India poised to allow foreign direct investment

New Delhi, India: India is expected to allow in foreign investors, such as supermarket giants, within the next four months, according to London newspaper the Sunday Times.

The newspaper cites commerce and industry minister Jyotiraditiya Scindia who says a committee formed to explore deregulation in the sector has submitted a favourable report and government ministers are preparing to put the proposal to cabinet.

The proposal is likely to include obligations on new entrants to invest in “back-end” warehousing, food processing and refrigerated transport networks and to create new jobs in rural India.

“The way I envisage it is that it must involve investment not only in the front end but also in the back end,” Scindia says.

Scindia sought to reassure India’s trade partners that it remains an exciting investment and development environment and highlighted the huge potential for supermarket firms in India’s underperforming agriculture sector.

“For any foreign investor – take your country [UK] for example, your Tesco or France’s Carrefour – today [the market is] 100% open in the cash and carry business. But if you extend that into the agricultural sector, I’m sure they will like to come into the back end and they must. That’s where the value creation happens and, if we can do as much of that in the rural hinterland, it will assist their business model from a cost point of view and it will assist India’s story in terms of an inclusive economic growth,” he says.

“India today is the largest producer of milk in the world, with over a 100m tons. We are the second-largest producer of fruit and vegetables, at over 150m tonnes, we’re the third- largest producer of food grain in the world at over 225m tonnes. But hardly 5% of this gets processed. Above 30% gets wasted. Look at the huge opportunity you have there,” Scindia says.

However, foreign direct investment in India has slumped – down 15% in the first quarter if this year – amid rising concerns about corruption and unpredictable decision-making in government despite the high profile trade delegation to India last July led by UK prime minister David Cameron.

The Indian government believes supermarket giants like Tesco, Carrefour and Walmart – currently limited to “single-brand retail” and cash and carry operations – can modernise the food sector by investing in cold-chain logistics and food processing. However, while government wants the investment, it also has to pacify the influential kirana, or corner shop owners’ lobby that sees foreign-owned retailing as a threat to jobs.

Tesco has a franchise agreement with the retail arm of Tata to grow the Star Bazaar hypermarkets, and developing a wholesale business in India. “We’ve made no secret of our desire to build a retail business in India and would be very keen to bring these benefits to Indian consumers if regulations permit,” a Tesco spokesperson says.

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