New Delhi, June 19: The government is preparing to allow 100 per cent foreign direct investment (FDI) in food retail, but with clauses to highlight how the move will benefit the domestic food processing industry.

The government is likely to insist that part of the investment is made in processing and farm infrastructure such as cold chains.

Finance ministry officials said the original proposal from the ministry of food processing was being fine-tuned so that investors were forced to invest in farm gate infrastructure, such as cold storage, refrigerated trucks, processing plants, to add value and create jobs.

"Merely allowing 100 per cent investment in food retail would have benefited consumers and farmers but would have been seen as a backdoor entry by MNCs into retailing... something which is an anathema to RSS ideologues," said officials.

"This measure (modifying it to add value) will be showcased as one which boosts domestic production, employment and helps the farm sector by creating farm gate infrastructure," they added.

Officials pointed out that the finance minister had proposed 100 per cent FDI in the budget in the "marketing" of food items produced in India.

At present, foreign investment in multi-brand retailing is not allowed even as 51 per cent FDI in single brand retail and 100 per cent FDI in the cash-and-carry or wholesale business are permitted.

The retail sector has not been opened up till now because of objections by the opposition parties as well as sections of the ruling BJP who were concerned that the move could hit millions of small stores across the country.

Organised retail businesses account for just 4 per cent of the local retail market.

Several government-appointed committees have favoured the opening up of food retail as a way to tame food prices.

Farmers often sell their produce at a fraction of the price paid by consumers even as wholesellers take advantage of outdated laws to force the farmers into selling their produce only to them. These middlemen create artificial shortages and rake in 400-500 per cent profits.

Officials said there are differences between the ministries on the percentage of investment that will be made mandatory.

"There is a proposal for a minimum 25 per cent investment in farm gate infrastructure, and leave the deployment of the rest of the money to the investor," said officials.

Key meet

The Prime Minister's Office has convened a meeting on June 21 to deliberate upon a road map to further ease FDI norms to attract more foreign investment.

Besides food processing and single-brand retail, the government is considering relaxing FDI norms in the pharmaceutical sector.

The department of economic affairs has proposed that FDI up to 49 per cent should be allowed in existing pharmaceutical companies through the automatic route and anything beyond through the approval of the Foreign Investment Promotion Board.

FDI in the sector is a contentious issue as concerns have been raised over mergers and acquisitions of Indian pharma companies by foreign giants.

Last year, the government relaxed FDI norms in about a dozen sectors at one go, including defence, retail and construction development. FDI in the country touched an all-time high of $40 billion in 2015-16.