This report has been carryed out by the

Indo Italian Chamber of Commerce & Industry in Mumbay (India) on november 2006

within the Project

“Friuli Venezia Giulia – India: Imprese e Conoscenza”
realized by:


INDEX SECTION A: FOOD SECTOR ANALYSIS PART 1 MARKET OVERVIEW • • • 1.1 Introduction 1.2 Advantages & Challenges 1.3 Types of products • 1.3.1 Traditional • 1.3.2 Recent trends • 1.3.3 Estimated consumption of packaged & processed food products 1.4 Consumer choices • 1.4.1 Food preferences • 1.4.2 Shopping habits 1.5 Statistics of foreign trade (India’s import from Italy)

PART 2 PARAMETERS OF COMPETITION • • 2.1 Company profiles 2.2 Sector trends • 2.2.1 Production • 2.2.2 Consumption 2.3 Competition 2.4 Major food ingredients suppliers in India 2.5 Major suppliers of selected food products in India 2.6 Best product prospects

• • • •

PART 3 COMMONEST MISTAKES IN EXPORT TO INDIA • 3.1 Factors for success in Indian market • 3.1.1 Planning and Preparation Stage • 3.1.2 Entering the Market • 3.1.3 Developing and Sustaining the Business in India • 3.1.4 Thinking about the Future • 3.1.5 Attributes • 3.1.6 Representation • 3.1.7 Connections • 3.1.8 Survey feedback 3.4 Precautions to be taken by Italian exporters

PART 4 COMMUNICATION AND PROMOTION • • 4.1 Advertising and Sales promotion 4.2 Business Etiquette

PART 5 PENETRATION IN THE MARKET • • • • 5.1 5.2 5.3 5.4 Entry strategy Market structure Forms of enterprise Major types of corporation • 5.4.1 Private corporations • 5.4.2 Public corporations • 5.4.3 Foreign corporations

• • • • • • • • • • • •

5.5 Structures typically used by foreign investors • 5.5.1 Subsidiary companies • 5.5.2 Branch office • 5.5.3 Liaison office • 5.5.4 Project office • 5.5.5 Joint venture • 5.5.6 Appointing an agent or distributor • 5.5.7 Third party arrangement for maintenance and servicing of products • 5.5.8 Franchising • 5.5.9 Direct Selling 5.6 Forms of business presence in India for a foreign company 5.7 Processed fruits and vegetables 5.8 Diary products 5.9 Cooking oil 5.10 Meat and poultry 5.11 Fisheries 5.12 Non-alcoholic beverages 5.13 Alcoholic beverages 5.14 Confectionary 5.15 Milling and baking 5.16 Distribution systems 5.17 Finding a business partner

PART 6 OBSTACLES • • • 6.1 Interview with Mr Suku Shah, Gourment Foods ImporterS IMPORTER 6.2 Interview with Ms. Sapna Lawyer - A practical side to food industry in India 6.3 Precautions to be taken by Italian exporters

PART 7 PRICE POLICIES • • • • • • • 7.1 7.2 7.3 7.4 7.5 7.6 7.7 Pricing structures and policies Costing FVG product Trade barriers Indian customs & excise duties Tariff quotas Taxes and duties Trade samples

SECTION B: GENERAL ANALYSIS PART 8 INFORMATION SOURCES PART 9 IMPORT LEGISLATION • • • • • • • 9.1 9.2 9.3 9.4 9.5 9.6 9.7 Cost breakdown of imported processed food products List of required export certificates Processed food products Purpose of the export certificates Specific attestation required on the export certificate Government certificate legal entry requirements Other certification or accreditation requirements

PART 10 BANKING SYSTEM AND EXCHANGE POLICIES • • • • • • 10.1 10.2 10.3 10.4 10.5 10.6 Reserve Bank of India Types of institutions Currency Foreign Exchange Controls Foreign Exchange Management Act General Permission under FEMA

PART 11 METHODS OF PAYMENT • • • • 11.1 11.2 11.3 11.4 Payment against imports Letter of credit Vs Bank guarantee Parties to a Letter of credit Mode of payment

PART 12 LOCAL JUDICIAL SYSTEM • • • • • • • • • • 12.1 Understanding a country’s food regulations 12.2 Types of food safety and quality standards that apply in most countires 12.3 Food laws in India 12.4 Food safety and standards act 12.5 Food additives 12.6 Pesticides and other contaminants 12.7 Health claims 12.8 Genetically modified food 12.9 Halal certification 12.10 Indian judiciary

PART 13 NAMES OF EVENTUAL PARTNERS PART 14 ANALYSES OF DIFFERENT RISKS • • • • • • 14.1 14.2 14.3 14.4 14.5 14.6 Internal political/ Economic events External political/ Economic events Handling risks of International trade Value & Volume of retail sales of packaged food, sector by region Country Risk Non-collection of goods & Non-payment

PART 15 LEGISLATION ON INTELLECTUAL PROPERTY IN INDIA • • • 15.1 Introduction 15.2 Concerns expressed over IPR protection & India’s response 15.3 Copyright protection in India

PART 16 RULES ON LABELLING AND PACKAGING • • • • • • • • • • 16.1 Introduction 16.2 Requirement specific to nutritional labeling 16.3 Packaging and container requirements 16.4 Food additives regulations 16.5 Pesticides and other contaminants 16.6 Other regulations and requirements 16.7 Other specific standards 16.8 Copyright and / or trademark laws 16.9 Import procedure 16.10 Regulatory agency contacts


The idea of India is gradually changing as number of countries showing interest to invest in India is increasing. According to an AT Kearney’s FDI Confidence index, India has displaced the US as the second most favored destination in the world after China. India attracted FDI at US$7.96 billion during the first half of FY06, as against US$2.38 billion during the same period in FY05, more than 3 times growth. India’s economy is predicted to be growing over 8% in 2006 and with a billion plus population India has its wings of varied culture and business/industry scenario across the country. At the backdrop of such characteristics prospective investors in any foreign countries will be interested to know ‘Doing business in India in wine industry’. The study aimed at highlighting macro-economic indicators of the country with its risk analysis in terms of currency, non-collection of goods and nonpayment. It also discusses obstacles that the prospective investors may face and appropriate marketing strategies that they should adopt to ensure smooth landing in the country which requires a good understanding of its geographies and associated culture and business environment, least but not the last the market dynamics. Approach taken for this study was to collect information/data from various authentic sources like industry associations, trade agencies and respective ministries wherever applicable. As far as policy/regulations are concerned respective ministries’ reports and guidelines have been referred and an attempt has been made to explain them appropriately as relevant they may be. Salient points which are key findings in this report are given below. Challenges in the market is still to find the right partner, knowledgeable about local market and procedural issues for foreign industries investment in India and can formulate the right strategies with solid foundation for setting up manufacturing base as JVs as the FDI policy may stipulate in respective sectors Tariffs (although tariff structure has been reduced considerably since economic reforms but issues still remain in some specific sectors) and poor infrastructure still pose a serious challenge to FDI. In addition, heavily bureaucratic investment processes, poor IPR enforcement, government inefficiency, and corruption have also discouraged foreign investors. Winning strategy overcoming the market entry barriers for setting up an establishment- a solid regional plan analyzing the local market demand and economics that work out to be feasible in producing in India and exporting to other countries in the world leveraging conducive economic factors that otherwise become an impediment in future growth. While marketing products distribution strategy can really make the difference; however merit has to be given after due diligence is done and a meticulous plan should be in place. Small distributors can really make a drastic improvement in sales growth where flexible marketing strategies play an important role. A joint venture company is generally formed under the Indian Companies Act of 1956 and is jointly owned by an Indian company and a foreign company. This type of arrangement is quite common because India encourages foreign collaborations to facilitate capital investments, import of capital goods and transfer of technology.

All industrial undertakings manufacture, except for (i) retained under compulsory small scale sector and

are exempt from obtaining an industrial license to industries reserved for the Public Secto r, (ii) industries licensing, (iii) items of manufacture reserved for the (iv) if the proposal attracts location restriction.

Being a buyer’s market from seller’s market promotion of products matters much. The key to gaining rural market share is increased brand awareness, complemented by a wide distribution network. Rural markets are best covered by mass media India’s vast geographical expanse and poor infrastructure pose serious challenge for communication and hence emphasis must be given in communication problems to be really effective in selling to rural market. India is still not holding its laws high for protecting copyright issues. As a result cases of counterfeiting and violation of copyright act happens and probably judicial system is still not being able to curb the menace. Adjudication of cases is extremely slow. Logistics play an important role in distributing products to all corners of the country. Due to its vast territory challenges in implementing a smooth supply chain model is really challenging and hence outsourcing to third parties is very common and an useful and effective strategy to reach market place just in time.

PART 1 MARKET OVERVIEW 1.1 Introduction

India is a country of striking contrasts and enormous ethnic, linguistic, and cultural diversity. It has a population of 1.1 billion, and it is comprised of 28 states and seven Union Territories (under federal government rule). The states differ vastly in resources, culture, food habits, living standards, and languages. Vast disparities in per-capita income levels exist between and within India’s states. About 75 percent of the country’s people live in its 550,000 villages; the rest in 200 towns and cities. There are 27 cities with a population above one million people. India has the largest number of poo r, with 35 percent of the population surviving on less than $1 per day, and 80 percent of the population surviving on less than $2 per day1. Nearly 51 percent of Indians’ consumption expenditures go for food (54 percent in rural area and 42 in urban areas)2; mostly for basic items like grains, vegetable oils, and sugar; very little goes for value added food items. In recent years, however, there has been an increased shift towards vegetables, eggs, fruits, meat, and beverages. Religion has a major influence on eating habits and, along with low purchasing power, supports a predominantly vegetarian diet. Some observers of India’s economic scene are, however, highly optimistic about consumption growth potential, and believe that rising income levels, increasing urbanization, a changing age profile (more young people), increasing consumerism, a significant rise in the number of single men and women professionals, and the availability of cheap credit will push India onto a new growth trajectory. These segments of the population are aware of quality differences, insist on world standards, and are willing to pay a premium for quality. Nonetheless, a major share of Indian consumers has to sacrifice quality for affordable prices. Potential US exporters should also bear in mind that India’s diverse agro-industrial base already offers many items at competitive prices. Results of the “Market Information Survey of Households,” conducted by the National Council of Applied Economic Research, show that the share of households in the upper middle/high income group (annual household income > rs. 90,000, or $11,200 on purchasing power parity basis) has grown from 14% in 1989-90 to 28% in 2001-02, and is projected at 48 percent in 2009-10. Correspondingly, there has been a decline in the low-income group.

Sixty-five million people are expected to enter the 20-34 year age group from 2001 to 2010. By 2025, 40 percent of Indians are expected to be urban dwellers. UNDP Human Development Report 2004 Consumer Household Expenditure Survey 59th Round (January – December 2003), National Sample Survey Organization, GOI
2 1

Structural reforms and stabilization programs during the 1990s have contributed to India’s sustained economic growth, which has been relatively strong over the past two decades, averaging 6 percent annually. Since 1996, the Indian government has gradually lifted import-licensing restrictions, which had effectively prohibited imports. On April 1, 2001, all remaining quantitative restrictions were removed, putting India in compliance with its WTO commitment. Nonetheless, the government continues to discourage imports, particularly agricultural products, with the use of high tariffs and non-tariff barriers. Import tariffs on most consumer products, although declining, are still high, ranging from 30.6 to 52.2 percent. Some sensitive items, such as alcoholic beverages, poultry meat, raisins, vegetable oils, wheat, rice, etc., attract much higher duties. Nontariff barriers include unwarranted sanitary and phytosanitary restrictions and onerous labeling requirements for pre-packaged foods. Other factors adversely affecting imports include a poorly developed infrastructure (transportation and cold chain), a predominantly unorganized retail sector, and outdated food laws. However, some positive factors are: • • • • • • Rising disposable income levels Increasing urbanization and exposure to Western culture Growing health consciousness among the middle class Growing consumerism Changing age profile Increasing availability of cheap consumer credit

1.2 Advantages & Challenges Advantages Large and growing middle class Increasing exposure to American products and lifestyle A slow but steady transformation of the retail food sector in cities Growing number of fast food chains Increasing urbanization and growing number of working women A growing food processing industry looking for imported food ingredients Improved Indo-US political relations Challenges Divergent food habits Preference for fresh products and traditional foods Difficulties in accessing vast untapped rural markets Poor infrastructure Diverse agro-industrial base offering many products at competitive prices High tariffs, dated food laws, and unscientific sanitary and phytosanitary restrictions Competition from countries with better geographic proximity

1.3 Types of products: 1.3.1 Traditional

There is no single traditional cuisine of India. The many cultures that have come to India over the centuries have contributed their flavours and recipes using the basic products available locally. Selected Traditional Cuisines of India.

Cuisine Kashmiri.

Description Largely meat based, particularly lamb, goat and chicken flavoured with saffron and chillies. Other products include walnuts, dried dates and apricots used in puddings, curries and snacks. Cottage cheese is popular with meats and vegetables. Fresh water fish is also a delicacy. Popular desserts consist of fresh fruits such as strawberries, plums, cherries and apples. Marinated chicken, fish, paneer, rotis and naans of many types are cooked in earthen ovens half buried in the ground. In the winter, makki ki roti (maize flour bread) is popular along with sarson ka saag (mustard leaf gravy). Fresh curd and white butter are consumed in large quantities. A popular drink is lassi (a sweet or salted drink made with curd). Other popular dishes are ma ki dal, rajma (kidney beans) and stuffedparathas. Rich sauces, butter-based curries, ginger flavoured roast meats and delicious sweets. Fish in a variety of styles. Use of mustard oil rather than coconut oil. Five basic spices used: zeera, kalaunji, saunf, fenugreek and mustard seeds. Sweets made from burnt milk, yoghurt sweetened with jaggery, crisp samosas. Subtly flavoured vegetarian delicacies and hot, aromatic meat and fish curries. Crispy sweets made mostly of rice and jaggery. Konkani and Malwani cuisines originated in the coastal parts of this region and are sea-food based. Influenced to some extent by Portugese culture. Tangy pork vindaloo, spicy sorpotel and fish curry with rice. Coconut and fish based dishes. Local wines or the local liqueur called Feni. Most, but not all Goan dishes are chili hot, spicy and pungent. Seafood includes prawns, lobsters, crabs, and jumbo pomfrets (bream). Goa is not known as vegetarian. Hindus like lamb and chicken while Christians like pork and both prefer fish and seafood to any other meat. Vegetarian cuisine. Lentils and vegetables, yoghurt and buttermilk are a part of Gujarati's daily diet. Potatoes, brinjal, and green beans and other vegetable are used in the winter to prepare undhyoo. Other dishes are prepared with chickpea flour, thickened milk, nuts and the srikhand. Yogurt, flavoured with saffron, cardamom, nuts and candied fruit.


Mughlai (Delhi). Bengali.





Historically the Rajas who went on hunting expeditions ate the meat of the game fowl they brought back. Vegetarian Rajasthanis cook in pure ghee, famous for its aroma. Rajasthan includes a large desert area and the scarcity of water and lack of fresh green vegetables has affected Rajasthani cooking. Dried lentils and beans from indigenous plants like sangri, ker etc. are staples of the Rajasthani diet. Gram flour is an integral cooking ingredient. Bajra and corn are used all over the state for making rotis and other breads. Other food items are millet bread, chutney, onions and milk This category includes the original red hot Andhra cooking and the Hyderabadi cuisine with its Mughlai influence. Vegetables are prepared with different masalas giving the same vegetables different flavours. Traditional Andhra cuisine includes many nonvegetarian dishes which are also spicy. Hyderabadi cuisine is rich and aromatic with a liberal use of spices and ghee as well as nuts and dried fruit. Lamb is the most widely use meat in nonvegetarian dishes. The biryanis (flavoured rice with meat or vegetables) is one of the most distinct Hyderabadi foods.

Hyderabadi (Andhra Pradesh).

1.3.2 Recent Trends The middle class of India has not been satisfactorily measured. It is very heterogeneous and its size depends on the definitions of several parameters. Estimates range from 25 million to 200 million but it is generally accepted that it is growing. FVG exporters are likely to find the greatest opportunities in the markets serving the middle and upper income groups of India. The typical pattern of buying groceries and emerging trends are closely associated with both tradition and new technology. A typical household purchases less-perishable food and other groceries at the beginning of each month - sometimes having them delivered. More-perishable products such as bread and eggs are purchased every one or two weeks. Milk is purchased daily. It is estimated that only 15% the potential market for refrigerators has been exploited. As increasing numbers of Indians purchase refrigerators, the buying patterns of groceries will change. Grocery stores are the dominant food outlets but fruit and vegetables are bought from unorganized vendors. Some grocery chains are expanding into the supermarket or hypermarket category offering a wide range of products; however, purchasing of fruit and vegetables in this context has not yet been fully accepted. Even so, supermarkets and hypermarkets are putting pressure on the traditional grocery store. Visits to a supermarket encourage much impulse buying compared to visits to a traditional grocery store or phone shopping. Eating out is a very popular activity while attending other functions. It is estimated that Indians spend INR 350 billion eating out annually. Of this, organized establishment’s accounts for only INR 20 billion. International fast food chains such as Subway, McDonald's and Pizza Hut are found in shopping malls and near cinema theatres. The "well-off” in urban areas are increasingly eating out in coffee shops, malls or retail stores. Lounge bars are the latest trend in urban areas and are frequented by young professionals, successful executives and single women in their late 20's. This trend began in Mumbai, Bangalore, Delhi and Kolkata and will no doubt spread to other urban areas. Among the "affluent", clubs are becoming popula r. In addition to many recreational facilities they are upgrading their food facilities and can compete with some of the finest

restaurants or hotels of India. The "affluent" also have an interest in the performing arts. A play in Mumbai can cost about INR 1,000. Middle to upper income families are increasingly two income, younger families. A small proportion of Indian families are moving to quick ready-to-eat foods and frozen foods. However 90% of the population still prefers fresh foods and consider processed foods to be not fresh and containing harmful preservatives. Table below presents estimates of the consumption of packaged and processed foods. Bread had the highest estimated consumption level in 2003, (1,656.5 gms per person). The consumption of crisps/chips was the fastest growing food sector from 1998 to 2003 (77.82% over the 5 year period) although the level of consumption was still low (9.96 gms per person). Similarly, the consumption of pasta increased 76.3 % from 1998 reaching 0.705 gms per person in 2003. Both chips/crisps and pasta are popular among consumers below 19 years of age. Pasta is also popular with mothers as a snack for school-age children. 1.3.3 Estimated Consumption of Packaged and Processed Food products. India. 1998 and 2003.

Product (gms/person) Canned Meat and Meat Products Canned Fish / Seafood Canned Vegetables Chips /Crisps Extruded Snacks Nuts Butter Cakes Bread Breakfast Cereals Baby Food Biscuits Chocolate Confectionery Dried Food Frozen Food Ice Cream (ml./person). Noodles Oils Other Sweet and Savoury Snacks Other Fats Pasta Sugar Confectionery Sauces, Dressings and Condiments Soup Spreads Sweet and Savoury Snacks Yoghurt

1998 0.2 n/a 0.3 5.6 5.6 1.655 39.1 41.5 1,355.60 2.2 12.4 351.1 19.3 283.5 12.4 29.8 20 575.5 17.1 477.7 0.4 58.3 64.1 1 14 29.9 1.4

2003 0.242 0.1 0.317 9.958 7.568 2.577 50.607 57.179 1656.543 3.382 14.634 439.999 25.939 407.871 20.461 47.546 20.086 620.159 23.266 523.464 0.705 78.145 93.214 1.425 15.672 43.277 1.933

Change 1998 to 2003 (% /5 yrs) 21.05 n/a 5.56 77.82 35.15 55.74 29.43 37.78 22.2 53.73 18.02 25.32 34.4 43.87 65.01 59.55 0.43 7.76 36.06 9.58 76.3 34.04 45.42 42.45 11.94 44.74 38.07

1.4 Consumer choices for tastes, attitudes, expectations & fashion factors 1.4.1 Food Preferences India is well known for its tradition of vegetarianism. Among those who are not vegetarians, beef is still generally taboo to most Hindus (80.5 percent of the population), Sikhs (1.9 percent of the population), and Jains (0.4 percent of the population), all of whom consider cows sacred. Many Indians are vegetarians because they cannot afford a non-vegetarian diet. As India has been at the crossroads of many peoples and cultures over the centuries, some foreign elements have invariably seeped into the local culinary culture. Thus, India’s culinary tradition is constantly changing. Nonetheless, Indians have a strong preference for fresh products and traditional spices and ingredients, which has generally slowed the penetration of American and other Western-type foods. However, with urbanization, rising incomes, more working women, the arrival of some food multinationals, and a proliferation of fast food outlets, the acceptance of packaged and ready-to-eat food products is increasing, especially among the urban middle class. These products, nonetheless, are usually tailored to Indian tastes. Many Indians are quite willing to try new foods, but usually return to traditional fare. While Western foods have a reasonably good chance of succeeding in casual dining, integrating them into the main meal will be more difficult. Demand for specialty and high-value food items, including those imported, such as chocolates, dry fruits (almonds, cashews, pistachios, etc.), cakes, pastries, exotic fruits, and fruit juices, typically peaks during the fall festive season, especially at Diwali – the Festival of Lights. Hence, from October to December is the best time to introduce new food products into the Indian market. Typical imported food items that can be spotted in retail stores in cities include chocolates and chocolate syrups, biscuits, cake mixes, fruit juices, canned soups, pastas, popcorn, potato chips, canned fish and vegetables, ketchup, and fruits such as apples, grapes, and kiwis. 1.4.2 Shopping Habits Lacking home refrigeration and purchasing power, most Indians shop daily at neighborhood kirana shops (small retail outlets) or roadside vendors. Most consumers regard shopping as a chore, and few are familiar with alternatives to traditional store formats. Convenience to one’s home is important, since daily shopping and sensitivity to food freshness is an integral part of shopping habits. Indians buy fruits and vegetables in one shop, dairy products in another, groceries in a third, and meat and fish in yet another. Quality is important, but there is a reluctance to pay a premium. Trust in the retailer, especially with regard to quality of food and replacement of defective goods, is important. Although added services such as home delivery are welcome, consumers are unwilling to (and do not have to) pay a premium for this service. Women do most of the shopping and make most of the food purchasing decisions. Households able to afford Western imports usually have servants who buy, clean, and prepare foods. Availability of many fresh foods, particularly fruits and vegetables, is seasonal, and people are accustomed to adjusting their diet to the season. Processed/packaged foods in great demand include ketchup and sauces, jams and jellies, table butter and ghee (melted butter), cooking oils, various masalas (spice mixes), pickles, wheat flour, noodles, snack foods (mostly Indian types), and health drinks. Most packaged food items are sold in small containers, due to customers’ limited purchasing power. Only in the past few years have Indians, mostly in cities, been exposed to supermarkets in the Western sense. Semi-urban, non-metropolitan, and rural areas have yet to feel the impact of large-scale retailing. Most people, even in cities, still associate supermarkets with “expensive” rather than “cost effective.” However, in recent years, the Shopping Mall culture has caught on in India, with many large malls built in large cities and suburbs.

1.5 Statistics of foreign trade (India’s Import from Italy) S.No 1 2 3 Commodity (Value in Rs. Lakhs) Meat And Edible Meat Offal. Fish And Crustaceans, Molluscs And Other Aquatic Invertabrates. Dairy Produce; Birds' Eggs; Natural Honey; Edible Prod. Of Animal Origin, Not Elsewhere Spec. Or Included. Products Of Animal Origin, Not Elsewhere Specified Or Included. Live Trees And Other Plants; Bulbs; Roots And The Like; Cut Flowers And Ornamental Foliage. Edible Vegetables And Certain Roots And Tubers. Edible Fruit And Nuts; Peel Or Citrus Fruit Or Melons. Coffee, Tea, Mate And Spices. Products Of The Milling Industry; Malt; Starches; Inulin; Wheat Gluten. Oil Seeds And Olea. Fruits; Misc. Grains, Seeds And Fruit; Industrial Or Medicinal Plants; Straw And Fodder. Lac; Gums, Resins And Other Vegetable Saps And Extracts. Animal Or Vegetable Fats And Oils And Their Cleavage Products; Pre. Edible Fats; Animal Or Vegetable Waxex. Preparations Of Meat, Of Fish Or Of Crustaceans, Molluscs Or Other Aquatic Invertebrates Sugars And Sugar Confectionery. Cocoa And Cocoa Preparations. Preparations Of Cereals, Flour, Starch Or Milk; Pastrycooks Products. Preparations Of Vegetables, Fruit, Nuts Or Other Parts Of Plants. Miscellaneous Edible Preparations. Beverages, Spirits And Vinegar. Residues And Waste From The Food Industries; Prepared Animal Foder. 20042005 24.57 10.83 179.21 20052006 67.58 45.72 196.34 %Growth 175.1 322.06 9.56

4 5

217.56 0.04

167.62 17.68

-22.95 42,279.08

6 7 8 9 10

25.11 281.54 181.9 257.21 128.94

44.67 413.01 404.86 200.14 329.48

77.89 46.7 122.57 -22.19 155.53

11 12

340.65 650.52

379.48 1,034.58

11.4 59.04





14 15 16 17 18 19 20

14.15 21.19 366.41 261.57 46.21 419.08 153.2

87.23 33.38 562.55 68.52 257.25 732.51 281.32

516.26 57.53 53.53 -73.8 456.72 74.79 83.63


PART 2 PARAMETERS OF COMPETITION 2.1 Company Profiles Indian food processors may be divided into the following main categories: • Large Indian companies that have their production base in India or neighboring countries (for tax-saving purposes) Multinational and joint-venture companies that have their production base in India Medium/small domestic food-processing companies with a local presence Small local players in the unorganized sector

• • •

The following table shows some of the major food-processing companies in India and their products. This list is neither exhaustive nor ranked according to the order of importance. The end use channels for most of them are retail and hotel, restaurant and institutional (HRI) markets. Sales figures for these companies are not available. INDIAN COMPANIES Company Name Godrej Foods Ltd. Dabur India Ltd. Products Vegetable oils, fruit juices, tomato paste, soy beverages Fruit juices, cooking paste, honey

Mother Dairy Dhara Amul ITC Hindustan Lever (HLL) VH Group Britannia Industries Parle Products Nutrine Confectionary Company Weikfield Products Company Rasna (Pioma Industries) Haldiram’s UB Group

Dairy products, ice cream, canned vegetables, fruit juices, cooking oils Dairy products, ice cream, chocolate Branded wheat flour, biscuits, readyto-eat food, confectionary Ice cream, branded wheat flour, bread, sauces, jams, jellies Poultry products Biscuits, bread, packaged food Biscuits, candies, toffees Confectionary, chewing gum

Custard powder, baking powder, jelly crystals, drinking chocolate, sauces, soups Instant drink, health drink, soft drink concentrates, flavors Snack foods Beer, alcoholic beverages

Marico Industries MTR Foods Punjab Markfed Vista Processed Foods Dynamix Dairy Industries

Vegetable oils, jams Ready-to-eat foods, soups, spices, ice cream mixes, pickles Canned food, rice, vegetable oils Frozen chicken and vegetables Cheese, whey, other dairy products

Company Name Pepsi Cargill Heinz Kellogg’s Bunge Nestle Products Soft drinks, potato chips, snack food, fruit juices Vegetable oils Ketchup, health drinks Breakfast cereals, biscuits Vegetable oil, margarine Coffee, chocolates, confectionary, instant noodles, milk products, beverages, health drinks Chocolates, health drinks Soft Drinks, beverages Branded vegetable oils, branded wheat flour, snack food, popcorn Wheat flour, cake mixes Health drinks Chewing gum, candy Chewing gum

Cadbury Coca Cola Agro Tech Foods (ConAgra’s) Pillsbury GlaxoSmith Kline Perfetti Wrigley

Lotte India Corporation Ltd. (Parry’s)


McCain Foods

French fries

Adani Wilmar Ltd. The Solace Company Effem India (Mars)

Cooking oils, bakery shortenings Soya nuggets Pet food

2.2 Sector trends 2.2.1 Production: • The food-processing industry in India has undergone big changes over the last six to seven years, in terms of types, variety, quality, and presentation of products, which is mainly a result of the liberalization that led to foreign direct investment (FDI) in the processed food sectors. Most food-processing sectors have been brought under the liberal, transparent, and investor-friendly FDI policy, which allows 100 percent FDI. However, the small-scale farming system in India, marketing problems, lack of grading and standards, poor distribution channels, and onerous government policies continue to pose problems for the processing industry to source the right type of raw materials and to discourage more investment in the secto r. Nevertheless, the proportion of FDI in the food-processing sector to total FDI into India is low, constituting about 4 percent of total FDI inflow from 1991 to 2004. Several multinational companies, including US-based companies like Pepsi, Coca Cola, ConAgra, Cargill, Heinz, Kellogg’s, IFF, and Mars (pet food only) have entered the Indian food-processing industry with significant investments. Indian food and beverage companies are expanding their operations to neighboring countries like Bangladesh, Nepal, Sri Lanka, Commonwealth of Independent States countries, and the Middle East. Takeovers and mergers are beginning to occur in the Indian food-processing secto r, leading to consolidation. The food-processing industry is beginning to focus on, and invest in, advertising and awareness campaigns about products and brands. Companies have added extras to their existing brands, including stylish packaging. The growth in the food-processing sector has generated increased interest in high quality food ingredients in order to produce high quality foods. The ready-to-eat food sector is growing at a high rate due to the changing lifestyles of the middle-class consumers (both partners working, etc.). Some previously unknown regional brands are gaining national acceptance because of consistent quality and product safety, thereby providing some competition to established companies.

