Procedural bottlenecks may hamper FDI in food retailing

Foreign direct investment (FDI) in food retailing is expected to come through based on the proposal by the food ministry in its report 'Vision, Strategy and Action plan for food processing industries'.

The idea of the report was to unlock the potential of the sector in order to get the desired size and scale, and was prepared by Rabo India Finance for the ministry.

Opening the doors to foreign investors in the food retailing may not garner much interest. This is because the man on the street is price conscious and thinks twice before spending money on imported food items.

Moreover, new players would have to compete with existing, established brands.

Many European players are understood to have evaluated India especially in the areas of frozen vegetables, diary and beverages. "India does not score high on the map of most international players largely on account of the high tax rate, fragmented agribusiness and other infrastructural bottlenecks," said senior consultants in the know of developments.

China allowing FDI in food retailing acts as a 'pull' factor for foreign players to set up food processing companies.

In India however, though FDI is permitted in the food processing industry, the actual amount of foreign inflow remains low. FDI in the food processing industry constitutes a mere 4 per cent of total FDI in the period 1991-2004, highlighted the vision report.

Further, the actual inflow in this sector stands at less than 30 per cent of the Rs 1,160 crore FDI approved.

The low FDI in the food processing sector is largely on account of the fragmented nature of the agribusiness, the high and multiple levels of taxation, complex and restrictive regulations and infrastructural bottlenecks that make India a less attractive destination as compared to other markets.

With the exception of food retailing, plantations and alcoholic beverages, 100 per cent FDI is permitted in the food industry.

"It is not just China we are competing with. It is also countries such as Brazil and Argentina, and cost is not the sole consideration. More importantly it is the size of the market that matters," said senior consultants to foreign brand keen to tap the Indian market.

Aside from procedural hurdles, the propensity of Indians to spend on imported food is seen as a significant deterrent by foreign investors, they added.