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Food processing is a method whereby agricultural products are converted into food products that are fit for consumption. The India’s food ecosystem offers huge investment opportunities for stimulating growth in the food retail sector, attractive fiscal incentives and favourable economic policies. As compared to other Asian countries, India holds a large amount of agricultural land along with favourable climate conditions. India is a global centre for food processing from wheat to rice, vegetable oil to sugar. India is the world’s largest producer of fruits, vegetables, spices and dry peas. India has travelled long way in the food processing industry in India since the green revolution in the1960s. The Foreign Direct Investment equity inflow in the food processing sector for April 2021 to March 2021 is $709.72 million.
Moreover, it is expected that the food processing industry is expected to touch $470 billion by 2025 and the spending capacity of India is to grow to $6 billion by 2030. The foreigner willing to invest in India can find the food processing industry a more profitable and demanding industry. The present article will discuss the industry approach and the expected opportunities available to a foreigner to invest in India’s food processing industry.
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The food processing industry plays a significant role in uplifting the economy of India and linking the Indian farmers to consumers in domestic and international markets. The Indian government is making all efforts to induce foreign investment in the food processing industry across the value chain. The food processing industry offers 12.3 % of the employment generation is in the registered factory sector, whereas the unregistered food processing industry offers employment to 5.1 million workers. Since major sectors forming the food processing industry in India are sugar, grains, edible oil, beverages and dairy products, the foreign entities may find these opportunities to invest in these sectors so as to earn profits in the market.
Under the food processing industry in India, the foreigner is open to investing in the following sectors:
1. Fruits & vegetables: The Government of India, through MoFPI (Ministry of Food Processing Industries is taking necessary steps to increase investments in the food processing industry. The country has sanctioned 41 Mega Food Parks to be set up under the Mega Food Park Scheme. There lies a huge opportunity for the foreigner to harness the opportunity of fruit & vegetable processing in India in the form of canned, pulp, puree, paste, sauces, snacks, dressing, flakes, dice, canned juices, pickles etc. The foreign entity can invest in Andhra Pradesh, Maharashtra, UP, MP, and Gujarat for fruits and invest in UP, West Bengal, MP, Bihar, Gujarat, Maharashtra, and Odisha for vegetables. Looking at the development in the export of fruits & vegetables, the value stood at $205.79 million in May 2022; there is a positive sign that the said figure is expected to grow in the long run. Moreover, the Foreign Direct Investment for fruits & vegetables in the food processing industry is 100%.
2. Fisheries: The fisheries sector in India grew at an impressive growth of 14.3% from 2019-2020 to 2021-2022. Fish production in India has reached an all-time high of 16.19 Million Metric tons during 2021-2022. India is the 2nd largest fish producer in India, holding a figure of exports of more than Rs 47,000 crore. The sector is the only single largest export with a growth of 6% to 10% in the previous 5 years. Further, in order to uplift the sector, the government has provided various opportunities to the entity by inducing Rs 3,000 crore from Rs 7,523 crore from the Fisheries and Aquaculture Infrastructure Development Fund. Moreover, 100% FDI is allowed in the fisheries sector through an automatic route. The Indian government is also aiming to privatise the sector, which will increase the participation of private entities and remove the barriers for a foreigner to invest in India in the fisheries sector. The foreign entities can offer frozen and canned products mainly in fresh form.
3. Meat & Poultry: India has the world’s largest livestock population. The nation produces approx. 5.3 million metric tons of meat & 75 billion eggs annually. It is the second-largest producer of buffalo meat and 2nd largest producer of goat meat. The largest meat producing state in the country is UP, producing almost 23 % of the total meat, followed by West Bengal, producing 12 % and Andhra Pradesh producing 7%. The foreign entities willing to invest in India enjoys the benefit of 100% foreign direct investment through automatic route in the food processing industry. There is a concessional rate of customs duty applicable on imported equipment under the projects imported benefits. The tax deduction on capital expenditure is allowed at the rate of 150% for setting up the cold chain or warehouse for the storage of produce. Henceforth, the meat and poultry sector is best for the foreigner who is willing to make an entry into the food processing industry.
4. Milk & Dairy: India Ranks 1st in milk production worldwide. The nation contributes approximately 23% of global milk production. The Indian government, in association with the Department of Animal Husbandry & Dairying in June 2020, has announced a 2.1 billion dollar infrastructure development fund with an interest subsidy scheme to promote investment by private players and MSMEs in the dairy industry. The infrastructure gap of 120-130 Million Metric tons of 18-20 billion dollars. The Milk & Diary is proven to be the best industry for the food processing industry. The market for butter and spread is expected to grow at the rate of 8%, estimating around 4.2 billion dollars by 2026. The foreigners willing to invest in India enjoy the benefit of 100% FDI permitted for animal husbandry, including the breeding of dogs, fish farming and aquaculture. Moreover, 100% FDI through government approval route for trading in respect of food products manufactured or produced in India. Henceforth the milk & dairy sector could be the sector to invest in if the foreign entity is willing to expand its business.
5. Cereals: The Cereals market in India is expected to grow at 6.50% in the coming years. The cereals have long been a staple of Indian Breakfast. Breakfast cereals are increasingly becoming popular in India. The demand for the cereals is increasing day by day. Muesli, granola and hot cereal items are gaining popularity in India. Oats, wheat bran and porridge, are the best example of hot cereals. The taste preference of India are more inclusive towards hot cereals; hence the demand for such products is increasing daily. The foreign entity willing to invest in India can invest in the food processing industry and can grab the opportunity of providing ready-made breakfast cereal meals to Indian consumers. Looking at the demand for cereals, the foreign entity can earn good profits and sustain itself in the long run. Moreover, India is a rich source of natural resources, and the abundance of natural resources will make foreign entity lower their operating cost. Since the FDI in the food processing industry is 100%, foreigners can invest in this sector without any regulatory blockages.
The other sectors in which the foreigner can invest in the food processing industry in India will be the consumer Industry (Confectionary, chocolates, Soft/Aerated Drinks) and Plantation (Packaged Tea, Coffee, Cocoa, Coconut etc.)
The following are some of the best examples that a foreign investor can invest in if willing:
The Food Processing Industry in India is a flouring market. The existence of raw materials in abundance makes India a perfect place to invest in by foreigners. In order to increase foreign investment in India and to remove the barrier between the farmers and direct consumers, the Indian government is offering various subsidies and granting funds under various schemes. To encourage the participation of private players in the Food Processing Industry, the Indian government is offering various tax concessions and offering land at a lower interest rate. Therefore the investment opportunities in India in the food processing industry in India by a foreigner.
Read Our Article: Learn About Food Processing Industry
An Advocate by profession, Nikhil Mogha holds experience in the field of Business and Securities law. He has done his Masters of Law in Corporate Law from Guru Gobind Singh Indraprastha University, New Delhi. He is also versed with the drafting and research work in the field of Company Law, Banking Laws and Contract Laws.
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