• •

The GOI is in the process of enacting a Food Safety and Standards Bill, which if properly done and implemented, would provide increased transparency, better food safety management systems, and science-based standards.

2.2.2 Consumption: The following factors influence the type and quality of inputs in processed foods: • A large and an exceedingly wealthier middle class is creating growing demand for a wider variety of high quality processed foods. The changing age profile (sixty-five million people expected to enter 20-34 year age group by 2010) and increasing exposure to western-type products and lifestyles. The market entry of several multinational food-processing ingredient suppliers. The increasing number of fast food chains. The recent trend toward a healthier lifestyle has generated a niche market for diet, healthy, low-calorie, and non-fat food products. The increasing urbanization and growing number of working women. A slow but steady transformation of the retail food sector in cities. companies and

• •

• •

2.3 Competition India’s domestic industry is the primary competitor for FVG food-processing and ingredients suppliers in India. India, with diverse agro-climatic conditions, has a production advantage in many agricultural goods, with the potential to cultivate a large range of agricultural raw materials required by the food-processing industry. India is a major producer of spices, spice oils, essential oils, condiments, and fruit pulps. Significant variations in food habits and culinary traditions across the country translate into a competitive advantage for small and medium local players, who are familiar with local food habits and markets. Some Indian food-processing companies have increased market share by decreasing product prices. High import duties on processed food and food ingredients make imports relatively costly. Existing domestic food laws restrict the use of several ingredients, flavors, colors, and additives, thus posing an additional challenge to FVG exporters interested in the Indian market. Foreign competition to the FVG is mostly from countries in closer geographic proximity to India, such as Australia and New Zealand. European suppliers are major competitors in the food ingredient sector. Several foreign firms, including some from the United States, have started operations in India.

2.4 Major food food ingredient suppliers Company Name IFF DANISCO Chr. Hansen AB MAURI Fine Organics MSC CO. Ltd. Davars M.P. Organics The Solae Company Doehler AVT McCormick Ingredients Ltd. Synthite Plant Lipids Country United States Denmark Denmark United Kingdom United States Korea India United States Germany India/US joint venture India India

2.5 Major suppliers of selected product categories Product Category Major Supply Sources Strength of Key Supply Countries Low prices Advantages (A) & Disadvantages (D) for FVG Suppliers Local production is significant but inadequate (A)

Vegetable Oils
Imports: US$: 2.6 billion

Indonesia Malaysia Argentina

49% 24% 18%

Imports US$: 563 million Spices & Condiments Imports US$ 95 million

Myanmar Canada Australia Indonesia Sri Lanka Nepal USA Afghanistan Iran Australia U.K. Belgium

41% 21% 8% 25% 16% 15% 73% 12% 12% 17% 8% 7%

Low prices

Local production is significant; competitive in some categories (D) India is a major producer (D)

Low prices, freight advantage

Imports: US$: 68 million

Low price, high quality

Domestic production insignificant (A)

Low price

Dairy Products
Imports: US$: 29 million Food ingredients Imports: US$: 14 million Cocoa & products Imports: US$: 13 million Fish & fish products Imports: US$: $11 million

High production, seasonal shortages (A)

Fruit juices

Imports: US$: 8 million Data relates to IFY 2003/04 (Apr-Mar) Source: Ministry of Commerce, GOI

USA Brazil Nepal Malaysia Singapore Indonesia Bangladesh Myanmar USA Nepal Brazil Philippines

52% 8% 4% 30% 17% 15% 48% 9% 9% 42% 12% 5%

Quality, reliability

Large domestic production (D) Domestic production is small (A) Large exporter of shrimp (D) Poor quality (A)

Low price

Border trade

Border trade

2.6 Best product prospects Expected Avg. Annual Import

Product Category

Imports 2003/04 $ Million 1/ 13.0

Import Tariff Rate 52.2%

Key Constraints

Market Attractiveness for FVG Import liberalization and consumer preference for imported products High seasonal demand; increasing use; health consciousness Increasing health awareness among middle class and shortage of quality products locally Increasing popularity; growing foodprocessing and fast food sectors

10% Competition from other suppliers and domestic suppliers Competition from Iran and Afghanistan

Cocoa & products

Almonds Pistachios Prunes Fruit juices

68.0 29.0 0.1 8.0

5% 5% 10% 10%

Rs.35/kg 30.6% 25.5% 30.6%

Competition from nearby suppliers and domestic production

14.0 Miscellaneous 10% food ingredients (yeasts, sauces , mixed condiments and seasonings, soft drink concentrates, flavoring materials, etc.) 1/ Source: Ministry of Commerce, GOI


Competition from domestic suppliers

PART 3 COMMONEST MISTAKES IN EXPORT TO INDIA 3.1 FACTORS FOR SUCCESS IN INDIAN MARKET • • • • • • • Marketing Education Visibility Events & Promotions. Work with Key organizations. Exposure to your facilities Right Partner: Work with National players. Youth appeal is important in a country where more than 50 million population is below the age of 25.

Mistakes occur at different stages while doing export business with the Indian importers. We found that unsuccessful companies committed mistakes in the four key steps and were negatively influenced by three important factors, as given below: Steps Planning and Preparation Entering the Market Developing and Sustaining the Business Thinking about the Future 3.1.1 Planning and Preparation Stage Entering the Indian market requires a substantial amount of preparation and patience, and takes a considerable period of time to accomplish. Time and other resources need to be invested in developing knowledge of the institutional environment. Generating credibility in the market before entry is also beneficial. Tenders and competitive contracts require considerable background work, not only with regard to the content of the tender request, but also on building relationships with key decision-makers and people to understand the tender process. Finding a partner who has knowledge of the local market and procedural issues is a must for successful business development. For Italian business men, ideally, the Indian partner should be conversant with the language and customs of Italy. Appropriate and sufficient infrastructure must be in place in India to support the business. In many cases, it is necessary to wait until the infrastructure has been developed, or else invest in developing local infrastructure to a level sufficient enough to accommodate the products or services being offered. Success in India may take longer to achieve than in other international markets. It requires a lot of preparation and investment before gains are realised, and there is relatively a high level of risk. Influencing Factors Attributes Representation Connections

3.1.2 Entering the Market Decision-making in India is slow, particularly with the public and government sectors, and it is important to assess the amount of time that obtaining an initial order is likely to take. Decision-making blockages are sometimes overcome by drawing on the influence of network links of Italian companies in India. Some times companies have failed to understand the implications of licensing and tariffs only to make a retreat. However, some of these companies made a re-entry when restrictions on import licenses were partly or fully waived. The importance of having other critical factors, such as initial relationships with customers, solutions to bureaucratic barriers, and a period of time becoming familiar with the Indian market, cannot be undermined. 3.1.3 Developing and Sustaining the Business in India Pricing is the key to gaining orders, and there is little doubt that Indian customers will negotiate prices aggressively. Local labour is necessary for a number of Italian companies wanting to do business in India, for tasks such as assembly, installation, and implementation. The companies generally have to rely on their agents or distributors to assist with hiring and managing local labour, in particula r, with monitoring performance and dealing with local labour laws. Government involvement is considered to be both a help and a hindrance to doing business in India. State- and nationally-funded projects have led to business opportunities for many of Italian companies. 3.1.4 Thinking about the Future Although the opportunities for future growth in India are well recognised by global companies, not all of them anticipate this market becoming a substantial part of their business, at least in the near future. At this stage, it is still considered relatively high risk and uncertain, with considerable change needed in the country to encourage further investment. 3.1.5 Attributes Establishing credibility and reputation may involve a substantial initial investment of time and money, often before any payback is realised. Credibility and a strong reputation are achieved by the companies in a number of ways: building links with large Indian corporation or government customer (for example, one company has endorsement from one of the largest banks in India); using the links of a credible or reputable agent (or distributor/partner) or opinion-leader; leveraging from an international reputation (e.g. with world funding agencies); becoming part of a wide professional network that provides legitimacy in the market; drawing on links with international partners that conduct business in India; and leveraging from customers’ experiences with the product or service in Italy– such as professionals returning to India. 3.1.6 Representation Getting the right agent for a company is critical to success. A key attribute of successful agents or distributors is their connectedness with political representatives and officials, as well as with potential customers and decision-makers. Agents’ are also instrumental in sourcing skilled labour.

Power and size symmetry between company and agent can help engender trust. Strengthening links with agents is best done gradually. 3.1.7 Connections Being linked to a local network is critical for success in the Indian market. An Italian company’s access networks through their agents, distributors or partners, and, over time, build relationships and become part of the local network involved in their business. The networks include a range of stakeholders, but of primary importance are the decision makers (often policy officials) and customers. Frequent visits to India are critical, in order to build relationships, and stay informed about the business and customers in India. The frequency of visits for the New Zealand company managers varies, ranging from 2 to 8 times per year, depending on the particular needs at the time. At critical times during a tender process, for example, an Italian manager may need to make numerous visits over a short period of time. Working with large companies provides substantial opportunities for Italian companies. These arise from a range of factors: the reputation of the large company, the opportunity to tap into their business networks, including customers, and access to markets, and technical and political knowledge. In many cases, large corporations have influence at government level, and are able to lobby for industry-based regulatory changes, access tender information, or negotiate with key decision-makers. 3.1.8 Survey feedback Survey was conducted among a few members of Indo Italian Chamber of Commerce taking a few industries and units and they are summarised below. Generally for matured Italian companies exporting goods/services Indian companies do not have much issues as far compliance with custom procedures are concerned New companies sometimes do not comply with export regulations (in terms of adequate documents). They should get professional support if required Price quoted is high and that spoils the market opportunities sometimes Even free replacement is there in the contract clause but some principals charge the courier cost and applicable duties on the parts to be supplied which causes enough dissatisfaction amongst Indian customers

PART 4 COMMUNICATION AND PROMOTION The government of India has banned any directly print or display (television etc) advertisement or promotion of alcohol. Hence, the companies should focus on promoting the brand without actually showing the alcohol. There are various advertisement agencies in India which could guide the companies with the same. According to the Advertising and Marketing (A&M) magazine, a leading trade journal, advertising is a US$3 billion industry in India today. The Indian industry grew 11.5% in 2004-05. Media accessibility has increased exponentially, competition is unlimited, budgets are large and expectations of advertising are high. Practically every aspect of media is available for advertising, from print to outdoor advertising to satellite channels to movie theatres. Italian companies have a choice of many advertising and trade promotion channels in India. The print media, almost completely controlled by the private secto r, is well developed and advertising and promotional opportunities are available in a large number of newspapers including daily, weekly or monthly business publications, news magazines and industry-specific magazines. •The Times of India and the Hindustan Times are the largest selling English-language newspapers, with a readership base across India. •Leading business newspapers include the Business Standard and the Economic Times. •Leading magazines include India Today, Business India, Business Today, Business World and the Outlook. Advertising opportunities are also available on satellite and cable television channels. Doordarshan, the government-owned television network, can reach almost 90% of the population. In addition, more than 80 satellite and cable television channels, including many U.S. and international channels such as STAR TV, CNN, NBC, Discovery, National Geographic and BBC, are available for advertising. Satellite TV has grown explosively from 134m viewers in an average week in 2002 to as many as 190m viewers in 2005. Another advertising media is the radio, by which the government-owned All India Radio (AIR) reaches over 90% of the population. Private radio channels are restricted to the FM music channels and are currently available only in a few cities. Radio improved its performance in urban India (23% listen to the medium, up from 20% three years ago) mainly due to FM. Another widely accessed medium is the Internet. Today, net access is estimated by over 20m people. Internet advertising is expected to grow exponentially over the next several years. All the above media are available in English, Hindi, and a variety of regional languages. Italian companies interested in advertising in any of the above media can work through the many advertising agencies in India. Many large and reputable U.S. and other international advertising agencies are present in India in collaboration with local advertising agencies. The advertising sector in India is technologically advanced. In addition to advertising, established public relation firms are also available to Italian companies that require such services. In public relations too, a few Italian and other international companies are present in collaboration with local partners. In India, advertising is no different from other businesses - local advertising companies that need to have access to the best global technologies and practices in their industry have global collaborations. Mumbai remains the centre of the advertising industry in India.

Italian companies can select from a number of quality international trade fairs, both industry-specific and horizontal, to display and promote their products and services. Communication and Promotion – Wine Trade Shows •Through trade shows exporters can create awareness among the end-user clients. •Costs Involved : Average costs borne by foreign exhibitor Cost Head Type of stall Logistics (personnel and exhibited items) Power Connection Compressor Service Tax Total costs excluding logistics Source: Cygnus Research Cost Two Side Open: 15 % Extra, Three Side Open: 25 % Extra Variable US$450 per KVA US$450 per Connection 12.24% Two Side Open: US$1162 Three Side Open: US$1263

4.1 Advertising and Sales Promotion Advertising and trade promotion are highly developed in India, and most major International advertising firms choose local partners, as they know India and Indians well. In addition to government-controlled television in various regional languages, there are several popular national, international, and regional privately-owned channels. Most urban households have televisions, and they are increasingly present in rural areas. India also has a diverse and growing number of newspapers and glossy magazines appealing to various social, cultural, and gender groups. According to the National Readership Survey 20053, the reach of the press medium (dailies and magazines combined) has increased to 300 million people from 179 million three years ago. Satellite television has grown explosively to reach 190 million people, whereas radio’s reach has stagnated at 23 percent of the population. The internet now reaches more than 10 million people, with 34 percent of users surfing from home and 32 percent from cyber cafés. Among the fast growing tribe of mobile phone owners, 14 percent access value-added features like downloads, news, SMS, etc. Delhi’s Annual Food Exposition AAHAR, and smaller food shows in Delhi and other cities (IFE India, Agro Tech, Am Fest) provide opportunities for US exporters to showcase their food products to potential clients. 4.2 Business Etiquette Although Hindi is India’s leading national language, almost all Indian officials and business people have an excellent command of English. Most Indian businessmen have traveled abroad and are familiar with Western culture. Indians appreciate punctuality, but don’t always practice it themselves. Keep your schedule flexible enough for last minute rescheduling of meetings. Business is not conducted during the numerous religious holidays that are observed throughout the many regions and states of India. Verify this information with your Consulate or Embassy before scheduling a visit. Indian executives prefer late morning or afternoon appointments between 11:00 a.m. and 4:00 p.m.


National Readership Studies Council –

Indians are famous for having longer-than-scheduled meetings, so be sure to leave plenty of time between appointments. The climate in India can be very hot, so it is advisable to wear lightweight clothing to avoid discomfort. Men should wear a jacket and tie (and women should wear corresponding attire) when making official calls or attending formal occasions. Always present a business card when introducing yourself. Refer to business contacts by their surname, rather than by their given name. Use courtesy titles such as “Mr.”, “Mrs.”, or “Miss.” Talking about your family and friends is an important part of establishing a relationship with those involved in the business process. Hospitality is a key part of doing business in India; most business discussions will not even begin until “chai” (tea), coffee, or a soft drink is served and there has been some preliminary “small talk.” To refuse any beverage outright will likely be perceived as an insult. While an exchange of gifts is not necessary, most businessmen appreciate token momentos, particularly if they reflect the subject under discussion. Business lunches are preferred to dinners. Try to avoid business breakfasts, especially in Mumbai. The best time of year to visit India is between October and March, so that the seasons of extreme heat and rains can be avoided. Although Delhi (the capital) has a cool, pleasant winter (November February), summers (April –June) are fierce with temperatures of up to 120 degrees Fahrenheit. Mumbai (the business hub) and most other major cities have a subtropical climate – hot and humid year around. Most Indian cities have good hotels and are well connected by domestic airlines. The following websites were found to be informative and user-friendly in providing information on Indian business culture and business etiquettes.

PART 5 PENETRATION IN THE MARKET 5.1 Entry strategy It is essential to survey existing and potential markets in India for products before initiating export sales. The Indo-Italian Chamber of Commerce India, Mumbai and market research firms in India can assist new exporters. If the FVG companies do have products of promising sales potential in India, they can either set up a base in India or appoint distributors or agents. The Indian government encourages foreign investment in the food-processing sector. Hundred percent equity participation or joint ventures with Indian companies are possible. Tax benefits and incentives are available to companies setting up operations in Special Economic Zones (SEZ). For FVG food ingredient suppliers, direct interaction, such as visits, with large Indian food companies would help create awareness about new products and their uses in the Indian context. However, as the majority of Indian food-processing units are small-and-medium sized, it would be difficult for FVG companies to reach their intended audience directly. In such cases, appointing agents and distributors is the best alternative. Consider the following before selecting an agent or distributor: o Determine through surveys who their potential customers are, and where in India these customers are located. Recognize that agents with fewer principals and smaller set-ups often are more adaptable and committed than those with large infrastructure and big reputations. There may be a conflict of interest where the potential agent handles similar product lines, as many agents do. FVG firms should examine all distributor prospects, and thoroughly research the more promising ones. Check the potential agent’s reputation through local industry/trade associations, potential clients, bankers, and other foreign companies/missions.




Aspiring FVG suppliers should also be aware of India’s varied and dated food sector laws, particularly those pertaining to the use of additives and colors, labeling requirements, packaging, weights and measures, shelf-life, and sanitary and phytosanitary regulations. Refer to the GOI’s Department of Health website relating to the Prevention of Food Adulteration Act and Rules at The GOI is planning to enact a new Food Safety and Standards Act, which is intended to be comprehensive, and which aims to meet the dynamic requirements of international trade and the Indian food industry. This is a move in the right direction if formulated according to international standards and practices, and should help attract investment in the food-processing secto r.

5.2 Market structure FVG food ingredient suppliers can access the Indian market in three ways: (a) supply directly to local food processors; (b) supply through local agents/distributors to local food processors; or (c) start production/distribution centers in India. Some of the leading food ingredient producers like IFF, Danisco, and Doehler have a production base in India. As small players, scattered all over the country, dominate the Indian food-processing industry, appointing agents/distributors would be the best way for FVG exporters to reach them. However, some of the large Indian and multinational companies can be supplied directly. The chart below gives an overview of the usual distribution channel for imported food ingredients (and processed foods) applicable to FVG food suppliers. FVG FOOD SUPPLIERS

Indian Foodprocessing Company

Importer Agent

Distributor Wholesaler

Retail Outlets/Food Services
India’s food-processing industry can be broadly classified into the following categories: • • • • • • • • • Fruits and vegetable based products Dairy products Cooking oils Meat and poultry Fisheries Non-alcoholic beverages Alcoholic beverages Confectionary Grain and grain-based products (milling & baking)

5.3 FORMS OF ENTERPRISE 5.3.1 Companies The principal forms of business organization in India are: Corporations, Partnerships and Sole Proprietorships. Corporations incorporated in India and foreign corporations having a presence in India are regulated by the provisions of the Companies Act 1956, which draws heavily from the Companies Act of the UK. The Registrar of Companies and the Company Law Board (CLB), both working under the Ministry of Company Affairs, have been entrusted with the responsibility of ensuring compliance with the provisions of the Companies Act, 1956. 5.4 Major Types of Corporation

5.4.1 Private Corporations These corporations have restrictions on the right to transfer shares, and can make no offer to the public to subscribe to its shares and debentures, and cannot invite acceptance of deposits from persons other than members, directors or relatives. The maximum number of shareholders is limited to 50. It is required to have a minimum paid-up capital of Rs. 0.1 million ( U.S. $ 2,170). 5.4.2 Public Corporations A public corporation is required to have a minimum paid-up capital of U.S. $ 11,100 ( equivalent of Rs 0.5 million). 5.4.3 Foreign Corporations Foreign Corporations that are incorporated outside India but have a presence in India in the form of liaison offices, project offices, branch offices etc, are also governed by the Companies Act 1956, which contains special provisions for regulating such entities. 5.5 Structures Typically Used by Foreign Investors 5.5.1 Subsidiary Companies Foreign corporations can set up their subsidiary companies in the form of private companies in India. It is treated as a domestic company for tax purposes. In comparison with branch and liaision offices, a subsidiary company provides maximum flexibility for conducting business in India. However, the exit procedure norms for such companies are more cumbersome. Funding could be via equity, debt and internal accruals and no approval is required for repatriation of dividends. Indian transfer pricing regulations apply. 5.5.2 Branch Office Foreign corporations need RBI approval to start a branch in India. A foreign corporation cannot undertake any activity in India not specifically permitted by the RBI and is required to register itself with the Registrar of Companies. A branch office is permitted to export/import goods, render professional or consultancy services, carry out research work in which the parent company is engaged, promote technical or financial collaboration, represent the parent company for buying/selling, render services in IT and software development, render technical support to the products supplied by the parent group, undertake activities of foreign airline/shipping companies and manufacture by a branch located in a Special Economic Zone.

A branch office provides ease of operation and uncomplicated closure but its operations are strictly regulated by foreign exchange control guidelines. 5.5.3 Liaison Office Foreign Corporation are permitted by RBI to open Liaison Offices in India, subject to approval for undertaking liaison activities and acting as a communication channel between the foreign corporations and Indian customers. The Liaison office is permitted to represent the Indian company, promote import/export to India, promote technical and financial collaborations and act as a communication channel with the parent company. 5.5.4 Project Office A foreign corporation which has secured a contract from and Indian company to execute a project in India may establish a project office in India without obtaining prior permission from the RBI. However, the exchange control norms prescribe certain requirements. Like a branch office, a project office is also treated as an extension of the foreign corporation in India and taxed at the rate applicable to foreign corporations. 5.5.5 Joint Ventures: Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners. Joint Venture may entail the following advantages for a foreign investor: Established distribution/ marketing set up of the Indian partner Available financial resources of the Indian partners Established contacts of the Indian partners which help smoothen the process of setting up of operations. 5.5.6 Appointing an Agent or Distributor A company interested in only a distribution arrangement with a suitable Indian company can appoint an Agent or a Distributor. The arrangements with the Agent/Distributor can vary depending upon the product/service. For example, payment terms can be negotiated between the parties. However, one of the major issues relates to sending back products that are not sold. This, under the current system, is not easy. 5.5.7 Third party arrangement for maintenance and servicing of products Some companies that sell high value items often find it useful to appoint an Indian party who would be responsible for service and maintenance of their products sold into India. An example is when IBM decided to move out of India in 1977 rather than dilute their holdings in the Indian company (as was required by the then Indian Government), they tied up with Indian companies to maintain the IBM equipment already installed in the country. Similarly, Omega watches set up operations for servicing of their products in Delhi through a third party. In all these cases, the technical personnel of the company are trained by the parent company to service and maintain their products. One problem that existed in the past in such arrangement was the import of spares. However, it has now become relatively easier.

