Rules for foreign food retail might be liberalised before November

Following calls from global retail giants such as Wal-Mart Stores Inc. and Tesco Plc, Prime Minister Narendra Modi is set to decide by November whether India is prepared to ease rules on food retailers, a minister said on Tuesday.

India allows 100 percent investment by foreign wholesalers, but if they want to access the burgeoning retail market, they can only have a 100 percent holding to sell food items. This forces them to overhaul their businesses instead of replicating models that have worked abroad, Harsimrat Kaur Badal, minister for food processing industries, said in an interview at her official residence in New Delhi.

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"Wal-Mart, Tesco, etc. have said that they should be allowed non-food items and that's a decision the government has to take now," she told Bloomberg. "The government's decision will come before the World Food India event being organized for November."

The government is looking at allowing global companies with a permit to sell local food items to market made-in-India non-food products such as toothpaste and towels worth about 25 percent of total sales, an official with the knowledge of the matter had said earlier this month. One of the reasons for current restrictions is that small traders have traditionally formed the backbone of Modi's Bharatiya Janata Party, though that could change following his landslide victory in state elections this month.

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The proposals can also help Modi's flagship Make in India campaign to boost local manufacturing. While India attracted $324 billion foreign direct investment from 2000 through the end of 2016, the biggest share of $58 billion has gone to services and only about $14 billion has come into trading. Since coming to power in 2014, Modi has allowed more foreign direct investment and the government on Wednesday took another step toward meeting its July 1 deadline to create a common market under a single national sales tax.

Nearly 45 percent of the average Indian household's consumption is on food, according to World Bank data. Food accounts for about 70 percent of India's $600 billion retail market, and the government is looking at tripling this over the next five years, Badal said.

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Global companies "are willing to adapt to Indian ways to tap the Indian market," she said. If allowed to sell non-food items too, they will foster competition and so "companies which will have the edge are the few who will adapt to what we are allowing and come and capture the market."

(Image source: SixInSeoul)