The government won't include personal care products under the policy governing foreign direct investment (FDI) in food retail, a stand that will disappoint the industry which has been asking for changes along those lines. "The policy is only for food products manufactured in India," a senior official in the Department of Industrial Policy & Promotion told ET. "There is no provision for personal care or non-food items."
This runs counter to what Food Processing Industries Minister Harsimrat Kaur Badal had told ET earlier. She had said the government will add "the sweetener" of allowing personal care products in the policy.
Retailers had lobbied for the relaxation as selling food alone wouldn't make business sense and they needed to be allowed to offer more to shoppers.
"The industry said that you have allowed FDI only for food, which has very low margins and if it is expensive nobody will buy," Badal had said. "It is only when you allow other things with food the money comes in."
The government recently approved 100% FDI in the retailing of food products manufactured in India online or through brick-and-mortar stores. The move is aimed at boosting the fortunes of farmers and the food processing industry. Studies show nearly half of India's fruit & vegetable output is wasted or spoilt for want of adequate processing and storage.
The food processing industry feels the policy is good enough and that retailers should still be able to take advantage of the policy. "This sector has a huge potential and once big companies come they would invest in backend infrastructure where the government has not been able to do much," said Amit Dhanuka, president of the All India Food Processors' Association. "Even without personal care items there is scope to do business." Food processing, seen as a key job generator, is one of the 25 focus areas of the government's 'Make in India' programme. More than $1.04 billion of FDI has entered the food processing sector between April 2014 and March 2016 from companies such as Kellogg, Ferrero India and Mars International.
As an incentive for setting up food processing units, the government is providing 100% income tax exemption for the first five years of operation and 25% for the next five. The FDI policy doesn't stipulate a minimum level of investment in back-end infrastructure as suggested by the food processing ministry. However, the ministry is inviting expressions of interest for six new food parks where preference will be given to companies with 26% foreign equity.
This is being done with an idea to encourage the import of advanced technology and creating more avenues of funding.