5.5.8 Franchising Franchising has been operating in India for several decades. One well-known example of this is the Bata shoe Chain, started in the 1960s. New franchise business concepts include as diverse sectors as healthcare, pharmaceuticals, specialised food services, garments and apparel, education, entertainment, fitness and personal grooming clinics and courier services, to name a few. India does not have any specific law on franchising. Franchising is covered within the broad definition of transfer of technology contained in domestic legislations. A legal framework for new franchisers interested in setting up master franchises in India however exists, in terms of brand protection and rules regarding payment of franchise fees. Some of the features of the Indian franchising industry are as follows: • • • • • • • Wide spread sectors (from education to hospitality) Over 40,000 franchisees currently Annual turnover from franchising – approximately $2.2 billion Total investments made by franchisees – approximately $1.1 billion Over 300,000 people directly employed by franchised businesses Variety of hybrid formats in practice Numerous international franchises already existing and rapidly expanding

While franchising has mushroomed in India, the concept has initially functioned mainly on an agent basis. It is still evolving and being refined and will take a couple of years for franchising to become more organised in India. Franchising in India is often perceived as a tool to cover the high cost of real estate that a company interested in retailing would have to bear. As a result, if business projections are not met, franchisees can and sometimes do shift to other franchises. With minor variations, in a typical franchise operation, a company approaches an owner of prime commercial space to provide the real estate, to invest in interiors and inventories to run a franchise business, and to hire staff for the operation. Franchisees prefer to recruit staff directly, but most franchisers insist on training the staff themselves, particularly in educational and computer training academies. Usually, the two parties work out an arrangement by which the franchisee agrees to sell the company’s products on an exclusive basis. Typically, the company’s investment is reduced by about 15% if the same operation is run by a franchisee. Also, the company has no worries about hiring and dealing with staff or worker unions. The franchise agreement is a comprehensive document that specifies everything from the franchise location to the finer details of operating the franchise. There are no standard franchise agreements because every franchiser and every business is different. Many details in the agreement are settled by bargaining, but the normal clauses that should be on the checklist of every franchiser includes use of brand name, protection of intellectual property, conflict of interest, indemnity, business promotion, definition of territory, period of validity, and termination. By the same token, the franchisee will seek to ensure that the agreement maintains his/her intellectual property rights; covers training, consultation and equipment and includes a suitable indemnity clause. Franchise fee payments in hard currency are allowed. A potential franchisee must submit a proposal for a franchise operation to the government ministry that regulates the particular industry sector. Among other details, the proposal must contain the amount of franchise fee that will be paid to the franchiser. The proposal moves from the relevant ministry to the Ministry of Industry and the Foreign Investment Promotion Board. Reserve Bank of India’s approval of the franchise fee is automatic when the Ministry of Industry clears the proposal. There are value or percentage limits on approvals of franchise fees, with franchise involving advanced or high-technology, receiving the highest limits. Royalty payments ranging from 3-8% are allowed in hard currency, in addition to the

franchise fee, although the norm is closer to 5%. The royalty is calculated on total turnover for the year for the franchise operation. 5.5.9 Direct Selling Direct selling is one of the fastest growing industries in India and is an unusually good income generator for entrepreneurs from all walks of life. In addition, direct selling offers consumers a convenient and more informed way to buy, along with money-back guarantees and refund policies. According to the Indian Direct Selling Association, the direct selling industry reported a total turnover of $545m (Rs24bn) during fiscal year 2004-05. In India, direct selling traditionally meant contracting of outside agencies by manufacturers to move surplus or promotional products or small manufacturers resorting to door-to-door selling because of their inability to compete in the retail market. It has also meant deploying direct sales employees to demonstrate products with the objective of making a spot sale. The traditional view of direct selling is changing. One of the first Indian companies to practice direct selling in India was Eureka Forbes, which sells a range of household appliances through direct selling. Though some form of direct selling had been in practice in India, a new wave of interest to sell in the Indian market through the modern concept of direct selling has begun only during the last decade. At present, the direct selling industry employs more than 1.3m people, an increase of 100,000 from 2003-04 to 2004-05. There are about 750,000 active direct sales executives (including men, women and couples working as a team) who buy or sell products at least once every two months. The total number of product offerings increased to 380 with 2,100 variants and product categories ranging from cosmetics to kitchenware, education, home care and natural products. According to industry estimates, there are roughly 20 direct selling companies in India with nation-wide coverage and approximately 100 smaller companies with localised cityspecific presence. Many Indian and multinational companies like Amway, Aero Pharma, Avon, Herbalife, Sunrider, Tupperware, Lotus Learning, Oriflame, AMC Cookware, and Time Life Asia have started operations in India through joint ventures or wholly-owned subsidiaries. Amway, with more than 200,000 distributors spread across 26 cities servicing more than 306 locations, is perhaps the largest direct selling company in India today. Tupperware entered India in 1996 and currently has more than 40,000 dealers in 40 Indian cities. Established retail companies in India have also started direct selling operations, the most prominent being Hindustan Lever Limited of the Unilever group. Since their launch, many direct selling companies have had to rework their strategies with emphasis on the three critical Ps of marketing - product, pricing, and packaging. Once considered as the medium for sales of premium products, direct selling in India today is moving towards lower priced products to meet the demands of the price sensitive Indian consumer. Package sizes are being reduced to bring down the psychological price barrier and make the products sold through the direct selling channel more affordable. Some multinational direct selling companies have also customised products to meet the needs of Indian consumers. Major foreign direct selling companies have also established manufacturing facilities in India. Direct selling companies follow different plans of compensation for their sales force. Some follow the single level plan under which sales people earn commission on sales made by them alone, and do not earn anything on sales made by people they have introduced in the business. They may earn a one-time reward for people they help recruit. There are still some others who also compensate a sales person for the sales made by persons

recruited by the first sales person, and from the sales of the group or network recruited by the first sales person’s personal recruits. 5.6 Forms of business presence in India for a foreign company A foreign company may wish to set up a business presence in India. It can do so by setting up any one of the following: Liaison Office; Branch Office; or Company (either a joint-venture or a subsidiary) Different regulations apply to each of the above three forms. The following summary table highlights key differences between them. Liaison Office (LO) PERMISSIBLE ACTIVITIES Product/Corporate Promotion Business Development Technical Support Purchase/Sales co-ordination on behalf of the overseas parent (e.g. Italian) company Earning Income Buying Products Selling Products Export Import Manufacturing LEGAL, FINANCIAL & TAX ISSUES Opening A Bank Account Recruiting People Owning Premises Income-Tax Rate Applicable On Profit Can It Repatriate Profit YES YES NO N.A. N.A. YES YES YES 41.82% YES YES YES YES 33.66% YES YES YES YES YES YES YES YES YES YES YES YES YES Branch Office (BO) Joint-Venture or Subsidiary Company




Can It Repatriate Capital Minimum Authorised Capital Legally Required Minimum Paid-up Capital Legally Required



YES INR.100,000 for a private limited company INR.500,000 for a public limited company INR.100,000 for both.



Maximum shareholding that a foreign company can have REGULATORY PERMISSIONS/REGISTRATI ONS Permissions/Registrations Required From



100% (Subject to applicable regulations)

Reserve Bank of India

Reserve Bank of India

Registrar of Companies; Reserve Bank of India; Foreign Investment Promotion

5.7 Processed fruits and vegetables: Less than 2 percent of all fruits and vegetables produced in India are processed. The main products, the industry size, and major players are shown in the following table: Products Industry Size (Million Rupees) Organized Unorganized 900 450 1,500 10,000 1,000 4,000 5,000 3,000 0 0 2,000 0 3,000 0 Key players in the organized segment

Jam Pickles Sauce/ketchup Pulp/concentrate Juices/fruit drinks

Squashes 1,000 Ready-to-eat 1,000 vegetables Potato chips 2,500 Cooking paste 300 Total 35,650 Source: Rabobank Analysis

HLL, Marico, Mapro, Malas Priya Foods, Preveen, Desai Brothers, Cavin Kare, GD Foods HLL, Nestle, Heinz, GD Foods, Bector Food Specialties Foods and Inns, BEC, Claen Foods, Jain Irrigation, Usha International Pepsi, Dabur, Parle, Godrej, Mother Dairy HLL, Haldiram, Mapro ITC, MTR, Tasty Bite Pepsi, Haldiram Dabur, HLL

5.8 Dairy Products: About 37 percent of India’s milk production of 86 million tons is processed, 15 percent in the organized sector and 22 percent in the unorganized secto r. A major share of the milk processed in the organized sector (mostly by dairy cooperatives) is in the form of packaged liquid milk. Other processed items include ethnic sweets, milk powder, ghee (melted, clarified butter), butter, cheese, and ice cream. In the unorganized secto r, a major share is processed into milk-based sweets, and a smaller share for making yogurt, butter, and ghee. The main products, the industry size, and major players are shown in the following table: Products Industry Size (Billion Rupees) Organized Unorganized 98.0 0 62.5 6.3 2.0 8.0 5.2 35.0 38.0 255 1,161 455 160 21 0 60 210 0 906 Key Players in the Organized Sector

Packaged milk Ethnic sweets Yogurt Cheese Ice Cream Butter Ghee Milk powder Total

Mother Dairy, Amul, various state cooperatives, Paras Dairy Mother Dairy, Amul, various state cooperatives, Haldiram, Bikanerwala Mother Dairy, Amul, Nestle Amul, Vijaya, Britannia, Dynamaix Dairy HLL, Mother Dairy, Vadilal Amul, Mother Dairy, Vijaya Amul, Vijaya, various state cooperatives, Paras Amul, Nestle

Source: Rabobank Analysis

5.9 Cooking oil: Total annual sales of branded cooking oils in India are estimated at rs. 50 billion ($1.1 billion), and have been growing annually at 7 to 8 percent over the past five years. Branded edible oils account for only 9 percent of the total edible oil market by volume and 17 percent by value. Mustard, sunflower, and peanut oils together account for around 80 percent of branded edible oil consumption. The edible oil companies are focusing their marketing strategy on the emerging healthy eating habits of a growing number of Indian consumers. Branded players attempt to deliver better value for money through innovative packaging. Although there are hundreds of regional/local processors and brands, the national-level players are Godrej, Dhara, Marico, Liberty, and Ruchi. In recent years, a number of multinational companies including Cargill, Adani Wilma r, and Bunge have set up operations in India, either through port-based refineries, trading subsidiaries, or brand acquisitions. 5.10 Meat and poultry: Indian consumers prefer mostly fresh meat from the wet markets. Only a very small share of production is further processed into value added products, mostly for export. Major players include VH Group, Godrej, Sugunas, and Arambagh in the poultry processing secto r, and Allana's, Hind Agro, Al Kabeer in the buffalo meat (“beefalo”) processing secto r. Cow slaughter is prohibited in most states due to religious sentiments. 5.11 Fisheries: As in the case of meat, most fish consumed comes from the wet markets. Processing is mostly for export, and includes conventional block-frozen and individual quick frozen products, minced fish items like sausage, cutlets, pastes, texturized foodstuffs, and dried fish. The frozen products usually undergo primary processing such as cleaning, deveining, descaling, peeling, etc. 5.12 Non-alcoholic beverages: India is the world’s largest tea-producing country with an annual production of around 860,000 tons and is also one of the world’s largest tea exporters. Tea processing includes withering, rolling, fermenting, drying, blending, packing, and branding. Instant tea production is limited. Major players are Tata Tea, HLL, Manjushree Plantations, Jay Shree, Goodricke, Harrison Malayalam, Eveready, and Warren. With an annual production of around 300,000 tons, India is a small but competitive producer of coffee. Traditionally a tea-drinking country, average annual coffee consumption in India is only ten cups per person. The instant coffee segment is entirely branded and packaged, and caters mostly to the export market. Major players are Tata Coffee, HLL, Nestle, Barista, Qwiky’s, Narasu, Leo, and ABCTC. Pepsi and Coca Cola dominate the Indian soft drink industry. 5.13 Alcoholic Beverages: Whisky, mostly low-priced, accounts for about 55 percent of the Indian spirit consumption, followed by rum, brandy, and vodka. Key players are UB, Shaw Wallace, Jagatjit Industries, Mohan Meakins, and International Distilleries. With the recent take-over of Shaw Wallace’s liquor business by the UB Group, the latter has emerged as the world’s second largest liquor producer. Major multinationals operating in India include Diageo, Seagram, and Baccardi Martini. UB, SABMiller, and Mohan Meakins are the major beer-producing companies. The wine market in India is nascent, having emerged as a distinct segment about a decade ago. Chateau Indage is the largest domestic player in wines, followed by Grover Wines and Sula Wines. Key international players who have a presence in India through distribution alliances include E&J Gallo, Hardy’s, Canandaigua, and Fetzer.

5.14 Confectionary: The size of the Indian confectionary market is estimated at rs. 26.0 billion ($600 million). Sugar confectionary accounts for 61 percent of this market, with the balance being chocolates, mints, and gums. The confectionary market has been growing at over 6 percent annually over the last five years. The gum-based confectionary segment has grown even faster at over 10 percent. The confectionary market is highly fragmented with several local players such as Parle’s, Nutrine, and Ravalgaon. Key foreign companies are Nestle, Cadbury’s, Perfetti, Lotte, Wrigley, Candico, and Joyco. 5.15 Milling and baking: 75 percent of India’s wheat production is milled into wheat flour (atta) to make rotis or chapattis (unleavened flat bread), mostly in small chakkis (small wheat grinding mills) in the unorganized secto r. Branded atta is a relatively new segment, developed to provide consumers a more hygienic quality, as compared to chakki atta. Annual production of branded atta is about 1 million tons, and is growing at 7 to 9 percent annually. Major players are ITC, Pillsbury, HLL, Agro Tech Foods, and Shakti Bhog Foods. Bakery products constitute the largest segment of grain-based processed foods. Small and medium unorganized local players, and a limited number of organized units dominate the industry. Major players are Britannia, HLL, ITC, Parle, Priya Gold, and Cremica. The grain-based snack market, comprising extruded snacks and savories, is estimated at around rs. 29 billion ($667 million). Of this, the organized segment contributes only 15 percent of sales. Major players are Pepsi, Haldiram, SM Dyechem, Bikanerwala, etc. Breakfast cereal production in the organized sector is very small, and is mainly confined to corn flakes. Major producers are Kellogg’s and Mohan Meakins. Pepsi is reportedly interested in investing in the breakfast segment over the next five years. 5.16 Distribution Systems Domestic consumer goods are distributed through a multi-level distribution system. With the cost of establishing warehouses nearly prohibitive, clearing and forwarding agents (CFAs) are fast becoming the norm. Typically, the CFAs transport merchandise from the factory or warehouse to “stockists” or distributors. While the CFAs do not take title to the product, they receive 2 to 2.5 percent margins, invoice the stockists, and receive payment on behalf of the manufacturer. The stockists have exclusive geographical territories and a sales force that calls on both the wholesalers and on large retailers in urban areas. They usually offer credit to their customers and receive margins in the range of 3 to 9 percent. The wholesalers provide the final link to those rural and smaller retailers who cannot purchase directly from the distributors. Sales to these retailers are typically in cash only and the wholesalers receive a margin of 2 to 3 percent. Margins for retailers range from 5 to 15 percent, and the total cost of the distribution network represents between 10 and 20 percent of the final retail price. Most imported food products are transshipped through regional hubs such as Dubai and Singapore, due to their liberal trade policies and efficient handling facilities. Major importers are located in Mumbai, Kolkata, Delhi, and Chennai. Although a large share of imported foods enter India through illegal smuggling, normal imports are also increasing. Under-invoicing is a commonly used practice to lessen the burden of import tariffs.

5.17 Finding a Business Partner It is essential to survey existing and potential markets for products before initiating export sales to India. Market research firms in India can assist new exporters. If the aspiring FVG companies have products of promising sales potential in India, they can either set up a base in India or appoint a distributor or an agent. If possible, setting up a base is preferable, because Indians like to see foreign companies investing in their country rather than selling from abroad. FVG companies should avoid the temptation to establish a relationship with an agent/distributor merely because he is the most persistent suitor. Consider the following before selecting an agent/distributor: Determine who their potential customers are, and where in India these customers are located, through surveys. Recognize that agents with fewer principals and smaller set-ups often are more adaptable and committed than those with large infrastructure and big reputations. There may be a conflict of interest where the potential agent handles similar product lines, as many agents do. FVG firms should examine all distributor prospects, and thoroughly research the more promising ones. Check the potential agent’s reputation through local industry/trade associations, potential clients, bankers, and other foreign companies/missions. Franchising is another way of introducing Western products. Companies with franchises in the food sector in India include McDonalds, KFC, Domino’s Pizza, Baskin Robbins, Wimpy’s, TGIF, Ruby Tuesday, and Pizza Hut. Indian companies with strong brand recognition also franchise. Direct marketing, although becoming more popular, is still limited.

PART 6 OBSTACLES 6.1 INTERVIEW WITH MR SUKU SHAH, GOURMET FOODS IMPORTER Suku Shah, the chairman and managing director of Olive Tree Trading Pvt Ltd is one of the leading importers of Italian and Japanese high end food products. Interaction with him gives an in-depth insight in to the status of imported food industry and the market today in India. The imported food industry is undergoing a rapid change in India. Until last decade when packaged food was quite unacceptable, today it’s become a serving at every household. The working Indian woman is changing the way food is cooked, served. Gone are the days when imported food were assumed to be preserved with harmful additives, with the food processing industry advancement and natural preservatives usage in packaged food, the consumption of packaged food is definitely heading towards peak. When asked what the mistakes are made by the Italian companies while entering India, the quick answer from Suku Shah is- the choice of a wrong partner. He believes that the vision, mission and attitudes of the Italian companies and the Indian partner need to match. Most of the times the high end products are placed in a wrong segment and undersold, it’s a mistake by both parties. The Indian counterpart has obviously not understood what segment the Italian brand should be placed in. Another major problem is under voicing. Packaged food is still a protected segment due to which the duties levied on the products are extremely high, about 30-32%. Hence it is not uncommon for under voicing to occur. The Italian companies have to ensure that the product is not under voiced, though it looks like an attractive measure to avoid taxation, it doesn’t work on the long run and eventually the brand suffers in the market. There is a lot of scope for the high end market products. Usually the pricing policy is dependent on the competition, product quality, acceptability of the product, once the product make a footmark in the market, it on the growth phase of the lifecycle. There is a very small retail market for these products; individual shops with right mix of products can be one of the best ways of entering the market. 6.2 INTERVIEW- A PRACTICAL SIDE TO FOOD INDUSTRY IN INDIA WITH MS. SAPNA LAWYER, VICE-PRESIDENT SALES, FORTUNE GOURMENT SPECIALITIES PVT LTD. 1. What are the types of products imported by Fortune Gourmet to India from Italy? A. Cheese- Processed Pork-Porcini-Processed Fish (Expected soon)-Pasta- Extra Virgin Olive Oil-Balsamic Vinegar 2. Could you in brief describe the markets for the following products: - fish and crustaceans;- We will try out processed fish in the next few months. South Asia may be cheaper for non processed fish - milk and cheese products;- We buy extensive quantities of Italian cheese of all types. Italian food is popular in India but duties and other taxes make the cheese expensive and out of reach of many customers. - green groceries;- We donot know this market. - coffee- We do not know this market.

- salami and sausages; - We buy an extensive range from Italy. Again other taxes restrict possible sales - drinks;- We do not know this market. - olive oil;- The market is saturated with lower price oils. We deal in small quantities of very high end products. - honey- We deal in high end products in small quantities. 3. What are the commonest mistakes in exports done by Italian companies? How can those be avoided? A. Judging the size of the market and insisting on minimum quantities may be a problem. Choosing the right partner is the key to success in the Indian market. 4. What kind of banking system, exchange policies and method of payments are used by the Indian importers? A. We offer payment in advance until the supplier can arrange export insurance or is otherwise comfortable to extend credit. 5. Are there in products imported by Fortune Gourmet from the FVG region? A. We do not know the FVG region. We have our suppliers for each class of products and they produce from all over Italy. 6. What are the differences between the Indian and imported products for the category of products in question 2? A. Imported products are more expensive because of freight duty and other taxes. The perceived quantity is higher and the packaging is usually better. Usually there is a advantage in quantity and appeal to offset their higher prices. 7. What kind of risks are involved in this business, eg Country risk, Currency risk, Non collection of goods, Non payment etc? A. Country Risk: Indian foreign exchange position and overall economic strength make country risk almost zero. Currency Risk: Non-existent as suppliers quote in US dollar, euro or in the currency of their own country. Non Collection of goods: Can be avoided by proper selection of importer, advance payment, use of letter of credit and export insurance. 8. What are the means of communication and promotion to be used for establishing the brand in the market and the costs associated with the same? A. We have a very small retail footprint. We do no advertise except in a few trade related journals. Supplying promotions of Italian lifestyle with goods and live cooking demonstrated is our preferred way of establishing brand. 9. What are the pricing policies for the products mentioned in question 2? A. Pricing policy depends on market acceptability, competition and safeguards against currency fluctuations.

6.3 PRECAUTIONS TO BE TAKEN BY ITALIAN EXPORTERS Amongst the precautions to be taken by Italian Exporters to India, according to M r. Ashish Gupta, Representative of BPVN Group in India are the following:With new customers, Italian exporters should always insist on an irrevocable L/C or any other form of a bank guarantee. In cases where the Indian customer is unwilling to open an L/C due to cost issues or lack of limits with his bank, the Italian exporter should insist on cash against documents system ( documents to be delivered against payment by the bank). Documents should always be routed through the Indian Bank with clear disposal instructions In cases of large value transactions involving export of machinery confirmation of Letter of Credit from an Italian Bank should be sought. An opinion report on a new customer from the Bank of the Indian importer should be sought which would give an indication of the company’s dealings ( whether satisfactory or not in their opinion). In case of non-payment, the importers bank in India should be requested to protest the acceptance of the drafts at the earliest. Where the amounts involved are significant, assistance of a law firm with expertise in the field should be sought.

PART 7 PRICE POLICIES 7.1 Pricing structure and policies: Landed cost (FOB + freight + insurance) + Basic duty +Countervailing duty = excise duty (production duty) +Special additional duty +Educational cess (2%) +Clearing and forwarding cost + Octroi (a local government entry tax)= Landed price to importer + Importer margin (% mark up on landed cost)= Selling price to distributor + Sales tax = Price to distributor + Distributor margin (7-10%)= Price to a store +Profit (normally 15-20%)=MRP 7.2 Costing FVG Product Item Sea Freight, Insurance etc/1 CIF Value India Port Landing fees Basic Import Duty CVD (based on 65% of declared MRP) Education Cess Total Customs Duty Education Cess Special Additional Duty Total Import Duty Clearing Charges Landed Cost at Port C & F Charges Inland Transport Landed Cost Inland Importers Margin Invoice Price to Distributor Central Sales Tax Distributor Cost Price Distributor Margin Distributor Sell Price VAT Price to Retailer Retailer margin Arrived MRP Rate 14%

1% 30% 16% 2% 2% 4% 8%

4% 4% 18%



12.50% 25%

7.3 Trade barriers Reforms by India in opening up its economy have greatly improved trade prospects – but major barriers still exist, with tariff rates among the highest in the world. The Indian Government continues to impose relatively high tariffs on imports and maintain non-tariff barriers. Import tariffs on most consumer food products range from 31 per cent to 52 per cent, while sensitive items such as alcoholic beverages continue to attract much higher duties (143-592 per cent). India also has various duties, including safeguard and anti-dumping fees, and non-tariff restrictions such as import bans. To encourage future trade growth, the International Monetary Fund is urging continued tariff reduction and the lowering of administrative barriers. 7.4 Indian customs and excise duties Agrifood imports into India are subject to a range of duties, which include: -Basic customs duty. -Additional duty or countervailing duty (equal to the excise charged on similar domestic products,usually about 16 per cent). -Education Cess (a special two per cent surcharge on all direct and indirect taxes). The basic duty is 30 per cent, but there is a range of food items where it is much higher, including wine, other alcohol, wheat, rice, corn, coffee, tea, vegetable oils and some horticultural products. The Indian Customs tariff, which shows import duties and excise rates on all products, can be found at the India Central Board of Excise and Customs website. The duties have a cumulative effect, with the Education Cess being applied at each step. This means that the basic import duty is applied to the CIF (cost, insurance and freight) value of the product when it arrives at the Indian port, the Education Cess is applied to the value plus duty, the countervailing duty is then applied to the total and finally the Education Cess is applied again. Calculation of countervailing duty on packaged goods can sometimes be complex and open to interpretation. It is based on the maximum retail price minus the abatement notified for similar domestic goods in India. There are several different statistical and trade classification systems used in relation to agrifood and agricultural trade. 7.5 Tariff quotas Tariff quotas are imposed by India on imports of milk powder, maize, crude sunflowerseed and safflower oil, and refined rape, colza, and mustard oil. For example, imports of up to 10,000 tonnes of milk powder may enter annually at an inquota tariff rate of 15 per cent, with an out-of-quota rate of 60 per cent. The rates are the same for maize (other than seeds, HS 1005.90), for which the current tariff quota is 500,000 tonnes.

Quotas for maize are placed at the disposal of the Agricultural and Processed Food Products Export Development Authority (APEDA) and are currently allocated to state trading companies. These include the National Agricultural Cooperative Marketing Federation (NAFED), Minerals and Metals Trading Corporation (MMTC), State Trading Corporation (STC), the Project and Equipment Corporation (PEC), State Cooperative Marketing Federations, and actual users of maize for poultry and cattle feed and starch manufacture. For crude sunflower-seed and safflower oil, the in-quota rates are 50 per cent and out-ofquota 75 per cent, while for refined rape, colza and mustard oil, the in-quota rate is 45 per cent and out-ofquota 85 per cent. 7.6 Taxes and duties Most of the states in India have adopted the value-added tax (VAT) system. The exceptions – the states of Uttar Pradesh and Tamil Nadu and the union territory of Pondicherry – are also expected to implement VAT in time. VAT is under which tax is charged at each stage of sale on the value added to the goods. In practice, the business selling the goods collects tax on the full price, subtracts tax which has been charged along the way, and deposits the balance with the Government treasury. This means that only the value addition in the hands of each business is subject to tax. The VAT rate for most processed food categories such as canned fruits and preserves, is four per cent, while others such as biscuits and confectionary are taxed at 12.5 per cent. The introduction of VAT has meant that all other taxes, including turnover tax, resale tax, surcharge and additional tax, have been abolished. Another tax applicable to the food market is Central Sales Tax at four per cent, which only applies on the sale or purchase of goods interstate. There is a proposal to gradually eliminate this tax. Some State municipal corporations also impose octroi (specific municipal taxes), market cess and entry tax. The State of Karnataka has market cess but not octroi or entry tax. 7.7 Trade samples Commercial samples are exempt from normal leviable customs duty, providing the following conditions are met: The goods are imported as personal baggage by bona fide commercial travelers and business people or imported by post or air. The products are clearly marked as samples with full documentation, and their value does not exceed about A$1400 (or 15 units) over a 12-month period. They are imported into India for securing or executing an export order.


INDIA- ECONOMIC OVERVIEW India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8 per cent annual growth, rising foreign exchange reserves of close to US$ 166 billion, a booming capital market with the popular "Sensex" index topping the majestic 13,000 mark, the Government estimating FDI flow of US$ 12 billion in this fiscal, and a more than 22 per cent surge in exports, it is easy to understand why India is a leading destination for foreign investment. • • The economy has grown by 8.9 per cent for the April-July quarter of ’06-07, the highest first-quarter growth rate since '00-01. The growth rate has been spurred by the manufacturing secto r, which has logged an 11.3 per cent rise in Q1 ’06-07, according to the GDP data released by the Central Statistical Organisation. It was 10.7 per cent in the corresponding period of the last fiscal year. The GDP numbers come just weeks after the monthly IIP growth figures have touched 12.4 per cent. Agriculture, which accounts for nearly a quarter of the GDP, has also grown by a healthy 3.4 per cent, unchanged from the corresponding period of last fiscal. Other propellers of GDP growth for the first quarter this fiscal have been the trade, hotels, transport and communications sector which grew by 9.5 per cent and construction, which grew by 13.2 per cent. In the corresponding period of last fiscal, these sectors grew by 11.7 per cent and 12.4 per cent, respectively. Electricity also grew by 5.4 per cent this first quarter as opposed to 7.4 per cent in the same period last yea r. The overall growth in this sector was fuelled by growth in July and August. The services sector also grew by 10.6 per cent in the first quarter of ’06-07. It was only 9.8 per cent last year in the same period. There has been exceptional growth rate in some specific industries, like commercial vehicles at 36 per cent, telephone connections, by 48.9 per cent and passenger growth in civil aviation by 32.2 per cent.

• •

Some highlights: • • • • India has more billionaires than China. This year there were 15 billionaires in China but last year in India, there were 20 billionaires, according to the Forbes magazine. India has emerged as the world's fastest growing wealth creato r, thanks to a buoyant stock market and higher earnings. A number of Indian companies surpassed last year's net profit in just six months of the current fiscal, reflecting an accelerated growth in corporate earnings. Forty-four per cent of Top 100 Fortune 500 companies are present in India.

