The great Indian food processing industry

We take a look at the Indian market, a largely untapped domestic market of over one billion consumers. Of these, about 300 million consume processed and packaged food while an additional 200 million are expected to shift to processed food consumption by 2010.

EH Staff - Mumbai

The total food market turnover in the country has been estimated at US$ 197.7 billion. It is the largest producer of fruits, vegetables, milk, livestock in the world (India has 53 per cent of the world's buffalos, 23 per cent of sheep and 842 million poultry - sixth largest in the world) and its agriculture and food product exports have been valued at US$ 106 billion.

Its food processing industry has been declared a priority - it has attracted an investment of about US$ 540 million in the last six to seven years. No industrial license is required for food and agro-processing industries except for alcoholic beverages and a few items reserved for small scale sector. However, foreign investments are allowed in SSI reserved items under an export obligation (pickles, chutneys, bread, pastry, hard-boiled sugar candy, rapeseed oil, sesame oil, groundnut oil, sweetened cashew nut products, ground and processed spices other than spice oil and oleoresin, tapioca sago and its flour).

It has an automatic approval to foreign direct investment of up to 100 per cent equity for all foods and beverages except for alcoholic beverages and items reserved for small-scale sector. Moreover, foreign equity ownership of up to 24 per cent is allowed even in categories of items reserved for the small-scale sector. An industrial license carrying a mandatory export obligation of 50 per cent is required for equity beyond 24 per cent in these categories: Agro-based units established in Special Economic Zones and 100 per cent Export Oriented Units allowed (a) sales up to 50 per cent in domestic traffic area and (b) import of capital goods and raw materials at zero duty.

The import of food processing machinery is allowed freely with low levels of duties. Import of capital goods for exports of agricultural products and their value-added variants under Export Promotion Capital Goods (EPCG) is allowed duty-free and Foreign Technology Agreement within norms has been made automatic. Liberal corporate tax policy is applicable for export and domestic earnings, and corporate tax is 35 per cent income tax rebate allowed (100 per cent of profits for five years and 25 per cent of profits for the next five years) for setting up of new agro-processing industries to process and package fruits and vegetables. Fruits and vegetables, and dairy machineries are completely exempt from Central Excise Duty. Central Excise Duty on preparation of meat, poultry and fish, pectin, pats and yeast is also completely exempt. Quantities restrictions on all food products have been removed. Peak rate of customs duty has been reduced from 30 per cent to 25 per cent (excluding agricultural and dairy products) and duty structure on designated items has been rationalised. Customs duty on refrigerated goods transport vehicles has been reduced form 20 per cent to 10 per cent.

Prospects for food processing

Presently, a small percentage of farm produce are processed into value-added products. India needs US$ 28 billion of investment to raise food processing levels by eight to ten per cent. Rapid urbanisation, increased literacy, changing lifestyles, more women in the workforce and rising per capita income have led to rapid growth and new opportunities in the F&B sector.

It is calculated that Indians spend about 50 per cent of their household expenditure on food items. The new Exim policy places greater thrust on agro-based industries. Following are the areas for bilateral co-operation (in investment, technology transfer and trade, particularly with India as base):

• Fruit and vegetable products,
• Fisheries and seafood
• Wine, beer and alcoholic beverages
• Food processing machinery/packaging
• Total quality/management system
• Animal products, meat and dairy
• Cereals, consumer foods/ready-to-eat foods
• Cold chain infrastructure
• Food parks
• Human resource development.