Food Processing Industry

BY: YOGIN VORA ON MAY 7, 2009 4 COMMENTS

Stock market investing Internet Marketing For investing in INTRODUCTION India is the worlds second largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector contributing around 26% of Indias GDP. The total food production in India is likely to double in the next ten years and there is an opportunity for large investments in food and food processing technologies, skills and equipment, especially in areas of Canning, Dairy and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry, Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important sub-sectors of the food processing industry. Health food and health food supplementsis another rapidly rising segment of this industry, which is gaining vast popularity amongst the health conscious. As a result of several policy initiatives undertaken since liberalisation in August 1991, the industry has witnessed fast growth in most of the segments. As per a recent study on the food processing sector, the turnover of the total food market is approximately Rs.250, 000 crores (US $ 69.4 billion) out of which value-added food products comprise Rs.80, 000 crores (US $ 22.2 billion). Since liberalisation in Aug91 and up-till Feb 2000 proposals for projects of over Rs.53, 800 crores (US.13.4 billion) have been proposed in various segments of the food and agro-processing industry. Besides this, Govt. has also approved proposals for joint ventures, foreign collaboration, industrial licenses and 100% export oriented units envisaging an investment of Rs.19, 100 crores (US $ 4.80 billion) during the same period. Out of this, foreign investment is over Rs. 9100 crores (US $ 18.2 billion). Processed food exports were at over Rs.13, 500 crores (US $ 3.2 billion) in 1998-99. Out of these exports, rice accounted for 46%, whereas marine products accounted for over 34%. Primary food processing is a major industry with lakhs of rice-mills/hullers, flourmills, pulse mills and oil-seed mills. There are several thousands of bakeries, traditional food units and fruit/veg/spice processing units in unorganised sector. In the organised sector, there are over 820 flourmills, 418 fish processing units, 5198 fruit/veg processing units, and 171 meat-processing units.
Facts & Statistics

India is one of the worlds major food producers but accounts for less than 1.5 per cent of international food trade. This indicates vast scope for both investors and exporters. Food exports in 1998 stood at US$5.8 billion whereas the world total was US$438 billion.

The Indian food industrys sales turnover is Rs 140,000 crore (1 crore = 10 million) annually as at the start of year 2000. The industry requires about Rs 29,000 crore in investment over the next five years to 2005 to create necessary infrastructure, expand production facilities and state-of-the-art- technology to match the international quality and standards.

The office of the Agricultural Affairs of the USDA / Foreign Agricultural Services in New Delhi says that one of Indias proudest accomplishments has be en achieving a tenuous self-sufficiency in food production and that the country produces a wide variety of agricultural products at prices that are at or below world values in most cases.

The Indian palate is accustomed to traditional foods, mostly wheat and rice-based, rather than potato and corn-based western palate. In marketing perspective, this is considered an important factor for foreign marketers.

Indias middle class segment will hold the key to success or failure of the processed food market in India. Of the countrys total population of one billion, the middle class segments account for about 350-370 million. Though a majority of families in this segment have non-working housewives or can afford hired domestic help and thus prepare foods of their taste in their own kitchens, the profile of the middle classes is changing steadily and hired domestic help is becoming costlier. This is conducive to an expansion in demand for ready-to-eat Indian-style foods.

Reasons for Investing in Indian Food Processing Sector

It is the seventh largest country, with extensive administrative structure and independent judiciary, a sound financial & infrastructural network and above all a stable and thriving democracy. Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value added products.

It is one of the biggest emerging markets, with over 900 million population and a 250 million strong middle class. Rapid urbanisation, increased literacy and rising per capita income, have all caused rapid growth and changes in demand patterns, leading to tremendous new opportunities for exploiting the large latent market. An average Indian spends about 50% of household expenditure on food items.

Demand for processed/convenience food is constantly on the rise. Indias comparatively cheaper workforce can be effectively utilised to set -up large low cost production bases for domestic and export markets. Liberalised overall policy regime, with specific incentives for high priority food processing sector, provide a very conducive environment for investments and exports in the sector. Very good investment opportunities exist in many areas of food processing industries, the important ones being: fruit & vegetable processing, meat, fish & poultry processing, packaged, convenience food and drinks, milk products etc.

State-wise processed food industry

SR No.

State

No. Of units

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

Andhra Pradesh Assam Bihar Chandigarh Daman & Diu Delhi Pondicherry Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Karnataka Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Nagaland Orissa Punjab Rajasthan Tamil Nadu Tripura Uttar Pradesh West Bengal Others Total

10,183 734 433 36 5 125 42 34 1,270 600 46 69 1,221 1,110 1,302 2,420 9 3 5 425 1,196 515 3,792 22 2,652 1,089 9 29,407

SECTORS COVERED UNDER THE INDIAN FOOD PROCESSING INDUSTRY Indias food processing sector covers fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation, grain processing and other consumer product groups like confectionery, chocolates and cocoa products, Soya-based products, mineral water, high protein foods etc. Promising sub-sectors are, Soft-drink bottling, Confectionery manufacture, Fishing, aquaculture, fishprocessing, Grain-milling and grain-based products, Meat and poultry processing, Alcoholic beverages, Milk processing, Tomato paste, Snack food, Fast-food, Ready-to-eat breakfast cereals, Ice-creams, Food additives, flavours, Food packaging, Refrigerated food handling, Supermarkets, etc.
Fruit and Vegetable Sector