With its manufacturing and services sector on a searing growth path, India’s economy may soon touch the coveted 10 per cent growth figure. By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years.

India - a growing economy

A growth rate of above 8% was achieved by the Indian economy during the year 2003-04 and in the advanced estimates for 2004-05, Indian economy has been predicted to grow at a level of 6.9 %. Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record. In fact, the Indian economy has posted an excellent average GDP growth of 6.8% since 1994 ( the period when India's external crisis was brought under control). However, in comparison to many East Asian economies, having growth rates above 7%, the Indian growth experience lags behind. The tenth five year plan aims at achieving a growth rate of 8% for the coming 2-3 years. Though, the growth rate for 2004-05 is less than that of 2003-04, it is still among the high growth rates seen in India since independence. Many factors are behind this robust performance of the Indian economy in 2004-05. High growth rates in Industry & service sector and a benign world economic environment provided a backdrop conducive to the Indian economy. Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices. However, agriculture fell sharply from its 2003-04 level of 9 % to 1.1% in the current year primarily because of a bad monsoon. Thus, there is a paramount need to move Indian agriculture beyond its centuries old dependency on monsoon. This can be achieved by bringing more area under irrigation and by better water management. The main contributors to capital account surplus were the banking capital inflows, foreign institutional investments and other capital inflows. Alike current account, capital account too witnessed decline. The capital account surplus in April-September was also down by around US $ 1.5 million. Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03, driven entirely by the increase in the net foreign exchange assets of the RBI. However, it declined to 6.4% in the current year to January 28, 2005. During the current financial year 200405, broad money stock (M3) (up to December 10, 2004) increased by 7.4 per cent (exclusive of conversion of non-banking entity into banking entity, 7.3 per cent) as compared with the growth rate of 10.3 per cent registered during the corresponding period of the last year.

The downward trend in interest rates continued in 2004-05, with bank rate standing at 6% as on Dec 10, 2004. Banks recovery management improved considerably with gross NPAs declining from Rs 70861 crore in 2001-02 to Rs 68715 in 2002-03. During the current financial year (up to December 10, 2004) incremental gross bank credit increased by 20.5 per cent (exclusive of conversion, 16.6 per cent) as compared with a growth of 5.9 per cent in the same period of the previous yea r. Non-Food credit during the financial year so far, registered a growth of 20.5 per cent (exclusive of conversion, 16.5 per cent) as compared with an increase of 8.4 per cent during the same period of the last year indicated a positive outlook. Equity market return was 85% in 2003-04, second highest in Asia. With continued higher corporate earnings in 2004-05, the sensex crossed 6800 mark in March 2005 but high stock market volatility remained higher in India compared to other Asian countries. The expectation of sensex crossing 7 K mark is not yet realized. Fiscal deficit of states & center was decreasing in early 90s but due to rise in fiscal deficit in recent years, corrective measures have been adopted. The fiscal deficit decreased to 7.9% in 2004-05 from a 9.4% of GDP in 2003-04. According to recent estimates, fiscal deficit in April-October 2004 is 45.2 per cent of BE compared with 56.0 per cent of BE in the corresponding period last year. The Three Sectors of Indian Economy Agriculture More than 58% of country's population depends on agriculture, a sector producing only 22% of GDP. The agriculture and allied sector witnessed a growth of 9.1% in 2003-04, which fell steeply to 1.1% in the current fiscal yea r. Favourable monsoon facilitated an impressive growth rate of 9.6% in 2003-04 on the back of negative growth in the preceding year. However, deficient rainfall from the southwest monsoon is estimated to have caused a significant decline in kharif crops production in the current yea r. While looking at some of the agricultural products, one finds that India is the largest producer of Tea, jute and jute like fibre. India is not only the largest producer but also largest consumer of tea in the world. India accounts for around 14% of the world trade in tea. Indian tea is exported in various forms such as bulk tea, packet tea, tea bags, instant tea etc, to more than 80 countries of the world. Among livestock cattle and buffalo are found maximum in India. Indian total milk production is highest in the world. India has also the privilege of having the 1st rank in total irrigated land in area terms in the world. Among cereals production, India is placed third, having second largest production in wheat and rice and the largest production in pulses. However, the full potential of Indian agriculture as a profitable activity hasn't been realized yet. Agriculture upliftment will not only benefit farmers and a large section of the rural poor, but also will give fillip to overall growth of the economy through the backward and forward linkages of agriculture with the rest of the economy. Priority must be given to livestock's & fisheries, horticulture, organic farming, commercial crops and agro-processing, as these are the potential areas of high growth. Further, rationalization of minimum support price regime and introduction of other risk- mitigation measures, improvements in rural infrastructure are essential for sustaining high agricultural growth. It is conceived that reforms in legislations, strengthening R&D and improvements in post harvest management technologies will give a further boost to Indian agriculture. While acceleration in agriculture growth to 4 - 4.5% is imperative, even with such growth rate; share of agriculture in total GDP is likely to reduce further. Therefore, there is a need to absorb excess agricultural labour in other sectors, notably industry. Rapid growth of agro - processing industry close to the agricultural production centers can bring about this shift without moving people from rural to urban areas. Also, public investment in agriculture needs to be augmented, especially in rural infrastructure, irrigation, and agricultural research & development. Better access to institutional credit for

more farmers, is also high on priority list. The New trade policy gives focus to agriculture and all the hurdles in Indian agriculture will be crossed gradually. Industry Index of industrial production which measures the overall industrial growth rate was 10.1% in October 2004 as compared to 6.2% in October 2003. The double digit in IIP was aided by a robust growth of 11.3% in the manufacturing sector followed by mining and quarrying and electricity generation. But industrial production saw a decline in Dec 2004 when IIP dipped to 8 %. Thus one of the critical challenges facing Indian economic policy consists in devising strategies for sustained industrial growth. Final phase-out of the MFA and India's conformity with the international intellectual property system from Jan 1st Jan 2005, have been two significant developments in the world of commerce & industry. Textile industry is the largest industry in terms of employment economy from the current US $37 billion to $ 85 billion by 2010 creation of 12 million new jobs in the textile sector and modernization & consolidation for creating a globally competitive textile industry. With the phasing out of quota regime under MFA, from Jan 1st 2005, developing countries including India with both textile & clothing capacity may be able to prosper. Automobile sector has demonstrated the inherent strengths of Indian labour and capital. The pharma industry and the IT industry are two sunrise sectors for India. Among the sectors that have experienced the greatest transformation in India, the pharmaceutical is perhaps the most significant. India's WTO involvement during the last decade has encouraged our pharma companies to adopt a strategy of R & D based innovative growth. Indian pharma exports were 14000 crore Rupees & accounts for more than a third of the industry's turnover. Apart from manufacture of drugs, the pharma industry offers huge for outsourcing of clinical research. A vast pool of scientific and technical personnel & recognized expertise in medical treatment & health care are India's strength, India can take advantages of its strength once patent protection is given to the result of the researches. By participating in the international system of intellectual property protection, India unlocks for herself vast opportunities in both exports as well as her potential to become a global hub in the area of R & D based clinical research outsourcing, particularly in the area of bio-technology. The three main sub sectors of industry viz Mining & quarrying, manufacturing, and electricity, gas & water supply recorded growths of 5%, 8.8% and 7.1% respectively. Apart from infrastructure, particularly adequate and reliable power supply at reasonable cost and transportation facilities, there is need for stepped up investment in manufacturing. Industry needs to grow rapidly not only to boost the overall growth rate in the economy but also to generate gainful employment for the existing unemployed, as well as the new entrants. In a diverse range of industrial activities, several Indian firms have succeeded in getting integrated into global production chains and realized rapid growth of exports. This experience suggests that with appropriate scale, investment and technology, rapid industrial growth is indeed possible.

Services Service sector has maintained a steady growth pattern since 96-97, except into a fall in 2000-01. Trade hotels, transport & communications have witnessed the highest growth of level 10.9% in 2004, followed by financial services (With a overall growth rate of (6.4) % and community, social & personal services (5.9)% of all the three sectors, services have been the highest contributor to total GDP growth rate. While in most parts of the developed world, the services sector's share of employment rose faster than its share of output in India there has been a relatively slow growth of jobs in the service secto r. This is primarily because of the rise in labour productivity in services in sectors such as information technology that is dependent on skilled labour. Growth in tourism and tourism - related services such as hotels, holds a large potential for employment generation. IT enabled services, such as Business Process Outsourcing have been growing rapidly in the recent past and will continue to rise. India's large number of English speaking skilled manpower has made India a major exporter of software services and software workers. However, the emergence of somewhat inexplicable protectionist tendencies in some developed countries is a disturbing trend. At the same time it is important that India sees BPO in a larger perspective, than the Internet, as India's share is just $ 3.5 billion in December 2004 compared to the global market of US $ 178 billion. Also India outsourcing companies need to work more closely with their customers. In the complex BPOs, customers would like to have hybrid processes to control value. Indian companies need the right mix of domain expertise and process expertise, further, mere knowledge of English is not sufficient; management skills are also needed. Education for the offshoring industry needs to be given impetus too. The beginning of New Year saw Tsunami, a worst ever disaster, which killed thousands of people in India, Sri Lanka, Indonesia & Thailand. Many of them were international tourists. The disaster was expected to have a negative impact on India's tourism in terms of largescale cancellations of tourists to India but nothing of that sort was seen. In fact, tourist arrivals in India rose 23.5 percent in Dec 2004 and tourist arrivals crossed 3 million mark for the first time in 2004.

PART 8 INFORMATION SOURCES FVG companies interested in exporting to India may contact the following for current information: Indo Italian Chamber of Commerce 502, Bengal Chemicals Compound Veer Savarkar Marg Prabhadevi Mumbai- 400 025 Tel: 0091.22.24368186 Dir Fax: 0091.22.24382716 E-mail: Website: Branch Offices: New Delhi, Bangalore, Chennai, Kolkata & Goa REGULATORY AGENCY CONTACTS A. Prevention of Food Adulteration Act Joint Secretary (PFA) Department of Health Ministry of Health & Family Welfare Nirman Bhawan Maulana Azad Road New Delhi, 110 - 001 Phone: (91-11) 23061195 Fax: (91-11) 23061842 E-mail: Website: B. The Standards Weights and Measures Act Additional Secretary (Weights & Measures) Department of Consumer Affairs Krishi Bhavan New Delhi - 110 001 Phone: (91-11) 23383027 Fax: (91-11) 23386575 E-mail: Website: ind.htm C. Phytosanitary issues Plant Protection Advisor Directorate of Plant Protection, Quarantine, and Storage Ministry of Agriculture N.H. IV Faridabad - 121 001 Haryana Phone: (91-129)2413985 (91-11)23385026 (Delhi Office) Fax: (91-129)2412125 E-mail: Website:

D. Livestock and Products Imports Joint Secretary (Administration) Department of Animal Husbandry & Dairying Ministry of Agriculture Krishi Bhavan New Delhi - 110 001 Phone: (91-11)23387804 Fax: (91-11)23386115 E-mail: Website: E. Ministry of Commerce Director General of Foreign Trade Ministry of Commerce Udyog Bhavan New Delhi - 110 011 Phone: (91-11)23016262 Fax: (91-11)23016225 E-mail: Website: F. Ministry of Food Processing Industry Joint Secretary Ministry of Food Processing Industries Panch Sheel Bhawan August Kranti Marg New Delhi - 110 049 Phone: (91-11)26492475 Fax: (91-11)26493228 E-mail: Website: G. Registry of Trademarks Office of the Controller General Patents, Designs & Trade Marks Old CGO Building 101 M. Karve Road Mumbai - 400 020 Phone: (91-22)22035007 Fax: (91-22)22089995 E-mail:


Central Board of Excise & Customs Chairman Central Board of Excise & Customs Ministry of Finance North Block New Delhi - 110 001 Phone: (91-11)23092849 Fax: (91-11)23093215 E-mail: cbecoff@finance.delhi.nic. in

PART 9 IMPORT LEGISLATION Imports into India are subject to a high, confusing array of duties, which include the following: a "basic" duty, an Additional Duty (AD), also known as “Countervailing Duty (CVD),” and an Education Cess (a special surcharge on all direct and indirect taxes introduced in last year’s Budget on July 8, 2004). The basic duty on most processed food products is 30 percent. Exceptions in the agriculture/food group include “sensitive” items such as wine, liquo r, poultry meat, wheat, rice, corn, coffee, tea, vegetable oils, cigarettes and tobacco, and several dairy products, which attract much higher basic duties. The CVD equals the excise duty on similar products produced domestically (16 percent on most consumer food products), and is levied on the total of the assessed value plus the basic duty. The calculation of the CVD on packaged goods is based on the Maximum Retail Price (MRP), minus the abatement notified for similar domestic goods in India, which makes the calculation more difficult. Total import tariffs on most consumer food products range from 31 percent to 52 percent. For a product attracting a 30 percent basic duty, a 16 percent AD, and the 2 percent EC, the total applied import tariff will not be 48 percent as one might think (30+16+2), but rather 52.2 percent. The import duty calculation is as follows: CVD Rate EC at 2% on 16% Effective CVD rate Basic Import duty Applied CVD Total import duty EC on Import duty Applied import duty = = = = = = = = 16% on total import value 0.32% 16% + 0.32% = 16.32% 30% 16.32% of 130% = 21.216% 30% + 21.216% = 51.216% 2% of 51.216% = 1.02432% 51.216% + 1.02432% = 52.24032%

The following table provides a detailed calculation of the retail pricing of imported food products in India. 9.1 Cost Breakdown of Imported Processed Food Products (Approximate)




CIF Value at Indian Port Basic Import Duty Additional Duty (AD) Education Cess (EC) Total Import Duty Clearing Charges Domestic freight from Mumbai Landed cost Octroi Importer Margin Invoice Price Central Sales Tax 7/ Distributor Cost Price Local sales tax (VAT) Distributor Margin Retailer Cost Price Retailer Margin 25% of retailer cost (20% of MRP) 12.5% of distributor cost 10% of the distributor cost 4% of the Invoice Price 6% in Mumbai 5/; 0% in Delhi 18% on landed cost 6/ 30% of CIF value 16.32% of 65% of MRP 2/ 2% on (Basic + AD) $1.09 $0.33 $0.40 $0.01 $0.74 $0.07 N.A. $0.04

6% of CIF price 3/ 4% of CIF value 4/

$1.89 $0.11 $0.34 $2.35 $0.09 $2.44 $0.31 $0.24 $2.99 $0.75

$1.92 0.00 $0.35 $2.26 $0.09 $2.35 $0.29 $0.24 $2.88 $0.72




Note: Calculations based on an assumed FOB value of $25,000 for a 20 ft container 1/ 2/ 3/ 4/ 5/ 6/ 7/ Varies from 8 to 10% Maximum Retail Price (MRP) of $3.74/unit declared by importer in Mumbai Varies from 5 to 8% Varies from 3 to 5% Varies from 5 to 7% depending on the product Varies from 15 to 20% To be phased out in March 2006

9.2 LIST OF REQUIRED EXPORT CERTIFICATES Title of Certificate Phytosanitary Certificate Attestation required on Certificate Additional declaration per the specific conditions mentioned in the import permit. 1/ Additional declaration per the specific conditions mentioned in the import permit. 2/ Requesting Ministry Ministry of Agriculture

Products Plants and Plant Products

Purpose Prevent introduction of exotic pest and diseases.

Animals and Animal Products

Sanitary Health Certificate

Prevent introduction of exotic pests and diseases, and avoid human health risks due to microbial & chemical contamination.

Ministry of Agriculture

Notes: 1/ For specific conditions applicable for different commodities, please refer to the Plant Quarantine (Regulation of Imports Into India) Order 2003, as amended, at:, and 2/ The specific conditions applicable for different dairy and animal products may not be readily available. However, general procedures for the importation of livestock and related products to India under the Livestock Importation Act, 1898, are available at: 9.3 Processed Food Products India’s current import regulations do not require any specific export certificates from the country of origin for imports of processed food products, including products in consumer packages. However, all processed food and beverages products imported into India should meet requirements under various domestic food laws, such as: o The Prevention of Food Adulteration (PFA) Act, 1954, and PFA Rules of 1955, as amended. o The Standards and Weights and Measures Act, 1976 o Meat Food Products Order, 1992 o Milk and Milk Products Order, 1992 o Fruit Products Order, 1955 Imported food products such as milk powder, condensed milk, and infant food should comply with Indian quality standards ( The domestic food laws/standards apply equally to domestic and imported products. At the port of entry, the food products are sampled and tested by inspectors from the Ministry of Health, and the consignment is cleared only if it meets the requirements of the domestic laws/standards.

9.4 Purpose Of The Export Certificates Historically, India has had a highly restrictive import market for food and agricultural products. Although quantitative import restrictions on most agricultural products were removed effective April 1, 2001, non-tariff barriers, including phytosanitary and sanitary restrictions, were introduced. Imports of plants and plant products are subject to a "Bio-security & SanitaryPhytosanitary Import Permit" issued by the Department of Agriculture and Cooperation, Ministry of Agriculture, per the conditions of the Plant Quarantine (Regulation of Imports into India) Order (PQO) 2003, as amended. The importer applies for an import permit and submits it to the exporter, who in turn acquires the required phytosanitary certificate from the exporting country’s authorities. The relevant authority in the country of export issues the phytosanitary certificate based on the specific conditions as stated on the import permit. Similarly, imports of animals and animal products (including meat and meat products) are subject to a "Sanitary Import Permit" issued by the Department of Animal Husbandry and Dairying, Ministry of Agriculture, per the conditions of Livestock Importation Act, 1898. The relevant authority in the country of export must issue a sanitary certificate based on the specific conditions as stated on the import permit. 9.5 Specific Attestation Required On The Export Certificate The attestation for both of the above-mentioned export certificates should meet all specific conditions stated in the respective import permits. These conditions vary from commodity to commodity, and may change over time. 9.6 Government Certificate Legal Entry Requirements The original export certificates should accompany each individual export consignment of the product at the time of entry into India. The government of India does not accept export declarations by suppliers or manufacturers as proof of compliance. However, in certain cases, the Government of India may allow export certificates containing specific declarations from the import permit by organizations accredited by the government of the exporting country. The government of the exporting country has to apply to the Ministry of Agriculture for this special approval. 9.7 Other Certification Or Accreditation Requirement Certificate of Origin: A certificate of origin issued by the relevant authority of the exporting country’s government, state government, industry association, or manufacturer/supplier should accompany the export consignment of all food and agricultural products, including processed and packaged food. This certificate should mention the order number, container number, port of discharge, buyer’s name, and product description, along a declaration along the following lines: “The undersigned for (relevant organization) declares that the following mentioned goods as consigned above (or below) are the products of the Italy (or any country of origin). We hereby certify goods to be of Italy (or any country) origin.”

General Provisions, according to the ministry of commerce, regarding imports to India is given below: Imports free unless regulated Imports shall be free, except in cases where they are regulated by the provisions of this Policy or any other law for the time being in force. The item wise export and import policy shall be, as specified in ITC(HS) published and notified by Director General of Foreign Trade, as amended from time to time. Compliance with Laws Every exporter or importer shall comply with the provisions of the Foreign Trade (Development and Regulation) Act, 1992, the Rules and Orders made thereunder, the provisions of this Policy and the terms and conditions of any Licence/certificate/permission/Authorisation granted to him, as well as provisions of any other law for the time being in force. All imported goods shall also be subject to domestic Laws, Rules, Orders, Regulations, technical specifications, environmental and safety norms as applicable to domestically produced goods. No import or export of rough diamonds shall be permitted unless the shipment parcel is accompanied by Kimberley Process (KP) Certificate required under the procedure specified by the Gem & Jewellery Export Promotion Council (GJEPC). Interpretation of Policy If any question or doubt arises in respect of the interpretation of any provision contained in this Policy, or regarding the classification of any item in the ITC(HS) or Handbook (Vol.1) or Handbook (Vol.2), or Schedule Of DEPB Rate the said question or doubt shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding. If any question or doubt arises whether a licence/ certificate/ permission has been issued in accordance with this Policy or if any question or doubt arises touching upon the scope and content of such documents, the same shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding. Procedure The Director General of Foreign Trade may, in any case or class of cases, specify the procedure to be followed by an exporter or importer or by any licensing or any other competent authority for the purpose of implementing the provisions of the Act, the Rules and the Orders made thereunder and this Policy. Such procedures shall be included in the Handbook (Vol.1), Handbook (Vol.2), Schedule of DEPB Rate and in ITC(HS) and published by means of a Public Notice. Such procedures may, in like manner, be amended from time to time. The Handbook (Vol.1) is a supplement to the Foreign Trade Policy and contains relevant procedures and other details. The procedure of availing benefits under various schemes of the Policy are given in the Handbook (Vol.1). Exemption from Policy/ Procedure Any request for relaxation of the provisions of this Policy or of any procedure, on the ground that there is genuine hardship to the applicant or that a strict application of the Policy or the procedure is likely to have an adverse impact on trade, may be made to the Director General of Foreign Trade for such relief as may be necessary. The Director General of Foreign Trade may pass such orders or grant such relaxation or relief, as he may deem fit and proper. The Director General of Foreign Trade may, in public interest, exempt any person or class or category of

persons from any provision of this Policy or any procedure and may, while granting such exemption, impose such conditions as he may deem fit. Such request may be considered only after consulting Norms Committee (NC) if the request is in respect of a provision of Chapter-4 (excluding any provision relating to Gem & Jewellery sector) and EPCG Committee if the request is in respect of a provision of Chapter-5 of the Policy/ Procedure. However, any such request in respect of a provision other than Chapter-4, Chapter-5 and Gem & Jewellery sector as given above may be considered only after consulting Policy Relaxation Committee. Principles of Restriction DGFT may, through a notification, adopt and enforce any measure necessary for:i Protection of public morals. ii Protection of human, animal or plant life or health. iii Protection of patents, trademarks and copyrights and the prevention of deceptive practices. iv Prevention of use of prison labour. v Protection of national treasures of artistic, historic or archaeological value. vi Conservation of exhaustible natural resources. vii Protection of trade of fissionable material or material from which they are derived; and viii Prevention of traffic in arms, ammunition and implements of wa r. Restricted Goods Any goods, the export or import of which is restricted under ITC(HS) may be exported or imported only in accordance with a licence/ certificate/ permission or a public notice issued in this behalf. Terms and Conditions of a licence/ Certificate/Permission Every Licence/certificate/permission/Authorisation shall be valid for the period of validity specified in the Licence/ certificate/ permission and shall contain such terms and conditions as may be specified by the licensing authority which may include: (a) The quantity, description and value of the goods; (b) Actual User condition; (c) Export obligation; (d) The value addition to be achieved; and (e) The minimum export price. Authorisation/Licence/Certificate/Permission not a Right No person may claim a licence/certificate/ permission as a right and the Director General of Foreign Trade or the regional authority shall have the power to refuse to grant or renew a Licence/certificate/permission/Authorisation in accordance with the provisions of the Act and the Rules made there under. Penalty If a Licence/certificate/permission/Authorisation holder violates any condition of the Licence/certificate/ permission or fails to fulfill the export obligation, he shall be liable for action in accordance with the Act, the Rules and Orders made there under, the Policy and any other law for the time being in force.

State Trading Any goods, the import or export of which is governed through exclusive or special privileges granted to State Trading Enterprise(s), may be imported or exported by the State Trading Enterprise(s) as specified in the ITC(HS) Book subject to the conditions specified therein. The Director General of Foreign Trade may, however, grant a Licence/certificate/ permission/Authorisation to any other person to import or export any of these goods. In respect of goods the import or export of which is governed through exclusive or special privileges granted to State Trading Enterprise(s), the State Trading Enterprise(s) shall make any such purchases or sales involving imports or exports solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale. These enterprises shall act in a non discriminatory manner and shall afford the enterprises of other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales. Importer-Exporter Code Number No export or import shall be made by any person without an Importer-Exporter Code (IEC) number unless specifically exempted. An Importer-Exporter Code (IEC) number shall be granted on application by the competent authority in accordance with the procedure specified in the Handbook (Vol.1). Actual User Condition Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods, which are importable without any restriction, may be imported by any person. However, if such imports require a licence/ certificate/ permission, the actual user alone may import such goods unless the actual user condition is specifically dispensed with by the licensing authority. Import of samples Import of samples shall be governed by the provisions given in Handbook (Vol.1). Import of Gifts Import of gifts shall be permitted where such goods are otherwise freely importable under this Policy. In other cases, a Customs Clearance Permit (CCP) shall be required from the DGF T. Import on Export basis New or second hand capital goods, equipments, components, parts and accessories, containers meant for packing of goods for exports, jigs, fixtures, dies and moulds may be imported for export without a Licence/certificate/permission/ Authorisation on execution of Legal Undertaking/Bank Guarantee with the Customs Authorities provided that the item is freely exportable without any conditionality/requirement of Licence/ permission as may be required under ITC(HS) Schedule II. Sale on High Seas Sale of goods on high seas for import into India may be made subject to this Policy or any other law for the time being in force.

Clearance of Goods from Customs The goods already imported/shipped/arrived, in advance, but not cleared from Customs may also be cleared against the Licence/ certificate/ permission issued subsequently. Execution of BG/ LUT Wherever any duty free import is allowed or where otherwise specifically stated, the importer shall execute a Legal Undertaking (LUT)/Bank Guarantee (BG)/ Bond with the Customs Authority before clearance of goods through the Customs, in the manner as may be prescribed. In case of indigenous sourcing, the Licence/ certificate/ permission holder shall furnish LUT / BG / Bond to the licensing authority before sourcing the material from the indigenous supplier/nominated agency. Exemption from Bank Guarantee All the exporters who have an export turnover of at least Rupees 5 crore in the current or preceding licencing year and have a good track record of three years of exports will be exempted from furnishing a BG for any of the schemes under this Policy and may furnish a LUT in lieu of BG. Private/ Public Bonded Warehouses for Imports Private/Public bonded warehouses may be set up in the Domestic Tariff Area as per the terms and conditions of notification issued by Department of Revenue. Any person may import goods except prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them in such private/public bonded warehouses. Such goods may be cleared for home consumption in accordance with the provisions of this Policy and against Licence/certificate/ permission, wherever required. Customs duty as applicable shall be paid at the time of clearance of such goods. If such goods are not cleared for home consumption within a period of one year or such extended period as the custom authorities may permit, the importer of such goods shall reexport the goods. Registration -cum- Membership Certificate Any person, applying for (i) a licence/ authorisation/ certificate/ permission to import/ export, [except items listed as restricted items in ITC(HS)] or (ii) any other benefit or concession under this policy shall be required to furnish Registrationcum-Membership Certificate (RCMC) granted by the competent authority in accordance with the procedure specified in the Handbook (Vol.1) unless specifically exempted under the Policy. Import Policy by HS Code Import Policy by HS Code is available at the link given below. (ITC (HS) Based Query on left side of the window) Import Tariff by HS Code Import tariff by HS Code is available at the link given below.

