Govt may okay FDI policy for food e-tailers to bring on par with offline stores

If things shape up, the Indian government would allow foreign direct investment in online food retailers so that they can be brought on par with offline stores. The move was proposed in the budget session.

"There should not be any discrimination on offline and online. The idea is to drive food consumption sourced from India and it can happen through any medium. As ecommerce is the future of retail, any policy that is framed on internal trade should not exclude the new growing avenues to serve the customer," two people aware of the development told ET.

A few officials from the industry met some senior government officials recently, to discuss this matter and to decide if the definition of food should be expanded to include grocery, which was the proposal presented during budget so that the food processing industry and farmers can be benefitted.

"No final view has been taken on this matter," said a senior DIPP official.

However, food doesn’t earn much margins for retailers, in fact it’s one of the lowest in the industry, an issue that has nerved the whole industry.

"The draft policy could also look at changing the definition of food product marketing to grocery and personal care items retailing while drafting the policy," the official added on request of anonymity.

The overall retail basket has almost 50% of its share covered from food and grocery, and yet the online penetration is still less than 1%. This data is enough to understand the infancy of the category and the untapped potential.

Talking of online presence, fresh products account for almost 20% for BigBasket and 30% for Grofers, with packaged food products contributing another 35-40% of total sales. "While selling food products would help farmers and small business, retailers will have to look at other groceries and household products to earn profit and remain sustainable," said one official.

However, it was last week that DIPP had talked about 100% FDI being allowed only in ecommerce marketplaces and not inventory-based models. If this new policy is approved, it could pave the way for ecommerce grocers, especially with inventory-based models such as BigBasket, the country's largest online grocer with presence in almost 20 cities.

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