Out on a limb: Govt says FDI in retail will 'immensely benefit farmers'

Commerce and Industry Minister Anand Sharma formally announced the new foreign direct investment policy norms for the multi-brand retail industry and provided the government’s reasons on why it has decided to relax the rules.

Sharma said the move to allow 51 percent FDI in multi-brand retail and raise the limit for single-brand retail to 100 percent from 51 percent would “immensely help Indian farmers and create jobs in the agricultural and food-processing industry”.

Presenting the arguments for allowing more investments into the retail industry, the minister said India currently did not have adequate infrastructure or value chains in place to support the agricultural sector.Despite the fact that India is one of the largest producers of farm produce in the world, it loses 40-50 percent of that output after harvest due to poor storage facilities, Sharma said. In fact, up to 80 percent of the limited cold storage facilities are used to store potatoes, he added.

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Even farmers are getting a raw deal under the current agricultural system, he pointed out. Farmers only received one-third of the purchase price paid by consumers for food grains and in the case of fruits, it was even lower at 12-15 percent of the purchase price, he said.

The minister also announced the conditions under which FDI would be allowed:

Fifty percent of the investment has to be made in rural infrastructure, including cold storage facilities.

Thirty percent of the entire sourcing has to be made from small and medium enterprises.

Multi-brand retail stores, funded by foreign giants, can be opened only in cities with a population of one million and above.

These conditions were already known by the markets and came as no surprise.

Sharma also said he expected foreign investments in the retail sector to create 4-5 million jobs in the agricultural and food-processing/industrial sector over the next three years. He also expected “enormous amounts of FDI” to pour in because of the changes to the sector regulations.