PART 10 BANKING SYSTEM AND EXCHANGE POLICIES 10.1 Reserve Bank of India The Reserve Bank of India (RBI) established in 1935, is the central bank of the country. Its role is four-fold: It regulates and supervises the Indian financial system It formulates, implements and monitors the monetary policy of the country It manages the country’s foreign exchange reserves and prescribes exchange control norms to facilitate external trade and payment It acts as a banker to the Central and State Governments 8.2 Types of Institutions The banking system in India comprises scheduled commercial banks, urban and state cooperative banks, and regional rural banks. Scheduled commercial banks, in turn, can be categorised into public sector banks, private sector banks and foreign banks. Besides banks, another segment of players in the Indian financial system, are non-banking financial companies (NBFcs). 8.2.1 Public Sector Banks This segment comprises 28 banks, including the State Bank of India and its seven subsidiary banks. It is the dominant segment in the banking industry. The central government is its majority shareholder, holding more than 51 per cent equity stake in all the public sector banks, although its shareholding has decreased over the years. 8.2.2 Private Sector Banks This segment comprises 28 banks, including seven new private sector banks and 21 old private sector banks. The new private sector banks are growing rapidly in size and the last couple of years have witnessed some mergers and acquisitions. 8.2.3 Foreign Banks This segment comprises 29 banks, including most of the leading international banks, although their presence is restricted to the metropolitan and large cities. Currently, there are several restrictions on foreign banks with respect to the expansion of branch network, location of new branches and acquisition of shareholding in Indian banks. However, the RBI has recently come out with a road map for deregulation of foreign banks. 8.2.4 Recent Developments All commercial banks are expected to implement Basel II norms with effect from March 31, 2007 From April 2009, RBI proposes to accord full national treatment to wholly-owned subsidiaries of foreign banks.

List of Commercial Banks S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Names of Commercial Banks ABN AMRO Bank N.V. Abu Dhabi Commercial Bank Ltd. American Express Bank Ltd. Arab Bangladesh Bank Limited Allahabad Bank Andhra Bank Antwerp Diamond Bank N.V. Bank Internasional Indonesia Bank of America N.A. Bank of Bahrain & Kuwait BSC Barclays Bank Plc BNP PARIBAS Bank of Ceylon Bharat Overseas Bank Ltd. Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Calyon Bank Citibank N.A. Cho Hung Bank Chinatrust Commercial Bank Ltd. Centurion Bank of Punjab Limited City Union Bank Ltd. Coastal Local Area Bank Ltd. Corporation Bank Catholic Syrian Bank Ltd. Deutsche Bank AG Development Credit Bank Ltd. Dena Bank IndusInd Bank Limited ICICI Bank IDBI Bank Limited Indian Bank Indian Overseas Bank Type of Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Nationalized Bank Nationalized Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Indian Private Bank Nationalized Bank Nationalized Bank Nationalized Bank Nationalized Bank Nationalized Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Indian Private Bank Indian Private Bank Indian Private Bank Nationalized Bank Indian Private Bank Private Foreign Bank Indian Private Bank Nationalized Bank Indian Private Bank Indian Private Bank Indian Private Bank Nationalized Bank Nationalized Bank

37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

Industrial Development Bank of India Other Public Sector-Indian Banks ING Vysya Bank Indian Private Bank

J P Morgan Chase Bank, National Private Foreign Bank Association Krung Thai Bank Public Company Private Foreign Bank Limited Kotak Mahindra Bank Limited Karnataka Bank Karur Vysya Bank Limited. Lord Krishna Bank Ltd. Mashreqbank psc Mizuho Corporate Bank Ltd. Oman International Bank S A O G Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Societe Generale Sonali Bank Standard Chartered Bank State Bank of Mauritius Ltd. Indian Private Bank Indian Private Bank Indian Private Bank Indian Private Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Nationalized Bank Nationalized Bank Nationalized Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank Private Foreign Bank

SBI Commercial and International wholly owned subsidiary of SBI Bank Ltd. State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of India State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore Syndicate Bank The Bank of Nova Scotia The Bank of Tokyo-Mitsubishi, Ltd. SBI Associate Bank SBI Associate Bank SBI Associate Bank SBI Associate Bank SBI Associate Bank SBI Associate Bank SBI Associate Bank SBI Associate Bank Nationalized Bank Private Foreign Bank Private Foreign Bank

The Development Bank of Singapore Private Foreign Bank Ltd. (DBS Bank Ltd.) The Hongkong & Shanghai Banking Private Foreign Bank Corporation Ltd. Tamilnad Mercantile Bank Ltd. The Bank of Rajasthan Limited Indian Private Bank Indian Private Bank

71 72 73 74 75 76 77 78 79 80 81 82 83 84 85

The Dhanalakshmi Bank Limited. The Federal Bank Ltd. The HDFC Bank Ltd. The Jammu & Kashmir Bank Ltd. The Nainital Bank Ltd. The Sangli Bank Ltd. The South Indian Bank Ltd. The Ratnakar Bank Ltd. The Lakshmi Vilas Bank Ltd UCO Bank UTI Bank Ltd. Union Bank of India United Bank Of India Vijaya Bank Yes Bank

Indian Private Bank Indian Private Bank Indian Private Bank Indian Private Bank Indian Private Bank Indian Private Bank Indian Private Bank Scheduled Commercial Bank Indian Private Bank Nationalized Bank Indian Private Bank Nationalized Bank Nationalized Bank Indian Private Bank Indian Private Bank

Financial Institutions 1 2 3 4 5 6 National Bank for Agriculture and Rural Development Export-Import Bank of India National Housing Bank Small Industries Development Bank of India Industrial Investment Bank of India Ltd. North Eastern Development Finance Corporation

10.3 Currency India’s monetary unit is the Indian Rupee (INR/Rs). Only the central government is empowered to legislate on matters relating to currency and coinage and the RBI is the sole authority empowered to issue currency. RBI notes are fully backed by approved security, including bullion, foreign securities, rupee coins and rupee securities of the government. A rupee is divided into 100 paise. As the rupee is not freely convertible into foreign currency, foreign exchange transactions are carried out through entities authorized by the RBI to deal in foreign exchange or foreign securities, i.e. an authorized moneychanger or an offshore banking unit. A person may purchase foreign exchange from an authorized dealer by providing a declaration of the intended use of the foreign exchange. Usage of foreign exchange for purposes other than that declared would lead to contravention of the Foreign Exchange Management Act, 1999 (FEMA).

Forex Control • The Indian currency, the Rupee is convertible on current account transactions as capital account transactions carried out by foreign investors; however Indian firms and individuals remain subject to capital account restrictions. All investments are on repatriation basis. Original investment, profits and dividends can be freely repatriated. Foreign investor can acquire immovable property incidental to or required for their activity. When imported machinery and capital goods require down payments exceeding USD 15,000, a bank guarantee from an international bank covering the advance remittance amount is required from importers. Finance measures such as exchange control management and regulation are under the responsibility of the Reserve Bank of India (RBI) vide 1973 Foreign Exchange Regulation Act (FERA) superseded by the Foreign Exchange Management Act (FEMA) of December 1999.

• • • •

10.4 Foreign Exchange Controls 10.4.1 Current Account Transactions The rupee is fully convertible for trade and current account purposes. Except for certain specified restrictions where RBI approval is necessary, foreign currency may be freely purchased for trade and current account purposes. 10.4.2 Capital Account Transactions Capital account transactions are not permitted unless they are specifically allowed and prescribed conditions are satisfied. Special provisions apply for repatriation of capital, royalties and technical know-how fees, technical service fees, dividends, interest and other remittances. 10.5 Foreign Exchange Management Act • The Reserve Bank of India’s Exchange Control Department, administers Foreign Exchange Management Act, 1999, (FEMA) which has replaced the earlier Act , FERA, with effect from June 1, 2000. The new legislation is for “facilitating external trade” and “promoting the orderly development and maintenance of foreign exchange market in India”. In terms of Section 6(3)(b) of Foreign Exchange Management Act, 1999, Reserve Bank of India regulates transfer or issue of any security by a person resident outside India read with Notification No. FEMA 20/2000-RB dated May 3, 2000.

10.6 General Permission under FEMA 10.6.1 Issue of Rights/ Bonus Shares General permission is available to Indian companies to issue Right/Bonus shares subject to certain conditions. Entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. Such issuing companies would have to seek specific permission from RBI, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai for issue of shares on right basis to erstwhile Overseas Corporate Bodies(OCBs).

10.6.2 Issue of Shares Under Merger/ Amalgamation Where a Scheme of merger or amalgamation of two or more Indian companies has been approved by a court in India, the transferee company may issue shares to the shareholders of the transferor company, resident outside India subject to ensuring that the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the percentage specified in the approval granted by the Central Government or the Reserve Bank. This entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. For this specific permission from RBI is necessary. 10.6.3 Issue of Shares under ESOS Scheme A company may issue shares under this Scheme, to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, directly or through a Trust subject to the condition that the scheme has been drawn in terms of relevant regulations issued by the SEBI; and face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company. 10.6.4 Issue of Shares by Indian Companies under ADR/GDR An Indian corporate can raise foreign currency resources abroad through the issue of ADRs or GDRs. Regulation 4 of Schedule I of FEMA Notification No. 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs and/ or ADRs, subject to the conditions that: • the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government thereunder from time to time. • The Indian company issuing such shares has an approval from the Ministry of Finance, Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance, and • Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations. 10.6.5 Repatriation of Investment Capital and Profits Earned in India • All foreign investments are freely repatriable except for the cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer. Non-residents can sell shares on stock exchange without prior approval of RBI and repatriate through a bank the sale proceeds if they hold the shares on repatriation basis and if they have necessary NOC/tax clearance certificate issued by Income Tax authorities. For sale of shares through private arrangements, Regional offices of RBI grant permission for recognized units of foreign equity in Indian company in terms of guidelines indicated in Regulation 10.B of Notification No. FEMA.20/ 2000 RB dated May ‘2000. The sale price of shares on recognized units is to be 3rd

determined in accordance with the guidelines prescribed under Regulation 10B(2) of the above Notification. • Profits, dividends, etc. (which are remittances classified as current account transactions) can be freely repatriated.

10.6.6 Transfer of Shares/ Debentures In order to make the environment in India more attractive for foreign investors, Government has decided to simplify the procedure by placing the following under the General Permission route ( i.e. RBI route ) instead of existing Government approval route (i.e. FIPB route) for speedy and streamlined investment approvals: • Transfer of shares from resident to non-resident (including transfer of subscribers’ shares to non-residents) other than in financial services sector provided the investment is covered under automatic route, does not attract the provisions of SEBI’s (Substantial Acquisition of Shares and Takeovers)Regulations, 1997, falls within the sectoral cap and also complies with prescribed pricing guidelines. Conversion of ECB/Loan into equity provided the activity of the company is covered under automatic route, the foreign equity after such conversion falls within the sectoral cap and also complies with prescribed pricing guidelines. Cases of increase in foreign equity participation by fresh issue of shares as well as conversion of preference shares into equity capital provided such increase within the sectoral cap in the relevant sectors, are within the automatic route and also complies with prescribed pricing guidelines.

General permission has been granted to non-residents/NRIs for transfer of shares and convertible debentures of an Indian company as under:• A person resident outside India ( Other than NRI and OCB) may transfer by way of sale or gift the shares or convertible debentures to any person resident outside India ( including NRIs); provided transferee has obtained prior permission of SIA/FIPB to acquire the shares if he has a venture or tieup in India through investment in shares or convertible debentures or a technical collaboration or a trade mark agreement or investment in the same field in which the Indian company whose shares are being transferred, is engaged. NRI or OCB may transfer by way of sale or gift the shares or convertible debentures held by him or it to another non-resident Indian; provided transferee has obtained prior permission of Central Government to acquire the shares if he has a venture or tie-up in India in the same field in which the Indian company whose shares are being transferred, is engaged. The person resident outside India may transfer any security to a person resident in India by way of gift. A person resident outside India may sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a registered broker.

PART 11 METHODS OF PAYMENT 11.1 Payment against imports Payment under Letter of Credit is a universally accepted mode of payment. A Letter of Credit is a Signed instrument and an undertaking by the banker of the buyer to pay the seller a certain sum of money on presentation of documents evidencing Shipment of Specified goods subject to Compliance with the stipulated terms and Conditions. 11.2 Letter of Credit vs Bank Gaurantee A letter of credit differs from a bank guarantee. An issuing or confirming bank's obligation is independent of, and unqualified by, the contract of sale under the transaction. A commercial credit is neither a performance bond, nor it is a guarantee of the quantity or quality of the goods shipped. Letters of Credit are Separate Transactions A contract for sale of goods between the seller and the buyer incorporates mode of settlement. Letters of credit by their nature are separate from the sale contract, and banks are not concerned or bound by such sale contracts even if the credits bear reference to them. The credits stipulate documents which have to be tendered for payment and it, therefore, follows that in credits parties deal with documents and not with goods, services or performances to which the documents relate. It is, therefore, in the interest of all the parties concerned that the conditions and terms of credit are complete and precise and bereft of excessive details. Payment under a letter of credit does not depend on the performance obligation on the part of the exporter except those which the credit imposes. Banks accept documents under letters of credit for what those document purport to be on their face. Contract between the buyer and the seller is obligatory between themselves. The seller (beneficiary) cannot take advantage of any contractual terms in between the buyer and the opening bank and between the opening bank and the advising/confirming bank. 11.3 Parties to a Letter of Credit: Following persons are generally parties, to a letter of Credit: 11.3.1 Benificiary : The exporter of goods in whose favour the L/C has been established. Customer/importer : The person we intends to import the goods and instructs bank to established Letter of Credit. 11.3.2 Issuing Bank: The Banker in the importers Country who opened the L/C. Correspondent Bank or Advising Bank: The banker in the exporters country, who is authorised by the issuing bank to advise the beneficiary of the Credit and to effect such payment or to accept and pay such bills of exchange or to negotiate against Stipulated documents and on Compliance of Stipulated terms and condition specified by the importer on the exporter. 11.3.3 Confirming Bank: The banker in the exporters(beneficiary) country, who at the desire of the beneficiary adds confirmation to the letter of Credit so that beneficiary can get payment without recourse from the Confirming bank. The Confirming bank may be correspondent bank itself or some other bank.

11.4 Mode of payment Payments in retirement of bills drawn under L/C as well as bills received from abroad for collection against imports into India, must be received by authorised dealers, irrespective of amount, by debit to the account of the importer with themselves or by means of a crossed cheque drawn by him on his other bankers. Payment for import bills-Where the import bills are drawn in Indian Rupees (INR), an equivalent amount(plus bank charges) is debited to the account of the importer by the authorised dealer and the amount remitted to the foreign seller. In case the bills are drawn in foreign currencies, the INR equivalent is arrived at by applying the appropriate foreign exchange rate. Fixing of Re. Equivalent-In order to bring uniformity in the handling of import bills under L/C authorised dealers have been directed by the RBI to follow the following procedure: Sight import bills received under L/C and conforming to credit terms, may be held in foreign currency for a maximum period of 10 days from the date of receipt of documents by the Bank. An importer may not like to clear or may have certain problems in clearing the imported goods immediately on payment of duty for home consumption. In that case the importer can deposit the goods in a Public or Private Bonded Warehouse, provided he is satisfied with the arrangement. Thus, the importer can avail the facility of deferring payment of duty on imported goods pending their actual clearance.

PART 12 LOCAL JURIDICIAL SYSTEM 12.1 Understanding a country’s food regulations In addition to meeting a country’s sanitary and phytosanitary requirements, food must comply with the local laws and regulations to gain market access. These laws ensure the safety and suitability of food for consumers and, in some countries, also govern food quality and composition standards. Food regulatory requirements may be based on several factors such as whether a country adopts international norms developed by the Codex Alimentarius Commission of the Food and Agriculture Organisation of the United Nations and the World Health Organisation; good agricultural and manufacturing practices; or has its own suite of food regulations. Each country regulates food differently and has its own food regulatory framework. Usually more than one agency is involved (e.g. health and agriculture), they may have centralised or regionally controlled food regulations, and different agencies may be involved in enforcement activities. 12.2 Types of food safety and quality standards that apply in most countries

Food additives and processing aid permissions Maximum residue levels (agricultural and veteniary chemicals) and maximum leves (contaminants) Labelling and Information requirements

Need knowledge of permitted additives in each food category and at what level Does this country have MRL for this chemical? If not, does it adopt CODEX MRLs or have zero tolerance? Eg. Legibility and size of fonts, claims, warning statements, ingredient list, nutrition information Eg Listeria Monocytogenes in ready to eat food Eg Addition of vitamin and minerals Eg. Infant formula, specific product standards Eg. Novel foods, GM foods, irradiated food Eg. HACCP approach mandated Auditing and inspection regimes, sampling requirements

Microbiological limits Nutrition composition requirements Specific compositional requirements Specific pre-market clearance conditions Hygience control systems for food production Enforcement system requirements

Quality requirement for specific food Compositional requirement

Eg Size and shape of fruit Eg Minimum contect of cocoa in chocolate, specified contect of fruit in jam

12.3 Food Laws Food exporters will have to grapple with India’s varied and outdated food sector laws, particularly those pertaining to the use of additives and colors, labeling requirements, packaging, weights and measures, shelf-life, and phytosanitary regulations. Following the removal of quantitative restrictions on imports of food products in 2001, the GOI issued several notifications to make imported food products comply with domestic laws. Some of the major food laws affecting Indian food importers are: • The Prevention of Food Adulteration (PFA) Act, 1954, and PFA Rules of 1955, as amended. This is a basic statute established to protect consumers

against adulterated foods, and it encompasses food colors and preservatives, pesticide residues, packaging, labeling, and regulation of sales. This is similar to the Federal Food, Drug, and Cosmetics Act of the United States’ Food and Drug Administration. PFA standards and regulations apply equally to domestic and imported products. The PFA Act and Rules, and recent notifications are available at: • The Standards of Weights and Measures Act, 1976, and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, as amended. This Act established standards for weights and measures to regulate interstate trade and commerce in goods that are sold or distributed by weight, measure, or number. The Rules formed under the Act require labeling regarding the nature of the commodity, the name and address of the manufacturer, quantity, date of manufacture, best-before date, and the MRP. These labeling requirements apply equally to imported and domestic packaged foods. This Act and Rules and recent notifications are available at: The Plant Quarantine (Regulation of Import into India) Order, 2003, and amendments. These legislative measures regulate imports of planting seeds and agricultural products into India. These can be accessed from: The Fruit Products Order, 1955 The fruit and vegetable processing sector is regulated by the Fruit Products Order, 1955 (FPO), which is administered by the Department of Food Processing Industries. The FPO contains specifications and quality control requirements regarding the production and marketing of processed fruits and vegetables, sweetened aerated water, vinega r, and synthetic syrups. All such processing units are required to obtain a license under the FPO, and periodic inspections are carried out. Processed fruit and vegetable products imported into the country must meet the FPO standards. The FPO can be accessed from: Meat Food Products Order, 1992 This order administers the permissible quantity of heavy metals, preservatives, and insecticide residues for meat products. The Directorate of Marketing and Inspection, Ministry of Agriculture, is the regulatory authority. This order is equally applicable to domestic processors and importers of meat products. However, its implementation is weak, due to unorganized production in the domestic market and few subject imports. For details, see: Livestock Importation Act, 1898 Under the Livestock Importation Act, 1898, the government established procedures for the importation of livestock and related products to India, which are implemented by the Department of Animal Husbandry and Dairying, Ministry of Agriculture. These procedures are available at: Milk and Milk Products Order, 1992 This order regulates the production, distribution, and supply of milk products; establishes sanitary requirements for dairies, machinery, and premises; and sets quality control standards for milk and milk products. Standards specified in the order also apply to imported products. The Department of Animal Husbandry and Dairying, Ministry of Agriculture, is the regulatory authority. For details see:

The Food Safety and Standards Bill, 2005 The GOI is in the process of enacting an integrated food law, which is called the "Food Safety and Standards Bill, 2005," in order to establish science-based standards for articles of food and to regulate their manufacture, import, export, storage, distribution, and sale. The Bill would bring all existing food-related legislation under one umbrella, which would entail the establishment of a Food Safety and Standards Authority of India. It is expected that the Bill will pass through Parliament by the end of 2005 or early 2006. The full text of the Food Safety and Standards Bill, 2005, is available at:

12.4 Food Safety and Standards Act The Indian Parliament has recently passed the Food Safety and Standards Act, 2006 which overrides all other food related laws. When it comes into effect (date yet to be notified) it will specifically repeal eight laws: The Prevention of Food Adulteration Act, 1954 The Fruit Products Order, 1955 The Meat Food Products Order, 1973 The Vegetable Oil Products (Control) Order, 1947 The Edible Oils Packaging (Regulation) Order, 1998 The Solvent Extracted Oil, De oiled Meal, and Edible Flour (Control) Order, 1967 The Milk and Milk Products Order, 1992 Any other order issued under the Essential Commodities Act, 1955 relating to food. The Act establishes a new national regulatory body, the Food Safety and Standards Authority of India, to develop science based standards for food and to regulate and monitor the manufacture, processing, storage, distribution, sale and import of food so as to ensure the availability of safe and wholesome food for human consumption. All food imports will therefore be subject to the provisions of the Act and any rules and regulations made under the Act. As an interim measure, the standards, safety requirements and other provisions of the repealed Acts and Orders and any rules and regulations made under them will continue to be in force until new rules and regulations are put in place under the Food Safety and Standards Act, 2006. For that reason, importers will for some time have to continue to take into account the provisions of those repealed Acts and Orders. 12.5 Food additives Information on permitted colouring, preservatives, flavouring agents etc. can be found in various sections of the Prevention of Food Adulteration Rules, 1955 in the Prevention of Food Adulteration section of the Ministry of Health and Family Welfare website. In 2004 India removed permission for xanthan gum to be used as a food additive (see Rule 13 of the Prevention of Food Adulteration (1st Amendment) Rules 2004. The decision was made despite the fact that the gum is widely authorised for use in food around the world and is included in the General Standards for Food Additives (GSFA) agreed by the Codex Committee on Food Additives and Contaminants. The move created widespread concern among India’s trading partners, including the EU, and in 2005 its use was reinstated as an additive in certain classes of food. DAFF is currently coordinating an approach to the Department of Health and Family Services on behalf of the Australian food industry to broaden the classes of food that can include xanthan gum as an additive.

12.6 Pesticides and other contaminants There are currently 194 pesticides registered in India and the Maximum Residue Limits (MRLs) permissible in food commodities can be found in Part XIV of the Prevention of Food Adulteration rules and at For imported foodstuffs when the pesticides are not included in the Indian list, zero tolerance applies. However, FVG exporters are advised to check with Indian importers regularly. The regulation of pesticides and other contaminants may need further clarification upon implementation of the Food Safety and Standards Act, 2006, since the Act specifically excludes plants prior to harvesting and animal feed from its purview. 12.7 Health claims The Food Safety and Standards Act, 2006 requires that health claims or guarantees of efficacy of a food have to be based on an adequate or scientific justification. Such justification may include clinical trials, protocols or scientific studies and must be able to withstand verification in court if challenged. Manufactured and imported food claiming to be enriched with nutrients, such as minerals, proteins or vitamins, should indicate quantities on the label. 12.8 Genetically modified foods The Food Safety and Standards Act, 2006 prohibits the manufacture, distribution, sale or import of any genetically modified (GM) food, unless specifically allowed under the Act or regulations made thereunder. However, until such specific regulations are made, the Genetic Engineering Approval Committee (GEAC), under the Department of Environment, Forests and Wildlife, remains the decision-making authority on GM food issues, including their import. Therefore, at present, food ingredients and additives containing bioengineered organisms may only be produced, used or imported with the approval of the GEAC, such approval being granted for up to four years in the first instance, and thereafter renewable for 2 years at a time. New rules implemented in July 2006 under the Foreign Trade (Development and Regulation) Act, 1992 require all GM products, including GM foods, food additives, or any food product that contains GM material, to carry a declaration stating that the product is genetically modified. In case a consignment does not carry such a declaration and is later found to contain GM material, the importer is liable for penal action under the Act. 12.9 Halal certification Halal certification for imported foodstuffs is not required by Indian authorities.However, exporters wanting to certify meat and meat products as Halal for export to India for commercial purposes should discuss the matter with the source establishment to ensure arrangements are in place. 12.10 Indian judiciary The Indian judiciary is relatively independent and the legal system is based on English common law. India’s independent judicial system began under the British, and its concepts and procedures resemble those of Anglo Saxon countries. India has a three tier court system. At the apex is the Supreme Court, which has original, appellate and advisory jurisdiction and proceedings arise out of judgments of sub-ordinate courts including the High Courts. The Supreme Court consists of a chief justice and 25 other justices, all appointed by the President of India on the advice of the Prime Minister. The High Court stands at the head

of the state’s judicial administration. Each state is divided into judicial districts presided over by a district and sessions judge, who is the highest judicial authority in a district. Below him, there are courts of civil jurisdiction known in different states as musifs, subjudges, civil judges and the like. Similarly, the criminal judiciary comprises chief judicial magistrates and judicial magistrates, first and second class. The Supreme Court has exclusive original jurisdiction that extends to all disputes between the Union and one or more states or between two or more states. The Constitution gives original jurisdiction to the Supreme Court to enforce Fundamental Rights. Appellate jurisdiction of the Supreme Court can be invoked by a certificate of the High Court concerned or by special leave granted by the Supreme Court in respect of any judgment, decree or final order of a High Court in cases both civil and criminal, involving substantial questions of law as to the interpretation of the Constitution. The President may consult the Supreme Court on any question of fact or law of public importance. High Courts There are 18 High Courts in the country, three having jurisdiction over more than one state. Bombay High Court has jurisdiction over Maharashtra, Goa, Dadra and Nagar Haveli and Daman and Diu. Guwahati High Court, which was earlier known as Assam High Court has jurisdiction over Assam, Manipur, Meghalaya, Nagaland, Tripura, Mizoram and Arunachal Pradesh. Punjab and Haryana High Court has jurisdiction over Punjab, Haryana and Chandigarh. Among the Union Territories, Delhi alone has a High Court of its own. The Chief Justice of a High Court is appointed by the President in consultation with the Chief Justice of India and the Governor of the State. Each High Court has powers of superintendence over all courts within its jurisdiction. Certain High Courts, like those at Bombay, Calcutta and Madras have original and appellate jurisdictions, while most High Courts have only appellate jurisdiction. There is an Advocate General for each state. At the local level, there are district courts which deal with local issues. The right to fair trial and recognition as a person before the law constitutes a low-risk human rights area in India since the Indian legal system complies with international standards and the rights of a person are respected.

