India’s changing foreign investment rules won’t help food industry

Marquee multinational retailers such as IKEA and Marks & Spencer (M&S) won’t be able to sell food products in the country, they said in local press reports.

Under Indian regulations, foreign companies are not allowed to set up supermarkets and sell a variety of brands directly to consumers (i.e. engage in multi-brand retail).

However, in January this year, the government allowed foreign companies that sell goods under a single brand worldwide to fully own retail stores in India, in effect allowing single brand retail.

Food excepted…​

However, after M&S and IKEA expressed interest in selling food products in the country under their own brand, the government decided not to allow single-brand retailers to sell these items.

It is suggested this is because the Indian government does not want to upset and damage the established network of smaller grocery stores.

However, one official with a large consumer products major, said the fear is mostly about high numbers of food imports, which could put pressure on existing food processing majors, and conversely the producers.

“You could say that in the current political environment, where the government is performing under coalition pressures from its allies, the move to allow food products is not going to happen. Perhaps after 2014 [the next elections],”​ he said, adding that no government can afford to upset the agricultural base.

As it stands, M&S has a 51%:49% joint venture with Reliance Retail that is allowed to sell clothes, lingerie and accessories but not food products, for which it would need a fresh approval, while IKEA still needs an approval to sell furniture, homecare and as it earlier proposed, food products.