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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

A PROJECT ON

“IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA”

SUBMITTED TO: Dr. Neeraj Aswal


Faculty, Agriculture and Rural Development

SUBMITTED BY
Archana Gupta
ENROLLMENT NO. 1305C00015

SUBMISSION DATE: 26.02.2018

ICFAI LAW SCHOOL,


THE ICFAI UNIVERSITY,DEHRADUN

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Table Of Contents

ACKNOWLEDGEMENT………………………………………………………………………..….3
OBJECT AND METHODOLOGY…………………………………………………………....……...4
INTRODUCTION…………………………………………………………………………………..5
Chapter 1: Investment prospects for food processing in India………………………………6
Chapter 2: Challenges faced by India’s food processing sector……………………..………7
Chapter 3: Key Drivers of Growth in Food Processing…………………………………..8
Chapter4: Government Support……………………………………………………………….9

CONCLUSION…………………………………………………………………………………….11
BIBLIOGRAPHY………………………………………………………………………………......13

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Acknowledgement

At the very outset, I would like to thank all those who were the ‘guiding lights’ behind this
project. First of all I would like to take this opportunity with esteem privilege to express
my heartfelt thanks and gratitude to my course teacher Neeraj Aswal, Faculty,
Agriculture and rural development, ICFAI LAW SCHOOL) for having faith in me in
awarding me this very significant project topic of such importance. His consistent
supervision, constant inspiration and invaluable guidance have been of immense help in
carrying out the project work with success.
Next, I would like to thank my colleague’s for lending me a helping hand during the
shaping up of the project; subsequently I would like to thank my university for allowing
me to avail the computer lab and internet facilities without which this project would have
been in a distant realm.
I extend my heartfelt thanks to my family and friends for their moral support and
encouragement. I also take this opportunity to thank all those people who contribute in
their own small ways but fail to get a mention.

Archana Gupta
1305C00015
.

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Object and Methodology (Sample)

The present research work on the topic of “Impact of FDI on Food Processing Industry
in India” is both explorative and analytical. It sought to construct, throughout the analysis
of secondary data. The documents of government policy, financial data, and financial
static provided by international authorities are analyzed and try to find out the changes
and loopholes in it. Published works by eminent authors are also consulted during the
research.

Since, the present topic was purely academic it was inevitable and inherently mandatory
that only secondary sources be made use of. Therefore, I have made use of journal articles,
leading books and of course the source of knowledge for students: Internet.

Archana Gupta

1305C00015

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

INTRODUCTION

Food processing industry in India has gained prominence in the recent years and is poised
to attain greater heights. Availability of raw materials, changing lifestyles, coupled with
appropriate fiscal policies has given a considerable push to the industry’s growth. This
sector serves as a vital link between the agriculture and industrial segments of the economy,
which needs to be strengthened in the future in order prevent the wastage of valuable
resources. Adequate focus on this sector could greatly alleviate our concerns on food
security in the coming years.
Foreign direct investment (FDI) is an international financial flow with the intention of
controlling or participating in the management of an enterprise in a foreign country. FDI
plays an important role in India’s growth dynamics. There are several examples of the
benefits of FDI in India. FDI in the food retail sector can expand markets by reducing
transaction and transformation costs of business through adoption of advanced supply
chain and benefit consumers and suppliers i.e. the farmers. India being the second most
populous country in the world, has immense scope for retail expansion as along with time,
urbanization and consumerism has also been increasing.
Foreign funding has already been approved in India’s food processing industry since 1991.
Changing lifestyles, breakdown of the joint-family system, increasing number of working
wives and Western influence in the urban areas are fuelling a demand for packaged foods.
India already has all the requirements for a head-start in the food-processing industry. Basic
materials such as food grains, pulses, vegetables, meat and fish can be sourced locally or
easily imported if local availability is inadequate. Foreign investors can own 100 per cent
equity in plants they set up, or take on a local partner. Many Indian firms are eagerly
seeking foreign partners for joint-ventures to avail of their technological advantage.

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Chapter 1: Investment prospects for food processing in India

Despite its strong agricultural production base, a significant amount of food produce gets
wasted in India due to inadequate infrastructure such as packaging facilities, storage,
transportation, cold chain, and low levels of processing. According to the Ministry of Food
Processing Industry (MoFPI), post-harvest losses account for US$1.5 billion (Rs 92,000
crores) annually.