Horticultural crops in India are currently grown in 12 million hectares, which represents 7 percent of Indias total cropped area. Annual horticultural production is estimated at 100 million metric tonnes,

which is over 18% of Indias gross agricultural output- India is the second largest producer of fruits, after Brazil. In vegetables Indias production is exceeded only by China. Indias share of world trade in this sector is only around one percent. Indias major exports are fruit pulps, pickles, chutneys, canned fruits and vegetables, concentrated pulps and juices, dehydrated vegetables, and frozen fruits and vegetables. This sector has attracted a total investment of US$ 1954.2 million since the initiation of the liberalisation process, including foreign investment of US$ 219.7 million. The number of fruit and vegetable processing units, the installed processing capacity and production of processed items are going up steadily. The countrys share in the world trade of processed fruits and vegetables is still less than one percent. As such, abundant investment opportunities are there in the expanding domestic market and export arena. An increasing acceptance of new products with market development efforts is seen. Changes in export-import policies and exchange rate adjustments have helped improving the export potential. There is a good international demand for certain fresh fruits as well as processed fruits products. Fresh fruits identified as having good export potential are: mango, grapes, banana, lichee and exotic fruits like sapota, ber, pomegranate, custard apple and other tropical fruits. Among vegetables, the items identified as having good export potential are: onion, potato and green traditional vegetables like: okra, bitter gourd, green chillies and other seasonal vegetables. Many non-traditional vegetables mainly processed mushrooms & gherkins, and other like: asparagus, celery, bell pepper, sweet corn, green and lima beans and organically grown vegetables are also increasingly being exported. According to latest official statistics, India exported processed fruits and vegetables worth Rs 5240 million in 1997-98. The horticulture production is around 102 million tonnes. Foreign investment since 1991, when economic liberalisation started, stood at Rs 8,800 crore. Products that have growing demand, especially in the Middle East countries include pickles, chutneys, fruit pulps, canned fruits, and vegetables, concentrated pulps and juices, dehydrated vegetables and frozen fruits and vegetables. India is the second largest country in world producing fruits and vegetables. However, the processing of such products is less than 2% as against 70% in European countries. The 1% share of export of such processed foods from India in the world indicates that there is lot of scope of developing agro-based industries. The agro based industry, is considered as high risk industry and therefore, the entrepreneurs are not coming forward to establish such type of industries. The risks involved are: It is seasonal industry. It has to depend upon natural functioning and vagaries of nature. The raw material is perishable and shelf life of finished product is limited. Inconvenient location of industry. Non-availability of trained managers and operators. Lack of incentives from the government.

Fishing and Fish Processing Industry

With its over 8000 km. of coastline, 3 million hectares of reservoirs and 1.4 million hectares of brackish water, India has vast potential for fishes from both inland and marine resources. India has the seventh largest marine landing in the world with an extensive coastline of 7500 km, an exclusive economic zone of 2 million sq.km, a 29,000 km stretch of rivers and canals, 1.45 million hectares of reservoirs and 0.75 million hectares of tanks and ponds. Over the last decade or so, the organized corporate sector has become involved in preservation and export of coastal fish. The fishery resources of India are grossly under-utilized. Marine fish found in India include prawns, shrimps, tuna, cuttlefish, squids, octopus, red snappers, ribbon fish, mackerel, lobsters, cat fish and countless other varieties. Processing of produce into canned and frozen forms is carried out almost entirely for the export market. In all, there are 258 freezing units with a capacity of 2170 tonnes, 23 canning units with a capacity of 84.5 tonnes, 131 ice-making units with a capacity of 1820 tonnes. 24 fish meal units with a capacity of 419 tonnes and 297 cold storage units with a capacity of 20,348 tonnes. Fisheries are an important sector. There is growing canned and processed fishes from India. The marine fish include prawns, shrimps, tuna, cuttlefish, squids, octopus, red snappers, ribbonfish, mackerel, lobsters, catfish etc. In last six years there was substantial investment in fisheries to the tune of Rs. 30, 000 million of which foreign investments were of the order of Rs. 7, 000 million. The potential could be gauged by the fact that against fish production potential in the Exclusive Economic Zone of 3.9 million tones, actual catch is to the tune of 2.87 million tones. Harvesting from inland sources is around 2.7 million tones.
Meat and poultry processing sector

