| Shop in style
New Delhi, Oct. 2: The Congress-led government plans to allow foreign direct investment (FDI) in the retail food sector. It will talk to the Left partners to let global food chains set up shops here in partnership with Indian brands.
The proposal is to help domestic food-processing parks sell their brands in the overseas market piggybacking on transnational food chains. The price: global retail food chains will have to be given entry to the upper strata of the Indian metro market.
The government wants to take advantage of the new WTO regime. With tariff rates and subsidy levels being lowered in the developed world, Indian processed foods have a comparative advantage in the global trade.
“We will be talking to the Left so that retail food chains can be allowed here with foreign investment,” food-processing minister Subodh Kant Sahay told The Telegraph.
The government also wants to impose export conditions on transnational food-retail chains, which would oblige them to ship Indian food abroad as commodities and brands.
“We want to bring in export linkages not merely to promote Indian food products as a commodity but also as brands,” Sahay said.
Global food retailers can push Indian brands so that “brand traffic is both ways ... we buy their brands when they buy ours”.
“We have to project our farm strength. If we let them in, we can go abroad. These MNCs can pave the way for our entry into foreign markets,” he added.
Though the minister had initially sought a 100 per cent FDI for the sector, the government will ultimately decide on the ceiling after consulting its allies, including the Left.
The Left has stopped the government from opening up the retail sector to FDI arguing that such a move would jeopardise the livelihood of millions of small storekeepers.
Sahay, on the other hand, wants to open up the sector in a limited way by giving access only to the upper and upper-middle class. “This will not impact small groceries,” he said.
It will be difficult for the Left to spurn this plan quickly. It is giving a chance to Indian farmers and businesses tap the global market through partnerships with international food chains. At the same time, it is not compromising on retailers’ livelihood.
The Left had objected that global firms could squeeze farmers’ margins through various forms of contract farming. This can be resolved by “evolving a unique Indian system where we build bargaining power for the seller by using co-operatives, which control production chains, and having alternate Indian-owned marketing chains that will compete for the same goods,” the minister said.
A CPM note, authored by its economic analysts, has said supermarkets’ efficiency in sourcing goods from low-cost suppliers around the world is simply a case of squeezing producers using monopsony power.
It gave examples of cocoa farmers from Ghana who are paid a mere 3.9 per cent of the value of a bar of milk-chocolate, while retailers rake in 34.1 per cent of the price.
For bananas sold in food chains, producers get 5 per cent of the value, while retailers pocket 34 per cent as retailing and distribution charges.
In case of jeans, clothing chains take 59 per cent of the price, while manufacturing workers earn just 12 per cent of the value.
Similar squeezing of margins for Indian farmers or even small textiles and processed-food companies could spell disaster for them.
Prime Minister Manmohan Singh has promised a new proposal on FDI in retail trade, which could be pushed through politically. Singh’s aides want to use Sahay’s plan as a test to bring the reluctant Leftist allies on board.
Government officials said they would argue not only for export-linked opening up of FDI in food retail but also restricting them to metros. Though the Left is yet to change its stance, Bengal, a citadel of Left rule, is believed to be keen on limited FDI in the sector.