Overall, less than 10 percent of the total food produced is processed into value added
products in India. In comparison, the US and China process 65 percent and 23 percent of
their produce, respectively. Similarly, other developing countries such as Thailand,
Philippines, and Brazil process as high as 30, 78, and 70 percent of their produce,
respectively.

India’s vast agricultural resources alone creates huge potential for investments in its food
processing and equipment industry. Major areas holding scope for value added processing
are in the canning, packaging, dairy and food processing, frozen food, and thermo-
processing industries.

Currently, food processing accounts for almost one-third of the total food market in India.
The food processing industry is valued at US$258 billion, and is the fifth largest industry
domestically in terms of production, consumption, export, and expected growth in the
country. It contributes to around 14 percent of manufacturing Gross Domestic Product
(GDP) and 13 percent of India’s total food exports.
According to a 2017 report by the Associated Chambers of Commerce and Industry of
India (ASSOCHAM), the country’s food processing industry is expected to reach US$482
billion by 2020, driven by growth in organized retail, changing consumer behaviour, and
increasing consumerism in tier II and tier III cities.

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Chapter 2: Challenges faced by India’s food processing


sector

The key challenges identified overall for the food processing sector in India are as follows:

Poor supply chain linkages: India’s agriculture market has a long and fragmented supply
chain that results in high wastage and high costs, especially due to seasonality,
perishability, and variability of produce.

Infrastructure bottlenecks: The export related infrastructure for agri-produce is grossly


inadequate, especially at sea ports and airports. More than 30 percent of the produce from
the fields gets spoilt due to poor post-harvesting facilities and lack of adequate storage
infrastructure.

Lack of skilled manpower: The agricultural workforce is inadequately skilled across


different levels of food processing.

Low adherence to quality standards: India lacks basic standardization and certification
infrastructure. Given the size of the food processing industry, there is a huge gap in the
availability of laboratories, trained manpower, and certification agencies.

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Chapter 3: Key Drivers of Growth in Food Processing

Consumer spending on food


The Indian food and grocery market is the world’s sixth largest, with retail contributing
to 70 percent of the total sales. On average, Indians spend 31 percent of their total
earnings on food and grocery. In contrast, consumers in the US spend only 9 percent,
while in Brazil and China, the expenditure on food is 17 percent and 25 percent,
respectively.

Change in consumer taste and preference


With growing awareness, better health consciousness, need for convenience, and
improving lifestyles, the share of processed food is gradually and steadily increasing on
consumer plates across the world. In India, this change is bolstered by rising per capita
income, a large young population (60 percent below 35 years of age), deeper retail
penetration, and a growing number of nuclear families. India’s demands for processed
food is, therefore, expected to increase to about 8.5 percent by the end of 2017.

Growth in food exports


There is a rise in the demand for Indian processed food in the international market. In
addition to changing consumer tastes in foreign markets, approximately 30,843,419 16
people of Indian origin live abroad (Ministry of External Affairs, India). According to
government’s estimates, Indian exports of processed food and related items rose at a
compound annual growth rate (CAGR) of 11.74 percent during 2011-16, reaching
US$16.2 billion.

With India’s increased integration with the global economy and proximity to important
foreign markets such as the Middle Eastern countries and Africa, the country’s food
processing industry is also witnessing greater export potential.

Availability of cheap workforce


India has a relatively cheaper workforce that can be effectively utilized to set-up a low
production base for the domestic and export market. Production costs in India are lower
by about 40 percent in comparison to most developed and developing countries.

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Chapter 4: Government support

The government of India recognizes the need to encourage India’s food processing sector
given the country’s immense potential. Accordingly, the Indian government has allocated
nearly a billion dollars under the twelfth five-year plan (2012-17) to implement various
schemes for the promotion and development of the food processing sector.

Under these schemes, financial assistance in the form of grants-in-aid is provided to


entrepreneurs and state government agencies for the implementation of projects like mega
food parks, cold chain management, research & development, quality assurance, and skill
development.

The below schemes and policies aim to make the sector more competitive and market
oriented:

 Foreign Direct Investment (FDI) policy: The government has permitted 100
percent FDI for trading through e-commerce and manufacturing of food products
through automatic route. Further, FDI is now allowed in multi-brand food retail and
India is looking to double food processing levels to 20 percent. According to the
Department of Industrial Policies and Promotion (DIPP), the food processing
industry has received around US$7.47 billion of FDI in the period April 2000 to
December 2016.