The Indian Legal Hierarchy is somewhat of the following nature: • In the Metropolitan Cities on the Civil Side, the first are the Small Cases Courts and above them the City Civil Courts. On the Criminal Side there are the Metropolitan Magistrates' Courts and above them the Sessions Courts. In the Moffusil on the Civil Side, there are the Courts of the Civil Judge, Junior Division, Civil Judge Senior Division, and District Courts. On the Criminal Side there are the Courts of the Judicial Magistrates and Sessions Courts. Then there are the Industrial Courts, Family Courts, Co-operative Courts and various Tribunals. In the Corporate Secto r, there is a Company Law Board constituted by the Central Government under the Provisions of Section 10E of the Companies Act, 1956 which has its Principal Bench in New Delhi and Regional Benches of Single as well as Double Members at New Delhi, Kolkata, Mumbai and Chennai. Above all the aforesaid Lower Level Courts, Tribunals and Boards, there are High Courts in each of the States, and above the High Courts is the Supreme Court of India in New Delhi. India has a written Constitution and codified Central and State law. Its Judiciary is of the highest integrity. The official language is English in the High Courts and in the Supreme Court. The Indian Legislature and Judiciary make constant efforts to bring about improvements in Courts and dispense justice speedily. On the recommendations of the General Assembly of the United Nations to consolidate and amend the law relating to domestic arbitration, international arbitration and enforcement of the foreign arbitral awards a new Arbitration and Conciliation Act has been enacted. To expedite the disposals of cases concerning the transactions related to Banks a special tribunal is being established. To facilitate foreign investment, foreign joint venture and globalization of Indian Trade & Industry, various amendments have been thought of in the existing Companies Act, 1956 and a proposal of enacting a new Take-over Code is under consideration. The Income-Tax Act, 1961, which at present is lengthy and complicated, is thought of being revised and in its place a simple Tax Law is proposed to be enacted. In short there is a general tendency towards improvement in laws and Courts.

PART 13 NAMES OF EVENTUAL PARTNERS Some Leading Importers of Value-Added Food 1. M r. K. P. Ramachandran Purchase Manager Food World 4th Floo r, Spencer Plaza 769 Anna Salai, Chennai - 600 002 (Supermarkets) Phone: 91-44-2852 3611, 2831 0990 (D) Fax: 91-44-28523691 2. M r. C. Gopalkrishnan Director Nilgiri Dairy Farm Ltd 171 Brigade Road Bangalore-560 001 (Supermarkets) Phone: 91-80-5588401/702, 552 7124 Fax: 91-80-5585348, 552 7125 3. M r. M. C. Bhandari/ M r.V.P.Chohani Vice President/ Chairman Vitan Departmental Stores & Industries Ltd 172 A Luz Church Road, Mylapore Chennai - 600 004 (Supermarkets) Phone: 91-44-2499 3850 Fax: 91-44-2466 0912 Email: 4. Mr S. Chandrasekhar Purchase Manager Subhiksha Trading Services (P) Ltd 37-F, Velachery - Tambaram Road Vijay Naga r, Velachery Chennai - 600 042 Phone: 91-44-2243 4518/9 Fax: 91-44-2243 4518/9 5. M r. Kiran Wadhwana Joint Managing Director Akshar Super Market (BSI Ltd.) Plot no. 5, 2nd Floo r, Zone II Maharana Pratap Nagar Bhopal-462 011 (supermarkets) Phone: 91-755-557091, 270 714/715 Fax: 91-755-271152

IMPORTERS / DISTRIBUTORS Mr R. L. Naya r, / Mr G.K. Nayar Managing Director / Director Geekay Sales Corporation C-15 Hari Nagar New Delhi -110 064 (Meat products,confectionery,bakery products,fruit juices) Phone : 91-11-2549 1152, 2540 1928 Fax : 91-11-2540 3638/2641 8212 Cellphone: 98100 02072 Email: Mr. Rahul Rastogi Empire Business Solutions Pvt Ltd., 22-23 Panchsheel Enclave Market, New Delhi - 110 017 (Wines,chocolates,fruit juices) Phone: 91-11-2649 6682 Fax: 91-11-2649 6352 Mr. Raman Grover Soft Sensations S-400 Greater Kailash Part I New Delhi 110 048 (Wines,chocolates,cheeses,juices) Phone : 2648 2829/26214090/2645 1020 Fax : 91-11-2646 3232 Cellphone: 98110 11558 Email : Mr. A. K. Jain (Sethi) Director Sunita Petroleum Ltd. T-9 Green Park Extension New Delhi 110 016 (Bakery,confectionery,juices,wines) Phone : 91-11-2619 8697/8979, 2619 4009 Fax : 91-11-2619 0019 Cellphone: 98100 39999 Email : Mr. Farrokh Pooniwala, Managing Director Armin Enterprise 12 "Gulnar" Ground Floor Opp. Sushma Clinic, Hill Road Bandra (West) Mumbai-400 050 (Frozen foods, frozen vegetables,soups,chocolates, wines) Phone: 91-22-2642 3026/2641 5656 Fax: 91-22- 2641 5656 Cellphone: 98211 58554 Email:

Mr. Satish Bagrodia Chairman and Managing Director Winsome Textile Industries Ltd. SCO 144-145, Sector 34-A Chandigarh - 160 022 (Beverages) Phone: 91-172-603966,603550 Fax: 91-172-603804 E-mail: Mr. Dilip Tawadey Managing Director Fourseasons Group of Companies 215, 217 Somdutt Chamber II 9 Bhikaji Cama Place New Delhi-110 066 (Bakery,confectionery,juices,wines) Phone: 91-11-2619 3247, 2616 3098, 2610 8931 Fax: 91-11-2619 3784 Email: Website: Bonded Stores/Diplomatic Commissaries Mr. Alfred Arambhan & Mrs. Nalini Arambhan/Mr Kali S Mehta Cawasji Behramji & Co. 308, Dorin Nariman Street, Fort, Mumbai 400 001 (Bonded Stores supplies to ships/diplomats) Phone: 91-22-2218 7307, 2218 3152/2059 Fax 91-22 -2218 2991 Email: Mr. Homrez Mehta Siganporia Bros. 4/5/6, New Scale Building, Inside M.O. Phule Market, P.O.Box No. 324, Mumbai - 400 001 (Bonded Stores) Phone: 91-22-2344 2718 /234 45819/2343 9907 Fax 91-22-2343 4719 Email: Mr. Ashok Garg - Chairman R.R. Interntional Kapadia Chambers Basement 51, Devji Ratansey Marg Dana Bunder, Mumbai - 400 009 (Bonded stores) Phone: 91-22-2374 5020 Fax: 91-22-2373 8555 Email: Mr Paras Bhatia K. T. Bond Stores Abhay Steel House, Basement No.1, Baroda Street, Dana Bunder, Masjid (E)

Mumbai 400 009. (Bonded Stores) Phone: 91-22-2374 6555 Fax: 91-22-2374 4989 Email: Mr. B. Bhomisha H. B. Irani (Bond) 579 Inside M. J. Phule Market Mumbai-400 001 (Bonded Stores) Phone: 91-22-2340 1609 Fax: 91-22-2342 7963 Email: Mr. Roop Madan Director Diplomat Stores C-1 Shopping Centre Vasant Vihar , New Delhi-110 057 (Bonded Stores) Phone: 91-11-2615 1116/7/8/9 Fax: 91-11-2614 1136 Email: Email: Mr. K. S. Mudder Chief Executive Precision Enterprises C-8/8177 Vasant Kunj New Delhi-110 070 (Bonded stores) Phone: 91-11-2613 2434, 2612 5424 Fax: 91-11-2613 2375 Email: Mr. Rajiv Singhal Managing Director Rama & Company 5205-6 Basant Road New Delhi-110 055 (Bonded stores) Phone: 91-11-2362 5819/2354 5898 Fax: 91-11-2355 4505 Email: Mr Mukul Mehra/Mr S.K. Wadhera President Global Tax Free Traders Inc 87 Sainik Farms, Cental Aenue Khanpur, New Delhi - 110 062 (Bonded stores, liquors etc) Phone: 91-11-2332 5031/1115 Fax: 91-11-2332 0750 Mr.R.B.Marwah/Mr Suraj P. Marwah

Continental Sales Emporium 12 A.B. Community Centre, Safdarjung Enclave, New Delhi - 110 062 (Bonded stores) Phone: 91-11-2610 7955/7356 Fax: 91-11-2617 7718 Email: Mr. Sunil Khanna/M r.Gautam Khanna Embassy Stores S-28 Okhla Phase II New Delhi - 110 020 (Bonded stores) Phone: 91-11-2683 8189, 2684 7688 Fax: 91-11-2684 2120 Email: Mr. Vipin Khanna, Proprietor Ideal Stores C-8/1 Basement, Vasant Vihar New Delhi - 110 057 (Bonded Stores - liquors,cigarettes,foodstuffs) Phone: 91-11-2614 3795/3951,2615 2224 Fax: 91-11-2614 7150 Email: Mr Chetan Seth, Managing Director Raas Intratech (P) Ltd 1, Basant Lok, Vasant Vihar New Delhi - 110 057 (Bonded stores) Phone: 91-11-2614 7113 Fax:91-11-2614 7917 Email: Mr.Anish Bindra Director S.N.Sahni & Company C-56, New Azadpur Subzi Mandi New Delhi - 110 033 (Bonded stores) Phone: 91-11-2742 8020 Fax: 91-11-2741 2360 E-mail: Mr. R. C. Gupta Vice President Ashok International Trade Division ITDC Scope Complex, 7 Lodi Road New Delhi - 110 003 Phone: 91-11-2436 1772/0303 Fax: 91-11-2436 4856 Email:

M/s J.P. Engineers c/o Global Shipping Services (M r.P. Sreedhar) 194 Tambu Chetty Street, Chennai-600 020 (Bonded stores) Phone: 91-44-2524 2389, 2523 0853 Fax:91-44-2524 2389 Mr. Ray Chaudhuri - Mg. Partner M/s Victory Ship Store International 111 Coral Merchant Street, (Mannady) Chennai - 600 001 (Bonded stores) Phone: 91-44-2522 1333, 2527 2230 Fax: 91-44-2522 4933 Email: Mr R. K. Parsan Paras Brothers 18-B, Sukea Lane Calcutta 700 001 (Bonded stores) Phone: 91-33-242 3870/4657 Cellphone: 98310 63489 Fax: 91-33-242 8621 Email: Dipak K. Mookerjee Director K.T. Bond Pvt. Ltd. 1, Satya Doctor Road Khidderpore, Kolkatta - 700 023 (Bonded stores) Tel: 91-33-459 4659 Fax: 91-33-459 5244 E-mail: Mr. Lalit Asrani Partner Roda Foods 62 HJ Colony , Sawan Park Ashok Viha r, Phase III Delhi India 110 052 (Bonded stores) Phone : 91-11-2714 4148 Fax : 91-11-2741 3339 EMail : Luxury Hotels Mr. Girish Shenai Materials Manager Oberoi Hotels Nariman Point Mumbai - 400 021 Phone : 91- 22- 2282 9632, 2232 6130, 2232 5757 Fax : 91-22-2284 3366/2204 3282 Email:

Mr. Yogender Singh Guleria Materials Manager The Taj Mahal Hotel Apollo Bunder Mumbai - 400 001 Phone : 91-22-2202 3366 Fax : 91-22-2283 7647 Email: Mr. J.D.F. Lam Vice President Central Purchase Taj Group of Hotels Apollo Bunder Bombay-400 039 Phone: 91-22-2267 1616 Fax: 91-22-2269 0642 Email: Mr. M.D. Kapoo r, Director Commercial & Marketing Indian Tourism Development Corp. Ltd. 6th Floo r, Scope Building, Core 8 7 Lodi Road New Delhi-110 003 Phone: 91-11-2436 0343 Fax: 91-11-2436 0345 Mr.N.K. Kapoor Corporate Director (Materials) E I H Ltd. 7 Sham Nath Marg Delhi-110 054 Phone: 91-11-2389 0505 Fax: 91-11-2389 0549 Email: Mr. Amit Oberoi Director - Food & Beverages The Imperial New Delhi Janpath New Delhi - 110 001 Phone: 91-11-2334 1234/5678 Fax: 91-11-2334 2255 Email: Mr. R.R. Narasimhan Manager (Purchase) and Mr. Sunil Wadhwaney Manager (Imports) Central Purchase Department Welcomegroup Headquarters 25 Community Centre, Basant Lok, Vasant Vihar New Delhi-110 021

Phone: 91-11-2614 4886/3873 Fax: 91-11-2614 5372/6452 Email: Mr. Narotam Sharma Manager (Materials) Hotel Hyatt Regency Bhikaji Cama Place Ring Road New Delhi-110 066 Phone: 91-11-2679 1234 Fax : 91-11-2679 1025 Email: Mr.A.K. Tiwari Director (Purchase) Hotel Intercontinental Barakhamba Avenue, Connaught Place New Delhi - 110 001 Phone: 91-11-2341 1001 Fax: 91-11-2370 9123 Email: Vinay Gidwani D.V.IMPORTS - I.F.C. INTERNATIONAL PHONE# 91-9811009377 Associations & Government Bodies Food Corporation of India All India Food Processors Association

PART 14 ANALYSIS OF DIFFERENT RISKS Table below represents risk assessments of selected aspects of the Indian economy. Of particular interest to Canadian exporters is the "Foreign Trade and Payments" risk score of 54 out of 100, where 100 is the highest level of risk. Risk Score Overall assessment. 54 Political stability. 40 Legal & regulatory. 60 Macroeconomic. 25 Foreign trade & payments. 54 Source: Economist Intelligence Unit, View Wire. Note: 100 = Most risky.

14.1 Internal Political/Economic Events Increasing economic disparities among regions are emerging as a political risk capable of provoking serious socio-political tensions that could lead to localized violence from time to time. The states likely to be advancing economically are: Gujarat, Haryana, Kerala, Maharashtra, Punjab and Tamil Nadu. Those likely to be lagging economically are: Assam, Biha r, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh. Although this is essentially an internal situation it can, at times, interrupt the flow of imports and negatively affect the solvency of Indian importers. 14. 2 External Political/Economic Events India has major disputes with Pakistan and China. India disputes Pakistan's claim to Kashmir and questions its claim to have stopped sponsoring terrorism in Kashmir. Relations with China are strained by its claim to Arunachal Pradesh and a portion of land adjacent to Jammu and Kashmir. Any outbreak of hostilities between India and its neighbours could disrupt trade and negatively affect the solvency of some importers. India could benefit greatly from free trade. However, there are wide gaps in the positions of major world traders on some important issues. If the talks should collapse with no progress, the concept of free trade will be in jeopardy and the gains India may make will be at risk. On the other hand the possibility of failure may spur participants to make major concessions and increase the convergence of positions. 14.3 Handling Risks of International Trade Some risks are normally covered by commercial cargo insurance in accordance with minimum cover of the Institute Cargo Clauses (Institute of London Underwriters) or some similar clause. This insurance normally covers the standard risks involved in transporting goods, such as accidents and weather.

Most large banks have international departments that are able to provide guidelines for importers and exporters to help manage risk. 14.3.1 Managing export risk Dealing with buyers in other countries adds a layer of complexity to trading. It’s wise to be aware of potential risks and fraud, and to understand the strategies that can help you protect your business against them. 14.3.2 Currency risk Currency risk is the local currency amount receivable on settlement will be lower than the amount calculated when entering the contract, due to an adverse movement in the market price of the currency. How does currency risk arise? Exchange rates between most currencies regularly fluctuate, and there is a time lag between entering into a contract and receiving the payment. How can it be mitigated? Exporters can identify and manage this risk with a range of currency risk management solutions. 14.3.3 Risk of non-performance The buyer will repudiate the contract and refuse to pay. Any efforts you make to enforce the contract will add costs that detract from your expected profit. How does risk of non-performance arise? The buyer may refuse to acknowledge their obligation to pay. How can it be mitigated? Consider using Documentary Collection, Documentary Credit or Without Recourse Export Financing. These products provide various degrees of protection that is independent of the buyer. 14.3.4 Credit risk The buyer is not creditworthy - ie willing and able to pay. How does credit risk arise? The buyer, or other parties in the payment chain, may become insolvent. How can it be mitigated? Consider using Documentary Credit or Without Recourse Export Financing to reduce the risk or transfer the risk to a more acceptable party. 14.3.5 Transfer risk A change in government regulations could prevent or restrict your ability to receive payments or exchange foreign currency. How does transfer risk arise? Many countries regulate transfer of money and conversion of foreign currency receipts. Unexpected regulatory changes may occur between entering and settling a contract.

How can it be mitigated? Consider insuring against transfer risk by consulting export credit insurance agencies. 14.3.6 Country risk A change in government regulations will prevent or restrict your ability to ship goods. How does country risk arise? Many countries regulate the import and export of goods. Unexpected regulatory changes, such as cancelling of permits or licences, may occur between entering and settling a contract. How can it be mitigated? Consider insuring against country risk by consulting export credit insurance agencies. 14.3.7 Transport risk Goods will be stolen, lost or damaged in transit. How does transport risk arise? Goods may be open to these risks when traveling between you and the buyer. How can it be mitigated? Consult commercial marine insurance agencies if you wish to insure against transport risk. 14.3.8 Risk of fraud Your trade partner is not bona fide. How does risk of fraud arise? There is always the possibility that an unscrupulous person will seek to take advantage of you, and the complexity of international trade can make it difficult to detect fraud before it occurs. How can it be mitigated? This risk can be reduced by transacting only with reputable parties that have a proven record with the goods in question, including third parties. Beware of offers that seem too good to be true, because they often are. 14.3.9 Export Documentary Collection As an exporter, you initiate this method of payment, which requires your buyer to make immediate or deferred payment. Your shipping documents are released to the buyer against payment or a promise to pay at a future date. 14.3.10 Export Documentary Collection offers: International acceptance Issued at sight or term Control over shipping documents until payment is made or promised How does it work? You lodge the completed bill of exchange, relevant shipping documents and a lodgment authority with your bank. The bank forwards the collection to your buyer’s bank, and the

buyer is advised upon receipt. Banks are involved because they act as trusted third parties to ensure the supplier can exercise some control over the goods until such time as either payment is made or a promise to pay at a certain future date is provided. How can your business benefit? You retain control over shipping documents until payment or a promise to pay is received. For approved clients, proceeds may be advanced prior to receipt of payment from the overseas bank, improving your cash flow position. 14.3.11 Export Documentary Credit An Export Documentary Credit is a guarantee of payment to you, issued by an overseas bank. The buyer’s bank provides credit to them in order to issue the documentary credit. Before payment is made you must present the relevant shipping documents and meet other conditions as negotiated with the buyer and stipulated within the Documentary Credit. The payment is made at sight, when you present documents that meet all the terms conditions, or at term, a date in the future that is specified in the Documentary Credit. Features An Export Documentary Credit offers: a conditional bank guarantee of payment to you international acceptance issued at sight or term How does it work? Once terms have been agreed with you the buyer lodges an application with their bank, specifying documents required from you as well as other agreed terms such as shipping dates, port of arrival, payment amount and due date. Once the buyer's bank has approved the Documentary Credit, it will be transmitted to a bank in Italy. That bank will then advise you when the documentary credit is received. You then prepare the documents according to the terms and conditions in the credit and present them to your bank to obtain payment. How can your business benefit? You have a greater level of comfort and security that payment will be made, as you have a guarantee from a bank rather than from your buyer. For approved customers, proceeds may be advanced prior to receipt of payment from the overseas bank, improving your cash flow position. 14.4 Value and Volume of Retail Sales of Packaged Food, Sector by Region. (India. 2003 and 2004.) Sector Item East and Northeast 2003 2004 Confectionery. Sales (Billion INR). Volume ('000 Tonnes). Bakery. Sales (Billion INR). 4.61 24.11 19.63 5.0 1 25.9 7 21.2 2 North South West

2003 7.25 34.44 39.48

2004 7.79 36.92 41.98

2003 8.01 40.34 22.64

2004 8.49

2003 6.99

2004 7.46 34.78

42.57 32.95

24.54 31.19 33.43

Volume ('000 Tonnes). Ice Cream. Sales (Billion INR). Volume ('000 Litres). Dairy Products. Sales (Billion INR). Volume ('000 Tonnes). Sweet and Savoury Sales (Billion INR). Volume ('000 Tonnes). Sales (Million INR). Volume ('000 Tonnes). Sales (Million INR). Volume ('000 Tonnes). Soup. Sales (Million INR). Volume ('000 Tonnes). Pasta. Sales (Million INR). Volume ('000 Tonnes). Noodles. Sales (Million INR). Volume ('000 Tonnes). Canned/ Preserved . Sales (Million INR). Volume ('000 Tonnes). Sales (Million INR). Volume ('000 Tonnes).

420.3 441.2 776.94 8 0.94 8,323 12.46 n/a 1.33 7.68 1,102 4.25 1.0 9 2.23

824.8 479.04 509.04 622.4 649.1 4 2.55 18,61 8 24.14 n/a 2.54 17.6 960.3 6 3.83 1.42 1.62 2.3 2.6 20,25 6 34.05 n/a 2.54 17.49

9,39 16,907 6 13.55 n/a 1.52 8.62 22.54 n/a 2.26 16.03

12,05 13,502 18,45 3 3 24.51 n/a 1.2 6.02 1,125 4.47 26.18 31.95 n/a 1.35 n/a 2.3

6.62 16.04

Meal Replacemen t Products.

1,157 960.00 4.35 3.72

1,198 845.0 908.3 0 8 4.6 3.32 3.47

Ready Meals.

71.29 118.55 191.11 0.55 49.38 0.16 12.19 0.11 0.9 1.27

269.9 157.67 252.48 222.9 319.3 5 1.73 0.88 1.4 113.7 0.38 1.83 2.58

54.15 147.02 0.17 13.65 0.12 0.47 17.46 0.19 1,149 11.72

165.5 101.82 0.51 19.9 0.22 1,418 14.56 0.35 14.64 0.17 951.3 5 10.3

148 162.5 0.48 0.51 29.57 0.27 1387

17.28 25.49 0.2 1211 0.24 1189

756.3 965.64 7 7.76 9.88

12.91 11.77 13.95

396.8 463.35 568.17 2 4.79 5.36 6.15 1295 7.04

657.2 414.89 509.84 568.4 677.1 3 6.76 4.18 4.78 6.29 7.19 1580 8.47

Frozen Processed.

373.1 412.27 5 2.4 2.59

1480 883.64 999.36 1.395 7.89 5.09 5.66 7.66

Dried Processed.

Sales (Billion INR). Volume ('000 Tonnes).

2.9 50.09 12.72

3.34 56.99 13.47

4.02 69.18 19.87

4.59 77.46 21.03

3.4 50.77 16.58

3.95 57.01

3.79 63.2

4.3 71 25.48 401.4 3.64

Oils and Fats.

Sales (Billion INR). Volume ('000 Tonnes).

17.46 24.12 391 3.34

173.9 180.47 356.13 4 2.68 21.04 1150 5.66 2.96 22.89 3.92 22.27

369.2 288.36 298.77 4.35 24.55 3.97 33.13 4.37

Sauces, Dressings and

Sales (Billion INR). Volume ('000 Tonnes). Sales (Million INR). Volume ('000 Tonnes).

36.32 22.57 24.44 711 3.29 918 6.78

Baby Food.

1199 575.43 5.88 2.63

600.1 858.26 890.97 673.2 2 2.75 4.08 4.26 3.13


Sales (Million INR). Volume ('000 Tonnes).

361.4 375.42 598.15 9 2.96 3.05 4.66

623.2 299.99 310.12 870.8 8 4.77 2.72 2.8 6.48


Euromonito r, "Packaged Food in India (January 2005)."

14.5 Country Risk Economic Overview India’s economic growth slowed slightly in the second quarter of 2006 to 8.9% year-overyear from 9.3% in the first quarter, but remained the second fastest growing economy among the world’s twenty largest economies. • Hotel, trade, transport and communication, the largest component of GDP, rose 13.2% following a 12.9% rise. • The second largest component, agriculture, slowed a bit to 3.4% from 5.5%, which was the fastest growth in two years. • Manufacturing rose 11.3%, construction rose 9.5%, utilities rose 5.4%, and financial services rose 8.9%. • The construction industry is booming as the government invests in infrastructure improvement and expansion. This, along with a good monsoon season, which has boosted incomes for farmers, is leading to record demand for financial services and loans. Although wholesale inflation has slowed from 5.5% in June to 4.56% for the week ended September 16, it remains above the government’s 4% target. • Strong economic growth, record credit growth, high oil and commodity prices and stout consumer spending have led to a 150 basis point increase in the central bank’s key reverse repo rate to 6.0% since October 2004. The rate increases in June and July have helped the rupee to rebound from the plunge in the May-July period amid the global exodus from emerging markets. The rupee has rebounded to Rs45.01: US$1 on November 17 from RS46.95: US$1 on July 19. • The weaker rupee has supported exports recently, but has not deterred imports, keeping the trade deficit virtually unchanged since April at around $3.9 billion.

Imports, which rose 24.2% in July from a year ago, remain elevated as rising incomes spur domestic demand, while factories continue to suck in raw materials for manufacturing goods. In addition, the government’s spending on infrastructure has increased imports of steel and cement. Exports, which rose 34.8% in July, remain strong amid robust global demand for gems, textiles and other manufactured products. All of this has fuelled a surge in industrial production, which rose 12.4% in July from a year ago, the fastest growth since June 1996. Another spate of emerging market jitters, which could weaken the rupee, and high oil and commodity prices could keep inflation elevated and lead to further interest rate hikes, which could slow the economy. On the political front, recent polls suggest that if an election were held before the planned election in May 2009, it may be possible for the UPA, the current ruling party, to gain a majority over the opposition BJP without the need for support from the Left Front. This would allow the UPA to enact much needed reforms that the Left Front opposes, such as liberalizing labor regulations, raising foreign investment ceilings and privatizing state-owned enterprises. In addition, it would allow the UPA to decrease the welfare spending that is so vigorously demanded by the Left Front, which has prevented India from reducing its vast public debt. The risk of going to the polls early and having an unfavorable outcome suggests that the chance of an early election is minimal. However, the risk of political upheaval must not be overlooked. 200102 478.3 2002-03 2003-04 2004-05 2005-06 2006-07


GDP (at current prices, US$ bn) GDP Growth (at constant prices, %) Agriculture Industry Services Sectoral Share Agriculture Industry Services Inflation rate (WPI, avg. %) Gross Fiscal Deficit (% of GDP) Exchange Rate (Rs/US$ Exchange Rate (Rs/Euro Exports (US$ bn) % change





880.3 f







6.2 2.7 7.1

-6.9 7.0 7.3

10.0 7.6 8.2

0.7 8.6 9.9

3.9 e 8.8 e 10.1 e


in GDP (%) 23.2 20.8 25.5 26.7 51.2 52.6 3.6 3.4

21.0 26.4 52.5 5.4

19.6 27.3 53.2 6.4

19.0 27.4 53.6 4.0 5.26(Oct 14) 3.8






47.69 42.18

48.40 48.09

45.95 53.99

44.93 56.51

44.62 55.20

44.93 (Nov 02) 57.34 (Nov 02) 59.3 (ApSep) 37.3

43.83 -1.7

52.72 20.3

63.84 21.1

83.54 30.8

102.73 23.0

Imports (US$ bn) % change Trade Deficit (US $ bn) Services Exports (US$ bn) Software Exports (US$ bn) Services Imports (US$ bn) Current Account Balance (US$ bn) Current Account Balance (% of GDP) Forex Reserves (US$ bn) # External Debt (US $ bn) # External Debt to GDP Ratio (%) # Short Term Debt / Total Debt (%) # Foreign Investment Inflows (US$ bn) Of which: FDI (US$ bn) GDRs/ADRs (US$ bn) FIIs (net) (US$ bn) Source: RBI

51.41 1.7 -7.58

61.41 19.5 -8.69

78.15 27.3 -14.31

111.52 42.7 -27.98

142.42 27.7 -39.69

83.9 (ApSep) 32.1 -24.6 (Ap-Sep) 16.6 (end











6.4 (end






8.9 (end






-6.1 (end-June 06) -











166.15 (Oct 20)

98.84 21.1

104.96 20.4

111.72 17.8

123.2 17.3

125.18 15.8

132.13 (end






7.0 (end







6.13 0.48 1.51

5.04 0.6 0.38

4.32 0.46 10.92

6051 0.61 8.69

7.75 2.55 9.93

3.39 (Apr 1.55 (Apr

Government Intervention The World Bank reports that the government consumed 12.8 percent of GDP in 2003. In the same yea r, according to the International Monetary Fund's Government Financial Statistics CD–ROM, India received 17.9 percent of its total revenues from state-owned enterprises and government ownership of property.

