The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
N Adarsh Varma, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur.
Food processing industry in India has gained prominence in the recent years and is poised to attain greater heights. This sector serves as a vital link between the agriculture and industrial segments of the economy, which needs to be strengthened in the future in order prevent the wastage of valuable resources.
Foreign direct investment (FDI) is an international financial flow with the intention of controlling or participating in the management of an enterprise in a foreign country. FDI in the food retail sector can expand markets by reducing transaction and transformation costs of business through adoption of advanced supply chain and benefit consumers and suppliers i.e. the farmers. India being the second most populated country in the world, has immense scope for retail expansion as along with time, urbanization and consumerism has also been increasing.
The likely changes in the food industry are Technology transfers, Harmonization, Mergers and Acquisitions, Public-Private Partnerships, Expansion into other segments like food packaging industry, storage industry and transportation industry etc., Employment generation and Training and Development.
As our Finance Minister Arun Jaitley pointed in his budget speech that “Hundred per cent FDI will be allowed through FIPB (Foreign Investment Promotion Board) route in marketing of food products produced and manufactured in India.”
The 100% FDI in food retailing can help farmers to get remunerative prices for their products, transfer of technology and modern agricultural practices required for producing agricultural produce on a large scale to meet the requirements of organized marketing. Also, 100% FDI can contribute to bring in higher efficiency in food processing industry and trade, which can make our food products more competitive in the international markets.
Many states will also benefit from this initiative. Consider for example, Kerala is a significant producer of pineapple, banana and jack fruit but majority of it are now going unprocessed. It is because the market is dominated by the non-brand players and with the implementation of this initiative many international brands like Lays can purchase fruits from these farmers and use them for launching new products which will affect the local players but is good for the economy in the long run.
The international players like Walmart can have big advantage as they are currently operating wholesale stores in India. The president and chief executive of Walmart India has pointed out that the move is “very progressive and will help in reducing wastage, helping farm diversification and encourage industry to produce locally within the country.”
This initiative can have a minor disadvantage of neglecting the local players but can cater to a huge advantage of increasing the productivity and contributing to the economic development of the farmers which outweighs the disadvantages and can be a huge success.