 Fiscal benefits: The government offers several fiscal incentives to small and
medium enterprises for setting up food processing facilities. Some of these
incentives include capital subsidies, tax rebates, and reduced customs and excise
duties. Additionally, the government has constituted a fund of US$312 million (Rs
2000 crore) with the National Bank of Agriculture and Rural Development
(NABARD) to provide concessional loans to mega food parks and units established
therein.

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

 Increased focus on infrastructure: The government has established 60 fully


equipped Agri-Export Zones (AEZs), in addition to 42 mega food parks and 128
cold chains, to boost agricultural and food processing exports. Under the 2016-17
Union Budget, the federal government allotted US$19.65 million for developing
mega food processing parks. Moreover, in November 2016, the Food Safety and
Standards Authority of India (FSSAI) launched a major scheme to upgrade food
testing laboratories in India.

 Revamped national mission on food processing: The government is taking steps


to launch a new scheme – SAMPADA or Scheme for Agro-Marine Processing and
Development Of Agro-Processing Clusters by 2019-20. The overall mission will
involve the launch of three separate schemes – creation and expansion of food
processing and preservation capacities, new agro-processing clusters, and
establishing backward and forward linkages. SAMPADA will have an outlay of
US$935 million (Rs 6000 crores).

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Conclusion

The paper clearly indicates that a growing industrial sector is crucial to greater economic
development and particularly in an emerging country like India, where growth with equity
is a primary policy thrust, the optimum development of food processing sector will
contribute significantly in tackling several developmental concerns such as prevention of
wastage of food, the improved nutrition etc. by serving as a bridge between agriculture and
industry.On the basis of the study, the findings and conclusion of this paper is that food
processing industry is of enormous significance for India's development. This sector has
synergized the development process and promoted the growth of the nation to a great
extent. Indian food market now provides a big market for their products. FDI has also
played a major role in the transformation and development of India's food processing
industry. The food processing sector of India has continuously recorded high growth rates
in its contribution towards GDP and economic development of the country. Table 2 clearly
shows the increasing growth of food processing sector and its contribution to the GDP of
India. The GDP at factor cost of agriculture, manufacturing and FPI (Food Processing
Industries) consistently increased in all years from 2004-05 to 2011-12. By a favorable
policy environment and demand push impact of a young consuming class with growing
disposable incomes, India offers significant investment opportunities in the food business
sector and thus has become an attractive destination for investments by the foreign
investors.

This sector also has a large potential for exportable commodities. Table 4 shows the overall
exportsby FPI has risen from Rs.10, 832 (US $ Million) in year 2006-07 to Rs.36, 057 (US
$ Million) in year 2012-13. Also the percentage share of FPI sector has also increased from
9.6 percent in 2006-07 to 12.0 per cent in year 2012-13. Inspite of these all growth impacts
of food processing industry of India, the government must address some significant
constraints such as exploration of untapped potentials of industry, value-addition in un-
processed categories of food must be raised for the domestic and international demand,
investment in supply chain in order to improve costs, tighten supplies and minimize waste

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

must be adoptedand thus the focus towards food processing industry as a priority sector
must ensure policies to support investment in this sector and attract more FDI inflows.
Thus, the India should continuously strive to be a competitive, efficient and attractive
investment destination through appropriate policy initiatives.

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Bibliography

Asha (2013), “Emerging sectors of Indian Economy”, Global Journal of Management and
Business Studies, Vol. 3, No: 5, pp. 491-196.

Athukorala, P.C. and Sen, K. (1998), “ProcessedFood Exports from Developing


Countries: Patterns and Determinants”,

(Mimeo). Baisya, R. K. (2004), “Changing Face of Processed Food Industry in India


Recent Acquisitions in Indian Food Industry”, Processed Food Industry, February.

Behera, S.R. (2009), “FDI and Export competitiveness: An Analysis of Food Processing
Industry of India”, AIUB Journal of Business and Economics (AJBE), Vol. 8, No. 2, pp.:
1-22.

Desai, Vasant (2003), “Small scale Industry and Entrepreneurship”, Himalaya Publishing
House, New Delhi.

FICCI (2007), “A report on Processed Food and Agribusiness: Opportunities for


investment in India”, Mumbai, India.

FICCI (2010), “Bottlenecks in Indian Food Processing Industry”, Mumbai, India.

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TOPIC: IMPACT OF FDI ON FOOD PROCESSING INDUSTRY IN INDIA

Other Important Sources for Data relating to food processing industries

http://dipp.nic.in
http://mospi.nic.in
www.apeda.gov.in
http://rbi.org.in
www.fao.org
http://agricoop.nic.in

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