Monetary Policy From 1995 to 2004, India's weighted average annual rate of inflation was 3.85 percent. Foreign Investment According to the U.S. Department of Commerce, "India controls foreign investment with limits on equity and voting rights, mandatory government approvals, and capital controls." The Economist Intelligence Unit characterizes India as "a difficult market for foreign companies. Most economic activities are bound by restrictions, public services and infrastructure are poor, and the government continues to impede the free flow of capital across its borders." However, India is taking gradual steps to attract more foreign investment, and foreign ownership is permitted in most sectors. The U.S. Department of Commerce reports that in January 2005, "the GOI [Government of India] relaxed restrictions on new [foreign direct investment] in India by foreign partners of joint ventures. The previous rules, issued in Press Note 18 in 1998, had required a release by the Indian partner and GOI approval for any new investment, a provision often subject to abuse. The new rules maintain restrictions on the majority of existing joint ventures, but leave new ones to negotiate their own terms on a commercial basis." Sectors off-limits to foreign investment include agriculture, legal services, railways, real estate, retailing, and security services. The International Monetary Fund reports that central bank approval is required for residents to open foreign currency accounts, either domestically or abroad, and that such accounts are subject to significant restrictions. Non-residents may hold foreign exchange and domestic currency accounts, subject to approval and conditions. Some payments and transfers face quantitative limits. The IMF reports that capital transactions and some credit operations are subject to certain restrictions and requirements. Wages & Prices The government continues to influence prices on several goods and services. The Economist Intelligence Unit reports that the Essential Commodities Act of 1955 applies price controls at the factory, wholesale, and retail levels on "essential" commodities. Electricity, some petroleum products, and certain types of coal are the only items with fully administered prices. The government also controls the prices of pharmaceuticals. The government mandates minimum wages that vary by state and industry. Regulation Businesses must contend with extensive federal and state regulation. According to the U.S. Department of Commerce, "firms have identified corruption as one obstacle to investment. Indian businessmen agree that red tape and wide-ranging administrative discretion serve as a pretext to extort money." In addition, labor laws are rigid. The Economist reports that "any company employing more than 100 people requires the permission of the state authorities to sack workers…."

Informal Market Transparency International's 2004 score for India is 2.8. Therefore, India's informal market score is 4 this yea r. Currency Restrictions India’s currency unit is the Rupee (INR). The Rupee floats freely in world foreign exchange markets. Banks in India can only deal with foreign exchange when authorized by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 2000 (FEMA). Foreign Institutional Investors (FIIs) are allowed to invest and operate in the Indian capital market under minimal restrictions. There are no restrictions on investment volume or the transfer of funds in and out of the country for FIIs that have been registered with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). Paper-based instruments Stable at a time of strong economic growth Democracy: parliamentary, bicameral legislature India Post is the national mail service under the Postal Service Board; it is generally reliable (visit for more information).

Taxes: (Resident and Non-resident)

Preferred Method of Payment Political Climate Political Structure Postal Service

Political & Security risk According to, RiskMap 2007, an analysis published by Control Risks, a reputed international business risk consultancy, India stood out as the most secure location for business in South Asia. On a global level, India was ranked as a low risk country. The report noted the risks posed by mass casualty terrorist attacks by Kashmir-based groups, and the spread of this threat to the high-tech hubs in the south of the country, the `low' security ranking assigned to most parts of the country affirms that it offers business a generally secure platform from which to operate. However, parts of the country such as Jammu & Kashmir, certain pockets of North Eastern states were assigned high risk. The table given below presents the number of fatalities in 2006 (as of Oct 1, 2006) due to Terrorist violence. Fatalities in Terrorist Violence – 2006 Civilians Security Force Personnel 2001 1067 590 2002 839 469 2003 658 338 2004 534 325 2005 520 216 *2006 285 125 Source:

Terrorist 2850 1714 1546 951 996 463

Total 4507 3022 2542 1810 1732 873

Currency On August 1, 2006, Fitch Ratings-London, upgraded the Republic of India’s Long-term foreign and local currency Issuer Default Ratings (“IDRs”) to ‘BBB-’ (BBB minus) from ‘BB+’, both with stable outlooks. The Short-term foreign currency IDR is also raised to ‘F3’ from ‘B’ and the Country Ceiling is upgraded to ‘BBB-’ (BBB minus) from ‘BB+’. Indian government’s deficit which declined to 7.5% in 2005/06 from 10.1% of GDP in fiscal year 2001/02, helped the currency ratings improve. Higher growth and lower interest rates have played a part in this outcome but so, too, have much improved tax administration and some widening of the tax net. Modest tightening at the centre has been matched by parallel progress among India’s 25 states and union territories, many of which have introduced value-added tax and enacted fiscal responsibility legislation over the past yea r. India’s established track record of macroeconomic stability, low inflation and a high domestic savings rate, coupled with a deep domestic capital market and external capital controls, reduces the country’s currency risk. Overall risk rating The table given below gives overall risk rating for India as of May 2006. India: risk assessment Banking Sovereign Currency Risk risk sector risk May-06 BBB BBB BB Source: Economist Intelligence Unit 2006

Political risk BB

Economic risk BBB


14.6 Non-collection of goods & Non-payment Indian Council of Arbitration, consisting of representatives from the Government of India, the Federation of Indian Chambers of Commerce and Industry, the other important Chambers of Commerce and trade associations in India as well as export promotion councils, public sector undertakings, companies and firms, is the apex body with the objective of resolving international commercial disputes by arbitration. Its rules of arbitration are of international standard and they provide a guarantee wished for by the trade for quick and just settlement of the dispute. It maintains a panel of arbitrators consisting of Retd. Judges, Advocates, Shipping Experts, Chartered accountants, Chartered Engineers, Businessmen, Foreign Nationals and Executives having specialization in more than 20 fields. The Council has entered into arbitration service agreements with important foreign arbitral institutions in more than 30 countries to administer arbitrations under their rules if arbitration is held in India. The Council also provides arbitration services for settlement of maritime disputes arising out of charter party contracts and it has framed maritime arbitration rules for such disputes. The Ministry of Surface Transport, Government of India has recommended the use of the ICA arbitration clause in the charter party contracts so that dispute, if any, can be settled under the ICA maritime arbitration rules. Parties involved in export-import trade with Indian counterparts can also seek dispute resolution by seeking the services of another organization namely International Centre for Alternative Dispute Resolution (ICADR). This organization has been established as an autonomous organization under the aegis of Ministry of Law, Justice and Company Affairs to promote settlement of domestic and international disputes by different modes of alternate dispute resolution. ICADR has its headquarters in New Delhi and has regional

office in Lucknow and Hyderabad. More information on ICADR can be obtained from the website: PART 15 LEGISLATION ON INTELLECTUAL PROPERTY IN INDIA 15.1 Introduction There is a well-established statutory, administrative and judicial framework to safeguard intellectual property rights in India, whether they relate to patents, trademarks, copyright or industrial designs. Well-known international trademarks have been protected in India even when they were not registered in India. The Indian Trademarks Law has been extended through court decisions to service marks in addition to trade marks for goods. Computer software companies have successfully curtailed piracy through court orders. Computer databases have been protected. The courts, under the doctrine of breach of confidentiality, accorded an extensive protection of trade secrets. Right to privacy, which is not protected even in some developed countries, has been recognized in India. Protection of intellectual property rights in India continues to be strengthened further. The year 1999 witnessed the consideration and passage of major legislation with regard to protection of intellectual property rights in harmony with international practices and in compliance with India's obligations under TRIPS. These include: 1. The Patents (Amendment) Act, 1999 passed by the Indian Parliament on March 10, 1999 to amend the Patents Act of 1970 that provides for establishment of a mail box system to file patents and accords exclusive marketing rights for 5 years. The Trade Marks Bill, 1999 which repeals and replaces the Trade and Merchandise Marks Act, 1958 passed by the Indian Parliament in the Winter Session that concluded on December 23, 1999. The Copyright (Amendment) Act, 1999 passed by both houses of the Indian Parliament, and signed by the President of India on December 30, 1999. A sui generis legislation for the protection of geographical indications called the Geographical Indications of Goods (Registration & Protection) Bill, 1999 approved by both houses of the Indian Parliament on December 23, 1999. The Industrial Designs Bill, 1999 which replaces the Designs Act, 1911 was passed in the Upper House of the Indian Parliament in the Winter Session which concluded on December 23, 1999 and is presently before the Lower House for its consideration. The Patents (Second Amendment) Bill, 1999 to further amend the Patents Act, 1970 and make it TRIPS compliant was introduced in the Upper House of Indian Parliament on December 20, 1999.






In addition to the above legislative changes, the Government of India has taken several measures to streamline and strengthen the intellectual property administration system in the country. Projects relating to the modernization of patent information services and trademarks registry have been implemented with help from WIPO/UNDP. The Government of India is implementing a project for modernization of patent offices at a cost of Rs.756 million incorporating several components such as human resource development, recruiting additional examiners, infrastructure support and strengthening by way of computerization and re-engineering work practices, and elimination of backlog of patent applications. An amendment to the Patent Rules was notified on June 2, 1999 to simplify the procedural aspects.

The Trade Marks Registry is also proposed to be further strengthened and modernized. A project for modernization was earlier implemented during 1993-96. Further strengthening of the Registry is being taken up at a cost of Rs.86 million. The main thrust now is to strengthen the infrastructure of the Trade Marks Registry and the early removal of backlog of pending applications, transfer of records to CD-ROM’s, re-engineering of work processes, appointment of additional examiners, etc. As regards the aspect enforcement, Indian enforcement agencies are now working very effectively and there has been a notable decline in the levels of piracy in India. In addition to intensifying raids against copyright infringers, the Government has taken a number of measures to strengthen the enforcement of copyright law. Special cells for copyright enforcement have been set up in 23 States and Union Territories. In addition, for collective administration of copyright, copyright societies have been set up for different classes of works. 15.2 Concerns expressed over IPR protection & India’s response It has been alleged that there is absence of effective patent protection in the pharmaceutical sector. India does provide for patents in the pharmaceutical secto r. However, in terms of Section 5 of the Patents Act, the patents are presently restricted to the methods or process of manufacture and not extended to the substances/products themselves. In terms of the TRIPS Agreement, India has time till January 1, 2005 to extend patent protection to this area. The ten year transition period available for providing product patents to pharmaceutical products is within WTO rules. It has been further alleged that India has failed to meet its current obligations required under Articles 70.8 and 70.9 of the TRIPS Agreement by implementing appropriate, conforming mailbox and exclusive marketing rights procedures. However, the Government of India has taken the following steps to meet its obligations under Articles 70.8 and 70.9: 1. On December 31, 1994, Government of India promulgated an Ordinance to provide a means to receive product patent applications in the fields of pharmaceutical and agricultural chemical products and also for grant of exclusive marketing rights. Pursuant to this measure the Indian Patent Office has been receiving product patent applications in those fields. India has established a mail box system through administrative instructions. Numerous applications have already been filed in this mail box system, and many of them have been filed by US companies; India has also made changes to its Patents Act to put in place a machinery for implementation of Articles 70.8 and 70.9 by providing for establishment of a mail box system to file patents and according exclusive marketing rights for 5 years. This provision was made in the Patents (Amendment) Act of 1999.



Concern has also been expressed over the compulsory licensing provision in the Patents (Amendment) Act, 1999. It may be noted that as per the provisions of Section 84 of Patents Act, 1970 and Clause 35 of Patents (Second Amendment) Bill, 1999, a compulsory license may be granted in case the patented invention has not met the reasonable requirement of the public at a reasonable price. This provision is intended to provide for necessary and adequate safeguard for the protection of public interest taking in to account the specific needs of a developing country like India. Furthermore, the compulsory licensing system has been in place since the inception of the Patents Act, 1970 in India. It is noteworthy that not a single case of misuse of this provision has been observed during the last 30 years. An application for compulsory

license may be granted only after the applicant has approached the patentee prior to the application with an offer to grant license on reasonable terms and conditions (as per Clause 36 of Patents (Second Amendment) Bill, 1999). In determining whether or not to grant a compulsory license, the Controller of Patents is required to take in to account, the nature of the invention, the time that has elapsed since the sealing of the patent and the measures already taken by the patentee or any licensee to make full use of the invention (Section 85 of Patents Act, 1970). In settling terms of a compulsory license, the Controller of Patents is required to secure that the articles manufactured under the patent shall be available to the public at the lowest prices consistent with the patentees deriving a reasonable advantage from their patent rights (Section 97(1)(ii)). These provisions substantiate the extant of a non-discriminatory administration of compulsory licenses. In addition, the Patents (Second Amendment) Bill, 1999 has provided for an appeals process, before an Appellate Board, on any decisions by the Controller of Patents including a grant of compulsory license (Clause 54) before approaching the Indian Courts. The Patents Law provides for compulsory license to avoid misuse of an Exclusive Marketing Right by the right holder. This provision meets a larger public interest, keeping in mind the specific Indian conditions and are in compliance with Article 31 of TRIPS. The Indian Patent laws are neutral in their application to domestic or foreign inventions. Any disqualification, compulsory licensing, and exclusion from patentability, are provided for only in the larger interest to provide therein necessary and adequate safeguards for the protection of public interest, national security, bio-diversity, traditional knowledge, etc. These provisions are within the sphere allowed under Article 27, 30 and 31 of TRIPS. It is to be noted that 1999 has been a year of great coherence of political will, resulting in the passage of major IPR laws and work toward the establishment of an effective administration mechanism. 15.3 Copyright protection in India India has one of the most modern copyright protection laws in the world. Major development in the area of copyright during 1999 was the amendment to the Copyright Act of 1957 to make it fully compatible with the provisions of the TRIPS Agreement. Called the Copyright (Amendment) Act, 1999, this amendment was signed by the President of India on December 30, 1999 and came into force on January 15, 2000. The earlier 1994 amendment to the Copyright Act of 1957 had provided protection to all original literary, dramatic, musical and artistic works, cinematography, films and sound recordings. It also brought sectors such as satellite broadcasting, computer software and digital technology under Indian copyright protection. The Copyright Act is now in full conformity with the TRIPS obligations. The other important development during 1999 was the issuance of the International Copyright Order, 1999 extending the provisions of the Copyright Act to nationals of all World Trade Organization (WTO) Member countries. Concern has been expressed about the allegedly slow judicial system in India and the procedural issues involved in trial and conviction. The Indian judiciary is handling cases as expeditiously as possible. The year that has gone by has again witnessed the versatility of the impartial and independent Indian judiciary when it comes to the issue of protection of intellectual property rights, amplified by the encouraging trends with Indian courts plugging in gaps in the statute with the common sense of the common law. The Copyright Act, 1957 prescribes mandatory punishment for piracy of copyrighted matter commensurate with the gravity of the offense with an effect to deter infringement,

in compliance with the TRIPS Agreement. Section 63 of the Copyright Act, 1957 provides that an offense of infringement of copyright or other rights conferred by the Act shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to three years with fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees (Rs. 200,000). Section 63A provides for enhanced penalty on second or subsequent convictions, i.e. imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees (Rs. 100,000) and which may extend up to two lakh rupees (Rs. 200,000). Section 63B provides that any person who knowingly makes use on a computer an infringing copy of a computer program shall be punishable with imprisonment for a term which shall not be less than seven days but which may extend to three years and with fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees (Rs. 200,000). For India where the per capita income at current prices is Rs.14,682/- or US $349, the quantum of the fines, which works out to be 14 times the per capita income, is quite a burden on an individual and would act as a strong deterrent. As regards the reported requirement that actual knowledge be proved in criminal cases, the expressions “knowingly infringes or abets infringement” in Section 63 and “knowingly makes use” in Section 63B are included to protect bona fide users. It may be noted that the expression “knowingly” was there even in the analogous Section 7 of the Indian Copyright Act, 1914. Bringing the principle of “ignoratia juris reminem excusat” may not be appropriate in the case of copyright as there are quite a large number of works which are in the public domain that a person can use freely, and it is natural for many to presume that such works are outside the copyright regime. Copyright is a special right created by law to protect certain rights of authors while keeping a balance of the interest of the society. It will be too much to expect an ordinary user to sit in judgment like a court of law as to every single aspect of the right which may or may not be applicable to a work before using the same. So far as Article 41 and 61 of the TRIPS Agreement are concerned, India has a modern and efficient judicial system that fits in with the general obligations provided in Article 41. Article 61 of the TRIP Agreement provides that remedies available shall include imprisonment or monetary fines sufficient to provide a deterrent consistent with the level of penalties applied for a crime of corresponding gravity. The Indian Copyright Act, provides for both imprisonment and fine which in the Indian context would be a sufficient deterrent. Civil proceedings against piracy have been quite effective - a result unique in the global enforcement against copyright piracy. For instance, in 1999, the Motion Pictures Association (MPA), filed 3 civil actions against 3 Indian cable networks and obtained injunctive relief covering 45 cities and 8 million cable homes. MPA has estimated that by these injunctions alone, cable piracy has been brought down by 50%. Further, provisional measures, such as injunctions and ‘Anton Piller’ orders, are available through the Indian courts to stop infringement and to contain any damages. Both foreign and domestic IPR holders are treated equally under Indian law. Indian enforcement agencies are working effectively and there is a decline in the levels of piracy in India. In addition to intensifying raids against copyright infringers, the Government has taken a number of measures to strengthen the enforcement of copyright law. A summary of these measures is given below:


During the year the government continued to stress the need for strict enforcement of the Copyright Act and Rules. State governments and other Ministries were regularly requested to lay special attention to ensuring copyright protection in their functioning. Instructions were issued to officers in the government requesting them to ensure copyright protection, particularly of software, in their work situation. The Government also brought out A Handbook of Copyright Law to create awareness about copyright amongst the stakeholders, enforcement agencies, professional users like the scientific and academic communities and members of the public. Copies of the Handbook were circulated free of cost to the state and central government officials and police personnel and also provided to participants in various seminars and workshops on IPR matters held during the yea r. National Police Academy, Hyderabad and National Academy of Customs, Excise and Narcotics conducted several training programs on copyright for the police and customs officers. Modules on copyright have been included in their regular training programs. The Department of Education, Ministry of Human Resource Development, Government of India has initiated several measures in the past for strengthening the enforcement of copyrights that include constitution of a Copyright Enforcement Advisory Council (CEAC), creation of separate cells in state police headquarters, encouraging setting up of collective administration societies and organization of seminars and workshops to create greater awareness about copyright law among the enforcement personnel and the general public. The CEAC is reconstituted from time to time to review periodically the progress of enforcement of the Copyright Act and to advise the government on measures for improving the enforcement. Additional Secretary, Department of Education is the chairman of the CEAC. The CEAC members include representatives of copyright industry organizations and chiefs of state police forces. The CEAC meets at least twice every yea r. It discusses in detail issues of enforcement, piracy, etc. Special cells for copyright enforcement have so far been set up in 23 States and Union Territories, i.e. Andhra Pradesh, Assam, Andaman & Nicobar Islands, Chandigarh, Dadra & Nagar Haveli, Daman & Diu, Delhi, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala, Madhya Pradesh, Meghalaya, Orissa, Pondicherry, Punjab, Sikkim, Tamil Nadu, Tripura and West Bengal. States have also been advised to designate a nodal officer for copyright enforcement to facilitate easy interaction by copyright industry organizations and copyright owners. For collective administration of copyright, copyright societies have been set up for different classes of works. At present there are three registered copyright societies. These are the Society for Copyright Regulations of Indian Producers of Films & Television (SCRIPT) for cinematography films, Indian Performing Rights Society Limited (IPRS) for musical works and Phonographic Performance Limited (PPL) for sound recordings. These societies, particularly the PPL and the IPRS, have been quite active in anti-piracy work. The PPL has even set up a special anti-piracy cell under a retired Director General of Police, and this cell has been working in tandem with the police. The Government also initiates a number of seminars/workshops on copyright issues. The participants in these seminars include enforcement personnel like the police as well as representatives of industry organizations.









Several other measures to create general awareness about copyright and for encouraging study of intellectual property rights in the educational system, besides modernizing the Copyright Office, are on the anvil. Consequent to the number of measures initiated by the government, there has been more activity in the enforcement of copyright laws in the country during the last year compared to previous years. As per the data relating to copyright offenses available with the National Crime Records Bureau, the number of copyright cases registered has gone up from 479 in 1997 to 802 in 1998. The number of persons arrested has increased from 794 in 1997 to 980 in 1998. The value of seizures has gone up from Rs.2.88 crore (28.8 million) in 1997 to Rs.7.48 crore (74.8 million) in 1998. These figures reflect the general improvement in the enforcement of the copyright law. The source of above information is “Embassy of IndiaPolicy Statements”

PART 16 RULES ON LABELLING AND PACKAGING 16.1 Introduction Packing needs to be strong to protect against extreme heat and humidity in the summer and possible storage in the open. Steel strapping is also recommended because of the threat of pilfering. Outer containers must bear the consignee’s mark and port mark and they should also be numbered (in accordance with the packing list) unless their contents can be otherwise readily identified. Gross weight must also be shown on two faces. Goods produced in more than one country are required to have ‘Foreign Made’ or similar wording clearly marked on the goods, their labels or packages. All other imports must show the country of origin. Materials such as polyvinyl chloride (PVC) are not allowed for packaging in most cities due to environmental concerns and waste disposal problems. Strict labelling rules have been introduced by the Indian Government to protect the rights of consumers. The Food Safety and Standards Act, 2006 prohibits the manufacture, distribution or sale of any packaged food product which is not marked and labelled in the manner specified by regulations. Labels shall not be false or misleading, including in regard to implied health claims or place of origin of the food product. Importers of packaged food products must adhere to laws requiring labelling information that includes the name and address of the importer, generic or common name of the product, the net quantity, date of manufacture, best-before date and maximum sales price including any taxes or charges. For more information, see the Government of India Ministry of Commerce and Industry website. Product labels should be printed in English or Hindi (Devnagari script) and must be completed before products are presented for Customs clearance. There are four main label options for imported packaged food: • Printed and securely fixed to the package. • Made on an additional wrapper containing the imported package. • Printed on the package itself. • Contained on a card or tape which is firmly fixed to the package. General Requirements: Part VII of the PFA Rules, 1955, and the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, as amended, establish labeling requirements for all packaged foods. In general, the label should provide the following information: > > Name, trade name, or description of product Name of ingredients used in the product, in descending order of their composition by weight or volume Name and complete address of manufacturer, packer, importer, or vendo r, and country of origin of the imported food (including if the food article is manufactured outside India and packed in India) Net weight, number, or volume of contents Distinctive batch, lot, or code number Month and year the product was manufactured or packed Month and year by which the product is best consumed


> > > >

Maximum retail price (MRP) where applicable, the product label should also contain the following:

> > >


The purpose of irradiation and license number, in case of irradiated food Extraneous addition of coloring matter Non-vegetarian food (any food which contains whole or part of any animal including birds, marine animals, eggs, or product of any animal origin as an ingredient, excluding milk or milk products), must have a symbol of a brown color-filled circle inside a square with a brown outline prominently displayed on the package, contrasting against the background on the principal display panel, in close proximity to the name or brand name of the food. Vegetarian food must have a symbol of a green color-filled circle inside a square with a green outline prominently displayed on the package, contrasting against the background on the principal display panel, in close proximity to name or brand name of the food.

There are special labeling requirements for certain packaged food items, such as infant foods, condensed milk, milk powder, blended vegetable oils, etc. For details see Section 42, Part VII of the PFA Rules updated on October 1, 2004, ( and any subsequent notifications. In the case of imported packaged food, all declarations may be 1) printed on a label securely affixed to the package or 2) made on an additional wrapper containing the imported package or 3) printed on the package itself or 4) made on a card or tape affixed firmly to the package or container and bearing the required information. Labels must be printed in English or Hindi (Devnagari script). The responsibility for labeling lies with the importer, and should be done before products are presented for custom clearance. Per Notification No. 44 (RE-2000)/1997-2002, issued by the Department of Commerce on November 24, 2000, all packaged commodities imported into India should carry the following declarations: > > > Name and address of the importer. Generic or common name of the commodity packed. Net quantity using standard units of weights and measures. If the net quantity of the imported package is given in any other unit, its equivalent terms of standard units shall be declared by the importer. Month and year of packaging in which the commodity was manufactured, packed, or imported. The MRP at which the commodity in packaged form may be sold to the ultimate consumer. This price shall include all taxes, local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertising, delivery, packing, forwarding, and the like.

> > Shelf Life: Notification No. 22 (RE-2001) 1997-2002, dated July 30, 2001, issued by the Department of Commerce, states: "Imports of all such edible/food products, domestic sale and manufacture of which are governed by the PFA shall also be subject to the condition that, at the time of importation [emphasis added], these products are having a valid shelf life of not less than 60 percent of its original shelf life. Shelf life of the product is to be calculated, based on the declaration given on the label of the product, regarding the date of manufacture and the due date of expiry."

