The Union Government’s decision to allow 100 per cent foreign direct investment (FDI) in food retail is a bold move. It is also a historic move, one that will contribute towards enabling higher rural incomes, sprucing up farm infrastructure, and creating world class last mile distribution and retail infrastructure in the country. The decision is a strong endorsement of the sustainability of the market-driven approach in improving the food supply chain efficiency as well as increasing farm incomes.
Over the past two decades, India has rapidly transitioned from a low value to a high value agricultural economy. Two-thirds of the country’s agricultural and allied produce today consists of perishables like milk, horticultural produce, fishery, poultry and meat. However, the value capture for the farmer is still sub-optimal. Increased processing coupled with a robust distribution and retail chain will bring in much-needed technology infusion, result in capital deployment and lead to infrastructure creation for fully leveraging value addition in perishable commodities. This is, of course, true for secondary and tertiary processed food products. But increasing processing will also enable farmers to realise a higher value for fresh farm produce, which will be a sizable portion of retail trade.
The announcement assumes much significance in view of the fact that only 10 per cent of perishables in the country undergo processing today — in fact, the figure for fruits and vegetables is an abysmal 2 per cent. Besides giving a boost to food processing, FDI in retail is going to incentivise creation of back-end infrastructure, reduce wastage, control food inflation, create employment opportunities and increase farm incomes. The move also complements the government’s aggressive promotion of large-scale food parks and cold chain infrastructure in the country’s rural interiors.
The announcement is also in consonance with the government’s larger move to make the farm supply chain an efficient, transparent and robust one. It has to be seen together with the National Agri Market initiative. The initiative has the potential to create the world’s largest integrated spot market for agricultural produce with the advantages of significantly enlarged market access for the farmer.
FDI in food retail has the potential to leverage ‘Make in India’ and ‘Produce in India’ themes for the larger benefit of the farmer. It will enable the small farmer to leverage IT and e- commerce for market access and provide economies of scale to the smallest among them. There are already instances where back end farm production and front end consumer activity have combined to enhance efficiency in the overall agricultural value chain.
The landmark announcement, in a sense, completes a trilogy that holds the key to government’s intent to shore up the agricultural value chain. A strong back end (National Agri Market), a vibrant middle (Make in India) will now acquire a robust front end — FDI in retail. This will help create a world class integrated agricultural supply chain infrastructure in the country and in turn boost the Indian farmer’s income.