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Monday, August 20, 2012

Can FDI in food solve India's hunger issues?

The government has been facing stiff opposition for opening up FDI in multi-brand retail (foreign direct investments). As such, foreign companies are not allowed to set up supermarkets in India and sell multi- brands directly to consumers. However, in January 2012, it allowed 100% FDI (Foreign Direct Investment) in single-brand retail. In other words, foreign firms that sell items under a single brand can now fully own retail stores in India. But this space too has certain caveats. The government has now decided to exclude food items from the items enlisted under single-brand foreign investment policy. This was after foreign companies such as UK's Marks and Spencer and Sweden's IKEA showed interest in selling food items under their own brand in India.
Why is the government unwilling to open up the food sector to FDI? There are quite a few reasons. For one, food is a highly sensitive sector. Secondly, the foreign companies that expressed interest in selling food products in India want to import food items. This is so that they can maintain the same global standards. Such large-scale imports are unlikely to help the local food processing industry and the economy at large. On the other hand, retailers are allowed to source and manufacture domestically. Nestle and Pepsi are a couple of examples. We believe that there is certainly some merit in the government's arguments. But the problem is that there is not enough clarity in the existing policy. This, we think, the  government should sort out immediately.

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