India may open up personal care sector for global food retailers

Top US and European multi-product retailers want the government to allow these stores to sell home and personal care products in a limited way. People privy to the development say that the government may accede to this demand.

India may allow limited sale of beauty and personal care products in global giants’ food retail outlets as part of plans to ease rules for multinationals to open stores in the country.

The move, once implemented, will effectively open up India’s lucrative USD 10 billion home and personal care (HPC) market for foreign deep-discount retailers, bringing them in direct competition with consumer goods companies such as Godrej, Dabur, Colgate-Palmolive and yoga guru Baba Ramdev-promoted Patanjali Ayurved.

In June, the Cabinet allowed up to 100 percent foreign direct investment (FDI) in multi-brand food retail, allowing global corporations to set up “food-only” outlets under the condition that the products sold are manufactured locally.

According to India Brand Equity Foundation (IBEF), a government-backed research body and think-tank, the Indian food and grocery market is the world’s sixth-largest, with retail contributing 70 percent of the sales.

The Indian food market currently valued at an estimated USD 39.71 billion.

Sources said, top US and European multi-product retailers have shown interest in setting up food retail outlets, but want the government to allow these stores to sell HPC products in a limited way.

Sources, who did not wish to be identified, said the government may accede to this demand.
Apart from grocery and food, these supermarkets may be allowed to sell soaps, shampoos, cosmetics and toiletries provided the value of personal care products do not exceed 20 percent of food merchandise sold through each of the outlets, sources said.

The government is currently finalising the rules for allowing FDI in food retail.
While foreign retailers will have to manufacture food products in India, they will also likely be asked to mandatorily invest at least 15 percent in local back-end infrastructure such as cold chains.

These rules will likely be bundled with the clause allowing them limited sale of HPC products, sources said.

The move is significant, because local traders — a core constituency of the ruling Bharatiya Janata Party (BJP) — have been persistent in their opposition to allowing foreign giants to set up stores in India arguing that such mega supermarkets will endanger the livelihood of millions of neighbourhood mom-and-pop stores and street vendors.

Inter-ministerial consultations are currently on for writing the finer policy rules to fully open up the food sector to overseas investors.

The Department of Industrial Policy and Promotion (DIPP), which pilots all FDI policy rules, is examining the finer points of the proposed rules.

Allowing 100 percent FDI in food retail is a major step given the ruling Bharatiya Janata Party’s persistent opposition to foreign giants setting up stores in India.

The previous UPA II government had allowed up to 51 percent FDI in multi-brand retail.
European mega chain Tesco, which set up a joint venture with the Tata group in 2013, is the only foreign multi-brand retail outfit operating in India currently.

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