At the time of the budget, all industries look forward to see what is in store for them as that gives direction to their future plans. The proposal for the food sector that has been made by the Finance Minister in the Union Budget 16 -17 is that hundred percent FDI be allowed in the marketing of food products. The hundred percent FDI will be allowed in the marketing of food products produced and manufactured in India.
Presently there is no clarity on what this could mean and if relates to foreign chains being allowed to set up food stores in India. Retail stores operating in India like Wal-Mart are allowed only 51 percent FDI presently. There is also some talk that this could mean opening retail for foreign retailers for fresh produce. The use of the word ‘marketing’ is causing a little confusion and no one is presently sure about what kind of marketing this will entail; retail marketing or only wholesale marketing. If it pertains to retail marketing then this could mean multi-brand retail marketing, beginning with the food sector.
According to the Finance Minister, Arun Jaitley, this move will benefit farmers as well as the food processing industry. Foreign players who are planning to produce foods themselves in India will be able to test the market to see how it goes. Some industry experts feel that ‘marketing’ probably is linked to retailing of products produced in India. This announcement could have a link with food processing industry as Harsimrat Kaur Badal, Union Food Processing Minister, has been rooting for hundred percent FDI in retailing of processed food items that are sourced from within the country.
Some amount of clarity has come from the Finance Minister himself when speaking on Doordarshan. Here he has said that a hundred percent FDI means that foreign companies will buy produce from farmers in India, process it and then sell the products in the domestic or international market. Another important move that is likely to help farmers is the Krishi Kalyan cess which will be set up by increasing the service tax by another 0.5 percent. This service tax will be deducted effective from 1 June 2016 and the cess will be used for financing initiatives for improvement in agriculture and for uplifting farmers.
The government hopes that this hundred percent FDI proposal will help to address the problems of farmers as well as the food processing industry. The Finance Minister sees this as a move that will reduce waste of vegetables and fruits grown by farmers and will fetch them the right price and a market for their produce. This will also impact the food processing industry as trade is likely to be more efficient especially for food produced and manufactured in India.