sector saying such a move would help create infrastructure, revenue and uplift farmers.

In 2012, while approving IKEA’s Rs 10,500-crore investment proposal, the FIPB had struck down the Swedish retailer’s plans to set up its famous cafes in the stores citing laws that don’t allow FDI in food. Later, the government gave approval to IKEA to set up restaurants as part of its large outlets only to be consumed in the stores. Similarly, UK chain Marks and Spencer had shown interest a few years ago in selling food items in India but the government had not allowed it fearing a backlash.

Jaitley also brought some cheer for small shopkeepers. The government plans to amend the Shop and Establishment Act to enable small shopkeepers to remain open 365 days. He said the government will bring a model shop act that can be adopted by the states. “Permission for keeping stores open 365 days helps retailers increase sales, generates employment, creates customer convenience and also increases tax collection,” said Kumar Rajagopalan, CEO of Retailers Association of India.