Per notification G.S.R. 388 (E), issued by the Department of Health, on June 25, 2004, every package of food which contains permitted artificial sweetener shall carry the label "CONTAINS ARTIFICIAL SWEETENER AND FOR CALORIE CONSCIOUS," along with the name or trade name of the product. ( Per notification G.S.R. 339 (E), dated May 27, 2005, issued by the Department of Health, "No containers or label relating to infant milk substitute or infant food shall have a picture of infant or women or both. It shall not have picture or other graphic materials of phrases designed to increase the salability of the infant milk substitute or infant food. The terms "Humanized" or "Maternalized" or any other similar words shall not be used. The package and/or any other label of infant milk substitute or infant food shall not exhibit words, "Full Protein Food," "Energy Food," "Complete Food," or "Health Food," or any other similar expressions." ( 16.2 Requirements Specific to Nutritional Labeling Implied nutritional and health claims are allowed on food products, and there are no statutory nutritional requirements. Manufactured and imported food claiming to be enriched with nutrients such as minerals, proteins, or vitamins, should indicate quantities of such added nutrients on the label. Although there is no official position on implied health claims, such claims should be able to withstand verification by a court of law, if challenged. 16.3 Packaging and container requirements All weights or measures are to be reported in metric units. Certain commodities can only be packed in specified quantities (weight, measure, or number). These include baby food, weaning food, biscuits, bread, butter, coffee, tea, vegetable oils, milk powder, and wheat and rice flour. The use of materials such as Polyvinyl Chloride (PVC) is not allowed for packaging in most cities, due to environmental concerns and waste disposal problems. 16.4 Food additive regulations Information regarding permitted coloring matter, preservatives, etc., are provided in various sections of the PFA Rules, 1955, as amended, which are listed below: On August 13, 2003, the Department of Health issued a final Gazette notification under the PFA Act that prohibited the sale of fresh fruits and vegetables coated with waxes (both edible and non-edible), mineral oils, and colors. E) Dated 13.8.03. pdf On December 1, 2004, the Department of Health issued a final Gazette notification that lists permitted food additives in fish and fish products and microbiological requirements of seafood. E)21102004.pdf On March 21, 2005, the Department of Health issued a final Gazette notification under the PFA Act that pertains to the use of additives in sugar, salt, cocoa powder, chocolate, sugar boiled confectionary, and chewing gum. On March 21, 2005, the Department of Health issued a final Gazette notification under the PFA Act that provided a list of permitted food additives and microbiological requirements of thermally-processed fruits, fruit cocktail, vegetable soups, fruit juices, fruit vegetable cereal flakes, squashes, tomato ketchup, tomato sauce, soy sauce, jam, jelly, etc.

16.5 Pesticides and other contaminants The PFA Rules, 1955, include a positive list for the presence of pesticide residues in various commodities and food (manufactured/imported) products, and their respective tolerance levels. Of the 189 pesticides registered ( products.htm) for regular use in India, only 121 (, Part XIV pages 163-177) have Maximum Residue Limits (MRLs) notified. There are 27 pesticides that do not require MRLs. For the remaining pesticides, MRLs have not yet been established. CODEX Alimentarius MRLs may be accepted for imported foodstuffs only for those pesticides not included in India's own positive list of pesticides. 16.6 Other regulations and requirements All imported foods are randomly sampled at the port of entry for their conformity to PFA standards. On June 16, 2004, with immediate effect, the Ministry of Commerce and Industry published a list of "high risk" food items, imports of which are subject to 100 percent sampling. This list includes edible oils and fats, pulses and pulse products, cereal and cereal products, milk powder, condensed milk, food colors, and food additives, among other items. The import of product samples via express mail or parcel post is allowed, contingent on obtaining prior permission from the Directorate General of Foreign Trade. Mail order imports are not allowed. Contact information to arrange sample shipments is provided in Appendix I. Once the products enter the domestic market, they are to be monitored randomly at the retail and wholesale level by the respective regulatory authorities. The Genetic Engineering Approval Committee (GEAC) is the decision-making authority on allowing imports of bioengineered products. Food ingredients and additives containing bioengineered organisms shall not be produced, used, or imported without the approval of the GEAC. All such approvals, if granted, shall be for a specific period not exceeding four years at the first instance, and are renewable for 2 years at a time, subject to terms and conditions. For additional details see: 16.7 Other specific standards The PFA Rules, 1955 (Appendix B), and the Fruit Products Order, 1955, as amended, contain definitions and specific quality standards for certain food products, such as processed cheese, ice cream, spice mixes, milk and milk products, infant food, vegetable oils and margarine, fruits and vegetable products, and basic food items like wheat, rice, and pulses. Imported products must also meet the specified quality standards. The Department of Commerce Notification No. 44 (RE-2000)/1997-2002, dated November 24, 2000, requires imports of certain products, including some food products (milk powder, condensed milk, infant milk foods, milk-cereal based weaning foods) and food additives, to comply with mandatory Indian quality standards. All manufacturers and exporters whose products are sold in India are required to register with the Bureau of Indian Standards. However, the enforcement of this regulation has not been strict, as current import volumes of the concerned products have been small (mostly in mixed containers).

On March 21, 2005, the Department of Health issued a final Gazette notification under the PFA, which establishes new standards for raisins, pistachios, and dry fruits and nuts (including almonds). 16.8 Copyright and/or trademark laws The Indian Copyright Act of 1957 is based on the Bern Convention on Copyrights, to which India is a party. May 1995 and December 1999 amendments increased protection and introduced stiff mandatory penalties for copyright infringement. On paper, Indian copyright law is now on par with the most modern laws in the world. Trademark protection was raised to international standards with the passage of a new Trademark Bill in December 1999. It codified the use and protection of foreign trademarks, including service marks. Enforcement of intellectual property rights has been weak, but the situation is improving, as the courts and police respond to domestic concerns about the high cost of piracy to Indian rights holders. There is significant judicial precedence to protect foreign trademarks in India. Indian courts have gone beyond the existing statutes and restrained local companies from using world-renowned trademarks even when they have not been registered in India. Nevertheless, foreign firms can register their trademarks through a local agent by applying at the office of Registrar of Trademarks ( However, it may take 3-5 years for the trademark to be officially accepted and notified. 16.9 Import procedure Documentation: Importers must furnish an import declaration in the prescribed Bill of Entry format, disclosing the value of the imported goods. This must be accompanied by any import licenses and phytosanitary certificates (in case of agricultural commodities), along with documentation such as sales invoices and freight and insurance certificates. All consignments are required to be inspected prior to clearance. In the current Customs setup, appointing a clearing agent avoids delays. The clearance of imported food products at the port of entry requires a certification from the port health authority that the product conforms to the standards and regulations of the PFA. However, certification is based mostly on visual inspection and records of past imports, as most ports have very limited testing facilities. Consequently, importers of new products can sometimes face undue delays in clearing their products. The custom clearance period may last between one day and one month, depending on the product and experience of the importer. In case of a dispute or rejection of the consignment, the importer can file an appeal at the Customs office at the port of entry. 16.10 Regulatory agency contacts A. Prevention of Food Adulteration Act Joint Secretary (PFA) Department of Health Ministry of Health & Family Welfare Nirman Bhawan Maulana Azad Road New Delhi, 110 - 001 Phone: (91-11) 23061195 Fax: (91-11) 23061842 E-mail: Website:

B. The Standards Weights and Measures Act Additional Secretary (Weights & Measures) Department of Consumer Affairs Krishi Bhavan New Delhi - 110 001 Phone: (91-11) 23383027 Fax: (91-11) 23386575 E-mail: Website: ind.htm C. Phytosanitary issues Plant Protection Advisor Directorate of Plant Protection, Quarantine, and Storage Ministry of Agriculture N.H. IV Faridabad - 121 001 Haryana Phone: (91-129)2413985 (91-11)23385026 (Delhi Office) Fax: (91-129)2412125 E-mail: Website: D. Livestock and Products Imports Joint Secretary (Administration) Department of Animal Husbandry & Dairying Ministry of Agriculture Krishi Bhavan New Delhi - 110 001 Phone: (91-11)23387804 Fax: (91-11)23386115 E-mail: Website: E. Ministry of Commerce Director General of Foreign Trade Ministry of Commerce Udyog Bhavan New Delhi - 110 011 Phone: (91-11)23016262 Fax: (91-11)23016225 E-mail: Website: F. Ministry of Food Processing Industry Joint Secretary Ministry of Food Processing Industries Panch Sheel Bhawan August Kranti Marg New Delhi - 110 049 Phone: (91-11)26492475

Fax: (91-11)26493228 E-mail: Website: G. Registry of Trademarks Office of the Controller General Patents, Designs & Trade Marks Old CGO Building 101 M. Karve Road Mumbai - 400 020 Phone: (91-22)22035007 Fax: (91-22)22089995 E-mail: Website: H. Central Board of Excise & Customs Chairman Central Board of Excise & Customs Ministry of Finance North Block New Delhi - 110 001 Phone: (91-11)23092849 Fax: (91-11)23093215 E-mail: cbecoff@finance.delhi.nic. in Website:

Part 17 EXHIBITIONS Exhibition Name: IFLOWS(India International Food &Wine Show) Dates: 18th-20th Jan 2007 Location: New Delhi Venue: Mayfair Garden Website: Exhibition Profile: With 107 exhibitors from 15 countries, national pavilions from France, Ireland, Italy and South Africa, attendance by 6,028 high-profile visitors from India and 12 other countries and 105 journalists, the 4th edition of IFLOWS held in January 2006 was truly a majestiv show. Exhibition Name: Annapoorna- World of Food India Dates: 1st to 3rd Nov 2006 Location: Mumbai Venue: Bombay Exhibition Centre Website: Exhibition Profile: Annapoorna - World of Food India is the meeting place for the food and beverage industry to exchange innovation, ideas and business contacts. The show will be the marketing platform for those coming together, who have the same target in mind:The customers of tomorrow. 2004 edition had 3.314 trade visitors from 9 countries 83 exhibitors (30 national / 53 international) Exhibition Name: International FoodTec India 2006 Dates: 23rd to 25th Nov 2006 Location: Mumbai Venue: Bombay Exhibition Centre Website: Exhibition Profile: The Technology Forum in India has a moredimensional concept: International FoodTec India with an Ingredients Pavilion, Dairy Universe and Sweet & Snack Factory India as supplemental sectors, completed by a packaging show organised by Messe Duesseldorf 2004 edition had 140 exhibitors (106 national / 34 international) and 9,367 trade visitors from 16 countries and 5600 sqm of gross exhibition space Exhibition Name: Food & Bev Tech 2006 Dates: 9th to 11th Nov 2006 Location: Mumbai Venue: Bandra-Kurla Complex Website: Exhibition Profile: With its unique single platform concept, Food and Bevtech 2006 focuses on a cross sector and process oriented approach to bring together all aspect of productions, conveying technology, packaging and distribution, for the food and beverage industry. While gaining access to new markets and target groups, meet important decision makers who are prepared to make major investments in the latest technology.

Exhibition Name: Aahar the International Food Fair 2006 Dates: 8th to 12th March 2006 Location: New Delhi Venue: Pragati Maiden Website: Exhibition Profile: India Trade Promotion Organisation is organizing the 21th Aahar the International Food Fair for Food, Food Processing and Related Equipments, Hotel and Restaurant Equipment and Supplies in Pragati Maidan, New Delhi from March 8to 12, 2006. The fair is being organized with the support of the Ministry of Food Processing Industries, Government of India, Agricultural and Processed Food Products Export Development Authority (APEDA), Association of Resource Companies for the Hospitality Industry (ARCHI), New Delhi, Confederation of Indian Food Trade & Industry (CIFTI), New Delhi, All India Food Processors Association, New Delhi and Hotel & Restaurant Equipment Manufacturers Association of India (HOTREMAI). The exposition has been recognized as Asia’s leading event on food technology. Exhibition Name: IFEIndia Dates: 7th to 9th Dec 2006 Location: New Delhi Venue: Pragati Maiden Website: Exhibition Profile: IFE India offers international food, drink and hospitality companies a proven platform to launch into one of the world's most interesting markets at a time of great change and development.IFE India' 2005 attracted 5,772 quality trade visitors & exhibitors from 15 countries. In 2006, IFE India expect to have a healthy increase on this giving you an un-missable opportunity to sample products.

PART 18 LOGISTICS OVERVIEW Logistics is one of the key economic activities throughout the world. The global logistics industry was estimated to be about US$3.5 trillion in 2005. The contribution of logistics industry to India’s GDP has gone up in the recent years from 7.4% in 1999-2000 to 9.3% in 2004-05. 18.1 INFRASTRUCTURE With a coastline of nearly 4,000 miles, India has 11 international and 139 minor ports. The international ports are Kandla, Mumbai, Jawaharlal Nehru, Cochin, Murmagoa, and New Mangalore on the west coast, and Chennai, Tuticorin, Vizagh, Paradeep, and Kolkata on the east coast. Container handling facilities are available at most major ports and in several major cities. India has a vast railway network connecting most major cities and towns. Refrigerated warehousing and transportation facilities are limited and costly, resulting in high storage losses in perishable food items. An inadequate and erratic electric power supply constrains cold chain development. Whereas infrastructure projects were previously reserved for the public sector, private investors are now being encouraged to participate. Telecommunications, in particular, is benefiting from privatization and strong foreign investor interest. The pace is much slower, however, for power generation, roads, and other infrastructure needs, where the returns on investment take longer to materialize. Traffic through Major Container Ports. India. 2004-2005. Operator Nhava Sheva International ICT Jawaharlal Nehru Port CT Gujarat Pipavav Port Chennai Container Terminal Tuticorin Container Terminal
Mumbai Port Trust Mundra International CT Rajiv Gandhi CT Kolkata Port Trust Visakha Container Terminal

Ownership* P&O Group, Australia Central Govt. APM Terminals, Maersk & Indian P&O Group and Chettinad Group (India) Port of Singapore Authority and
Central Govt. P&O, Australia Dubai Ports Authority Central Govt. Dubai Ports Authority and JM Baxi


State Maharashtra

Traffic fTETTsl 1,232,470

% Share 28.3

JNPT Pipavav Chennai

Maharashtra Gujarat Tamilnadu

1,138,868 688,885 616,530 307,000

26.2 15.8 14.2 7.1

Tuticorin Tamilnadu

Mumbai Mundra Cochin (Kochi) Kolkata Vizag

Maharashtra Gujarat Kerala West Bengal Andhra Pradesh

219,000 212,110 185,000 159,242 128,750

5.0 4.7 4.3 3.7 1.0

Haldia Dock Central Govt. Kolkata West Bengal 45,517 Complex CT Source: "India Water Transport and Ports Sector" Updated August 2005. Note: The above terminals accounted for nearly 95% of India's container traffic in 2004-2005 * Ports not owned by the government are operated on a "build, operate and transfer" (BOT) arrangement ,except for Pipavav which is a private port.


18.2 The Regions of India 18.2.1 East & Northeast India The East & Northeast Region consists of: Andaman & Nicobar Islands; Arunachal Pradesh; Assam; Bihar; Chhattisgarh; Jharkhand; Manipur; Meghalaya; Mizoram; Nagaland; Orissa; Sikkim; Tripura and; West Bengal. The region had an estimated population of 287.0 million (2001). 18.2.2 North India The North Region consists of: Chandigarh; Delhi; Haryana; Himachal Pradesh; Jammu & Kashmir; Punjab; Rajasthan; Uttar Pradesh and; Uttaranchal. The region had an estimated population of 307.7 million (2001) . 18.2.3 South India The South India Region consists of: Andhra Pradesh; Karnataka; Kerala; Lakshedweep; Pondicherry and; Tamil Nadu. The region had an estimated population of 224.3 million (2001). The most attractive market in this region is Pondicherry which an estimated 2001 population of 974,345 people. Tamil Nadu is also an important market with an estimated population of 62.4 million. 18.2.4 West India The West India Region consists of: Dadra & Nagar Haveli; Daman & Diu; Goa; Gujarat; Madhya Pradesh and; Maharashtra. The region had an estimated population of 209.6 million (2001). The most attractive market in this region is Goa which has an estimated population of 1.3 million. Maharashtra is also an important market with an estimated population of 96.9 million. 18.2.5 Regional Retail Markets for Packaged Food The 35 states and union territories of India differ greatly in natural resources, religion, language, culture, food habits, living standards and purchasing power. As a result there are important differences among regions in the demand for packaged food. 18.3 Retail Sales of Packaged Food by Region The East & Northeast region is the least developed area and has the lowest per capita income of the four regions. Consumers prefer to purchase food from wet markets or through the unbranded channel. The unorganized channel is of major importance in this

region and branded food manufacturers are still adjusting their marketing mix. Retail sales of packaged food in East & Northeast India is expected to increase at an annual compound rate of 5.73% (on an INR basis) between 2004 and 2009 reaching INR 86.74 billion. This region is expected to experience the fastest growth from the smallest 2004 base. North India generates significant sales of such segments as bakery products, ice cream, sweet and savoury snacks, and dried processed food. Demand growth in North India is driven by increasing disposable incomes, the need for convenience food and increasing acceptance of western cuisine. These shifts are particularly apparent in rural areas. Consumers are moving from cheaper, unbranded products sold through the unorganised channel to packaged food. Retail sales of packaged food in North India is expected to increase at an annual compound rate of 4.22% (on an INR basis) between 2004 and 2009 reaching INR 139.32 billion. South India is an affluent market that is tough to access. The majority of South Indians have very conservative dietary habits, and tend to consume local cuisines. Retail sales of packaged food in South India is expected to increase at an annual compound rate of 4.78% (on an INR basis) between 2004 and 2009 reaching INR 115.96 billion. The population in West India has the highest per capita income of the four regions and are sophisticated consumers with a high level of product awareness. They are willing to accept and experiment with foreign foods such as: pastas, soup, breakfast cereals, sauces such as mayonnaise and salad dressings. Chinese and Italian cuisines are also accepted. Retail sales of packaged food in West India are expected to increase at a compound rate of 4.03% per year (on an INR basis) between 2004 and 2009 reaching INR 144.22 billion. 18.4 Forecast Value of Retail Sales of Packaged Food by Region. India. 2004 to 2009. Region 2004 (Billion INR) 65.77 113.30 91.88 118.28 389.22 2005 2006 (Billion (Billion INR) INR) 69.21 118.76 96.20 123.77 407.93 73.15 124.06 100.75 128.93 426.89 2007 (Billion INR) 77.43 129.32 105.67 134.10 446.53 2008 (Billion INR) 82.01 134.47 110.75 139.12 466.35 2009 (Billion INR) 86.74 139.32 115.96 144.22 486.24 Annual Rate of Increase* (%) 5.73 4.22 4.78 4.03 4.56

East & Northeast. North. South. West. Total.

Source: Based on Euromonitor estimates in Table 29 of "Packaged Food in India (January 2005)." Note: * Rates of increase of an exponential trend line fitted to the data. Cost of transportation In developed countries like the US, logistics costs comprising transportation costs account for 7-9% of the cost of the final product; warehousing cost account for about 1-2% and inventory holding costs for about 3-5%. In developing countries, logistics costs are estimated to be higher at around 15-25% of the final cost of the product due to lack of

adequate logistics system. In India, logistics cost is around 13%, comparatively higher than the developed countries. Indian Seaports India has more than 6,000km of natural peninsular coastline with over 12 major ports and 187 minor/intermediate ports, which link international supply chain network. These ports, the gateways to India’s foreign trade, handle 90% of seaborne trade in the country. There has been a dramatic change in India’s maritime trade since the removal of trade barriers. Previously, Indian ports used to handle only bulk cargos like oil, fertilisers and food grains. But abolishment of trade barriers has changed the entire maritime trade scenario. Trade in consumer goods, machinery, auto components, textiles and processed foods is on the rise and there is a growing trend towards containerisation in the country. Major ports handle over 70% of India’s total port traffic The major ports in India handle over 70% of total port traffic and these ports are governed by a port trust appointed by the Government of India and tariffs are regulated by the Tariff Authority of Major Ports. In 2005-06, the major ports together have handled 423.41m tonnes of cargo traffic out of the total 604.58m tonnes of cargo from all ports in the country. In the same year, Visakhapatnam port handled 56m tonnes of cargo against 50m tonnes in 2004-05, the highest in the country. Kolkata port ranked second with 53m tonnes of cargo against 46m tonnes in 2004-05. However, in terms of port traffic growth rate, Mumbai topped with a growth rate of 25% to 44m tonnes of cargo in 2005-06 against 35m tonnes in 2004-05. Both Kolkata and Jawaharlal Nehru Port Trust (JNPT) share the second position in terms of growth rate in port traffic at 15% each. The average output per ship berth day shot up to 9,298 tonnes in 2004-05 from 9,079 tonnes in 2003-04, while pre-berthing time at major ports has increased to six hours in 2004-05, from 4.9 hours in 2003-04. In 2004-05, the average turnaround time at major ports has improved to 3.41 days from 3.45 days in 2003-04. Ennore port recorded the lowest average turnaround time in 2004-05 with 1.68 days from 1.94 in 2003-04, while JNPT ranked second in terms of average turnaround time in 2004-05 at 1.84 days from 2.04 days in 2003-04. Air Cargo The cargo handled at Indian airports has gone up at a CAGR of 7.8% from 0.65m tonnes in 1995-96 to 1.3m tonnes in 2004-05. However, international cargo handled at Indian airports has increased at 6.8% per annum, while domestic cargo has increased at 9.9% per annum. The five major airports have accounted for about 90% of the total cargo handled in the country. During April-January 2005-06, all airports together handled 1,130,833 tonnes of cargo, which registered a growth rate of 9.4% against 1,031,224 tonnes of cargo during the same period in the previous year. However, international freight traffic has registered a growth rate of 11.4% to 754,647 tonnes against 677,460 tonnes during the same period in the previous yea r. Domestic freight traffic has registered a growth rate of 5.7% at 376,186 tonnes against 353,765 tonnes in same period in the previous yea r. Mumbai airport, the biggest of all the Indian airports, has handled around 31% of the total cargo. At present, about 50 carriers operate cargo and passenger services to and from India. The growth in airfreight cargo has improved the infrastructural facilities at many airports as there is better connectivity with many low-cost airline service providers starting operations in the domestic secto r. Higher economic growth, open sky policy, higher number of export promotion zones and better infrastructural facilities have attributed to the higher growth in air cargo industry in the country.

In India, cargo terminals are managed by Air India and Indian Airlines at most of the airports. However, at some airports, cargo terminals are managed by the State Trading Corporations. But new cargo terminals, which are under construction, are managed by the airports themselves, like Cochin and Chennai airports. In view of the growing air cargo and its projected growth in the country, Airport Authority of India (AAI) plans to set up cargo complexes at various airports in India. The AAI manages cargo terminals in the following airports in the country—Kolkata, Mumbai, Chennai, Nagpur, Guwahati, Lucknow and Coimbatore. Following are the various problems faced in the cargo terminals of India: • • • • • • • • • • Poor quality warehousing Complex procedure Participation of various intermediaries in cargo processing Improper implementation of Electronic Data Interchange Varying levels of documentation and handling between airlines and shipping companies Uncoordinated procedures without technology interface among ground-handling agencies Outdated handling equipment Absence of efficient storage systems and quick clearance of cargo Absence of improved inventory systems Inadequate X-ray facilities and absence of improved access to the cargo terminals.

Inland Waterways India has over 15,544km of navigated waterways including rivers, backwaters and canals, out of which only 5,200km of rivers and 485km of canals are suitable for mechanised transportation. Despite the lower cost of moving cargo by inland waterways, the share of inland waterways remains quite low. According to Inland Waterways Authority of India, about 20m tonnes of cargo is moved using the Inland Waterways Transport system, which accounts for just 0.15% of cargo transported by all inland transportation systems. At present, there are three classified national waterways: Allahabad-Haldia (GangaBhagirathi-Hoogly River), Sadiya-Dhubri (Bhramaputra) and Kollam-Kottapuram (Champakara canal and Udyogmahal canal). In addition, under the Tenth Plan (2002-07) period, the Government is planning to extend the national waterway system by declaring another five waterways as national waterways. These are: Barak River, KakinadaMercaunam Canal integrated with Godavari and Krishna Rivers, East Coast Canal integrated with Brahmani River system, Extension of National Waterways 3, and Damodar Valley Canal. The Central Inland Water Transport Corporation was established as a public sector undertaking in May 1967. It manages running of services from Kolkata to Bangladesh and to Assam as well as lighterage services in the River Hooghly and services from Kolkata to Allahabad. It also carries out the construction and repair of small and medium sized vessels as well as repairs of ocean-moving vessels. Road Transportation India, with its 3.3m km road network, has one of the largest road networks in the world, comprising 65,569km of national highways, 128,000km of state highways and 470,000km of major district roads and the rural and other district roads of 2.65m km. Roads and railways are the two major modes of surface transportation in the country. Roads have dominated railways both in terms of passenger numbers and in terms of freight traffic. In

India, road transport accounts for about 85% of passenger traffic (surface transport) and 70% of freight traffic, while railways constitute only about 15% of passenger traffic and 30% of freight traffic in the country. There has been a phenomenal growth in the registered goods vehicle from 82,000 in 1950-51 to 3,045,000 in 2001-02. The revenue generated by road transport has gone up from Rs47 crore in 1950-51 to Rs45,000 crore in 2001-02. Road Development Projects The Government of India and the state governments are implementing various road development projects and a lot of construction activities are going on in this secto r. The 5,846km Golden Quadrilateral ( National Highways connecting four metropolitan cities i.e. Delhi, Mumbai, Chennai & Kolkata having an aggregate length of 5846 Km. ) (Phase I of NHDP) is expected to be completed by Dec 2006, and the Phase II North-South-East-West corridor (7,300km) project is scheduled to be completed by the end of 2008. The Phase III, which involves upgradation of 10,000km of national highways, is expected to be completed by December 2009. In addition, the scope of NHDP has been enhanced to cover four additional phases by covering 27,500km. In the Union Budget of 2006-07, a new project known as the Special Accelerated Road Development Programme covering 7,639km of road has been approved for the NorthEastern region. Railways Indian Railways is one of the largest and busiest rail networks in the world. It is divided into passenger and freight transport. Freight constitutes over 65% of its total revenue. Indian Railways handled around 602m tonnes of freight (bulk commodities) in 2004-05. In the freight segment, 95% of revenue comes from the bulk commodities such as iron ore, cement, fertilisers, coal and food grains; coal alone constitutes about 50% of the revenue from the bulk commodities. Indian Railways covers almost all parts of the country, with routes covering a total length of 63,940km. As of 2005, Indian Railways owned a total of 216,717 wagons, 39,936 coaches and 7,339 locomotives, running a total of 14,244 trains daily. In 2004-05, coal constituted about 45% ie 271.4m tonnes of total bulk cargo handled by Indian Railways; food grains contributed 8% with 46.52m tonnes, iron and steel contributed 8% with 44.26m tonnes and cement contributed 9% with 53.77m tonnes. Warehousing In 2005, major ports in India had throughputs of 423.41m tonnes of cargo, while major airports in the country handled around 1.5m tonnes of cargo. On the other hand, road transportation in India handled over 77% of cargo, accounting for over 1,176 billion tonnes in the same year. Total costs of warehousing and material handling in India was estimated to be over Rs37,500 crore, which was more than 9% of total logistics costs in the country. In India, public as well as private sector organisations are involved in developing warehousing and storage facilities. In the public sector, there are two agencies engaged in providing large-scale warehousing/storage capacities for industrial products in the country. They are Central Warehousing Corporation (CWC), Food Corporation of India (FCI) and 17 State Warehousing Corporations (SWC).

CWC CWC is operating 517 warehouses across the country, with a storage capacity of 10.3m tonnes. It provides warehousing services for different kinds of products ranging from agricultural produce to sophisticated industrial products. Warehousing activities of CWC include food grain warehouses, industrial warehouses, custom-bonded warehouses, container freight stations, inland clearance depots and air cargo complexes. Apart from storage and handling, CWC also offers services in the area of clearing and forwarding, handling and transportation, procurement and distribution, disinfestations services, fumigation services and other ancillary activities.

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