Context:
- Government has decided to permit 100 per cent FDI under government approval route for trading of food products
- Permission has been granted only with respect to food products manufactured or produced in India
- Permission is also granted to trading of food products through e-commerce
Why this is done?
- India’s supply chain infrastructure like processing centres, cold storages etc. is weak. This leads to large scale wastage of perishable food products like fruits and vegetables, milk, meat, fish etc.
- New FDI policy in trade for food would attract big players like Walmart, Tesco, Amazon, Alibaba, etc. for investment in domestic food supply chain
- In China, e-commerce is growing fast and food is a major part of the business. India is expected to follow the trend
What are the challenges that needs to be tackled?
- Essential Commodities Act :
- Essential Commodities Act prohibits stockholding large stocks certain listed items under the act by any one. While both food processing industries and food retail chains need to hold large stocks for their operations.
- If industries do not hold large stocks with them, rapid price fluctuations can throw them out of business in the long run.
- APMC act :
- APMC act puts restrictions in procuring directly from farmers in most states.
- This hampers their efficiency and dissuades them from large investments, defeating the very purpose of the FDI policy.
What should be done?
- Government should reform the APMC and ECA acts as soon as possible. Initiatives like National Agriculture Market (NAM) are a good beginning in dismantling the woes of APMC
- Permitting FDI through the automatic route (rather than through approval) will be a much desired step