Agriculture and Food Processing Industry in India: Opportunities for Foreign Businesses

Ankita Tiwari

22 May, 2024

The agriculture and food processing industry in India is known as the “sunrise sector” of India as it is one of the largest industries when it comes to production, consumption and export. Major portions of the agriculture and food processing industry in India cover fruits and vegetables, poultry, meat processing, dairy industry, fisheries and food retail, etc. India has huge growth potential and offers huge opportunities for investments in the food retail sector. The agriculture and food processing industry enjoys favourable economic policies and attractive fiscal incentives. India has the sixth-largest Food and Grocery market in the entire world and constitutes almost 65% of India’s retail market. The Economic Survey of 2021-22 stated that the food processing industry has been growing at an annual growth rate of 11.18% for the last 5 years.

Foreign Investments in Agriculture and Food Processing Industry

Under the current Foreign Direct Investment Policy (FDI Policy) in India, 100% FDI in the agriculture and food processing industry is permitted through the automatic route.  For tea plantations or the tea sector and for the manufacture of food products to be traded via e-commerce, 100% FDI is permitted only through the Government route. FDI in the food processing industry increased by 86% in the Financial Year (FY) 2022 as compared to the previous year. This industry has witnessed an equity inflow of USD 709.72 million in FY 2022. At present India is the second best option for foreign investors and might soon be on the top of the list as China which is at present the number one option for foreign investors is regulating its food market by curbing exports and increasing stock for local consumption due to shortage in their country. The agriculture and food processing industry in India experienced robust growth during COVID-19. This has facilitated even greater FDI in this sector.

Opportunity Size

The Agriculture and Food Processing Industry in India is the sixth largest in the world. India is ranked fifth when it comes to production, consumption, exports, etc. The Indian Agriculture and Food Processing Industry emerged as a high-growth and high-profit sector. Indian government via the Ministry of Food Processing Industries (MoFPI) has taken several measures to encourage investments in this industry by approving proposals for foreign ventures, foreign collaborations, industrial and trade licenses and 100% export-oriented units. The Gross Value Addition (GVA) in the food processing industry has compounded at a rate of 7.27% from FY 2016-17 to 2020-21. The online food market is also experiencing exponential growth with online food platforms such as Swiggy, Zomato, FoodPanda, etc.

Government Policy and Measures

To boost the agricultural and food processing industry in India, the MoFPI is taking several necessary steps. Boosting foreign investment in Agriculture and Food Processing industry in India plays an essential role in connecting Indian farmers to not just national consumers but also international consumers. Some of the measures taken by the government are as follows:

1. The Government launched the Pradhan MantriKrishiSinchayeeYojana Scheme (PMKSYS). Under this projects in the nature of 41 Mega Food Parks, 60 Agro-Processing Clusters, 356 Cold Chain Projects, 317 proposals under the Creation or Expansion of Food Processing and Preservation Capacities, 61 Creation of Backwards and Forward Linkages Projects and 6 Operation Green Projects have been approved by the government.
2. The Pradhan Mantri Formalization of Micro Food Processing Enterprises (PMFME) Scheme has been implemented to provide financial, technical and business support for setting up 2 lakh Micro Food Processing Enterprises (MFPEs) across the country.
3. A production-linked incentive scheme has been implemented to create and promote global food manufacturing.
4. To support the food processing industry, the Government has made various policy reforms such as:
5. Food and agro-based processing units and cold chain activity were included under the Priority Sector Lending (PSL) in 2015.
6. To ease doing business, the Food Safety and Standards Authority of India (FSSAI) shifted to an ingredient and additive-based approval process in the year 2016 from product-by-product approval.
7. A special food processing fund was set up with the National Bank of Agriculture and Rural Development (NABARD)^[1] to provide affordable credit for setting up Mega Food Parks (MFPs) along with processing units in the MFPs and also Agro-processing clusters and individual manufacturing units within them.
8. The Government has formulated a liberal and transparent policy for attracting FDI by allowing the majority of the sectors under the automatic route.

Investable Projects

Agricultural projects

1. Horticulture, apiculture, floriculture, fungiculture, especially mushrooms and vegetable farming.
2. Animal husbandry, pisciculture and aquaculture.
3. Seed development.
4. Other services related to agriculture and allied sector.

Food processing projects

1. Fruits and vegetables include preserved, candied, glazed, crystallized fruits and vegetables, juices, jellies, jams, powders, soups, ready-to-eat curries, etc.
2. Alcoholic beverages such as beer, wine, etc. Other beverages such as fruit-based or cereal-based beverages, vinegar, yeast preparation, etc.
3. Dairy Products including milk, curd, yogurt, cheese, cottage cheese, ice cream, sweets, etc.
4. Confectionery and bakery including cakes, pastries, cookies, biscuits, etc, are the products manufactured by confectionery and bakery.
5. Grain processing including the Oil milling sector, rice, pulses or flour milling sectors.
6. Consumer Food products including packaged food, spices, packaged drinking water and soft drinks.
7. Meat and poultry including eggs, meats, sausages, fish, fish processing and freezing units, seafood, value-added products, etc.
8. Supply Chain infrastructure; is a niche area of investment that has the potential of food processing infrastructure such as cold storage, abattoirs, food parks, etc.
9. Food Processing Equipment which includes canning, dairy and food processing packaging, frozen food or refrigeration, etc.
10. The establishment of food parks is a unique opportunity for entrepreneurs, especially foreign investors willing to enter the Indian market.
11. Food preservation and packaging business.
12. Food additives and nutraceuticals.

Role of FDI in Agriculture and Food Processing Industry in India

Foreign Investments in Agriculture and Food Processing Industry give a favourable boost to the growth and development of a country. Since India is predominantly an agrarian economy, foreign investments play a crucial role such as:

1. It helps keep the agriculture and food processing industry in India at par with the rest of the world.
2. It leads to the inflow of modern scientific and technological advancements.
3. Foreign capital infusion results in increased productivity which facilitates exports.
4. Foreign capital also infuses new technologies in India and contemporary technologies help the farmers boost production.
5. Foreign investment increases productivity which in turn enhances employment in the industry.

Conclusion

Foreign Investments provide great opportunities for the Indian economy. As India has always been an agrarian economy by nature, foreign investments boost the agriculture and food processing industry. However, it was only after Covid-19 struck, it was realized that the agriculture and food processing industry is one of the most sustainable among all the sectors which led to greater investment in this sector. At present a conclusion can be drawn that India’s environment for foreign investment in the agriculture and food processing industry is favorable.

Read our Article:Foreign Investments from Neighbouring Countries in India