India has the worlds largest number of livestock and ranks first in the cattle population and comprises about 50 percent of the buffalo population and one-sixth of the total goat population of the world. Such a large livestock population clearly presents a challenge to retain existing traits of productivity by application of modern science and technology. Rigorous efforts are therefore, being made to improve vast population of livestock by providing basic infrastructure and adopting latest levels of technology. Approximately 70% of the Indian population consume meat and/or poultry products. The growth rate of meat is estimated to be about 10%. Currently, only about 1% of the meat produced is converted into value added products and most meat is purchased by the consumers in the country in the fresh/frozen form and converted into various meat products at homes, restaurants, etc. The current level of exports of meat and meat products from India is US$ 215 million, the major destinations being the countries in the Middle East and South East Asia. India ranks fifth in world egg production and produces about 30.000 million eggs every year. Yet the per capita availability is very low. Over the past 30 years, egg production has shown an average annual growth rate of 16% while that for broilers is higher at 27% per annum. During this period, Indian poultry industry has made spectacular progress transforming itself from backyard farming into a dynamic and sophisticated agrobased industry. There are five modern integrated poultry processing plants functioning in the country. Besides, there are a good number of small plants, although not very modern, working in the country. These plants are

producing dressed frozen chicken and cut parts. While the poultry industry is gradually taking shape, poultry dressing and processing is still in its infancy in this country. There are about 15 pure-line and grandparent franchise projects in India. There are 115 laver and 280 broiler hatcheries, both in the private and the Government sector, producing 1.3 million-layer parents and 2.6 million broiler parents which in turn, supply about 95 million hybrid layer and 275 million broiler day-old chicks. In India, five egg products plants have also been established to produce whole egg yolk and/albumen powders. The demand for egg powder is increasing every year. Each project will process about a million eggs daily. There is a large potential for setting up of modern slaughter facilities and development of cold chains in meat and poultry processing sector. The market has not been taken tapped tally for ready-to-eat and semi-processed meat products in the domestic market as well as for exports to neighbouring countries especially to the Middle East. Buffalo meat is surplus in the country and has good export potential. Poultry production and egg processing industries have come up in the country in a big way and are exporting egg powder, frozen egg yolk, albumin powder to Europe, Japan and some other countries. Meat products have a growth rate of 10% whereas the growth rate of eggs and broilers are 16% to 20% respectively. Most of the production of meat and meat products continues to be in unorganised sector. However, some branded products have also come up in the domestic market. At present, poultry export from India is mostly to Maldives and Oman. Some other markets can be explored for export of poultry meat products like Japan, Malaysia, Indonesia and Singapore.
Grains sector

India produces about 200 million tonnes of different food grains every year. All major grains paddy, wheat, maize, barley, millets like: jowar (great millet), bajra (pearl millet) & ragi (finger millet) are produced in the country. The country is self sufficient in grain production and is the second largest rice producer in world, with a 20% share. With the popularity of branded rice and flour among urban population, the investment scope in the field has increased. Also, there is very good demand of Indian basmati and non-basmati rice in export markets and a lot of export has been taking place.
Packaged and convenience foods sector

This comprises of product groups like confectionery, chocolates and cocoa products. Soya-based products, ready-to-eat foods, mineral water, high protein foods etc. This sector has been successful in attracting substantial investment of about US$ 3212.6 million since liberalization, of which foreign investment is about US$ 1264.1 million. The production of confectionery items other than chocolates is reserved for the small-scale sector. However, there are several large companies with established market presence and brands in both the cocoa and non-cocoa based confectionery product markets. Confectionery output grew at the compound rate of six to seven percent in recent years. Chocolate production is growing at the rate of 10 to 15 percent per annum.

In ready-to-eat products sector, the total installed capacity in the organized sector is 33,400 tonnes for manufacture of pasta products like noodles, macaroni, vermicelli, etc. Besides, there are 10 units with annual capacity of 9.340 tonnes for cornflakes, oat flakes, and pearl barley. The convenience foods segment, growing at a rate of 20%, offers the greatest potential. Export of soya based products like: soyameal, deoiled cake and other value added products, are increasing at a rapid pace. Technological revolutions in processing and packing of food products, coupled with fast growing inland and export markets presents a very good potential for further investment in this sector.
Milk and milk products sector

India, having a large livestock population and the most important constituent of it being milch cows and milch buffaloes, has emerged today as the largest milk producer in the world. Dairy development in India has been acknowledged the world over as one of modern Indias most successful developmental programme. India is the worlds largest producer of milk at 74 million tonnes; it is over three million tonnes in excess of what is produced in the U .S. The per yield per cattle in India is around three litres a day. Surely, a far cry from 30 litres per day in America. Further, in the U.S., nearly 70 percent of dairy items produced are value added products and the balance is sold as milk. In India, the situation is quite the reverse. Currently, consumption of liquid milk accounts for about 46% of the total production of milk. The remaining 54% is utilized for conversion to milk products. Of this, the share of the organized sector is less than 10%. The production or milk product is increasing at the rate of about 5% yearly. Among the products manufactured by the organized sector are ghee, butter, cheese, ice creams, milk powders, malted milk food, condensed milk, infant foods etc. Of these, ghee (clarified butler) alone accounts for 85%. Industry has also introduced a number of new products such as casein, lactose, and dairy whiteners. Different varieties of cheese etc. And is exporting certain milk products. At the present rate of growth, India is expected to overtake the US in milk production by the year 2000, when demand is expected to be over 80 million tons. Industry profitability has been good and there is very good potential for introduction of new value added products and their export. Being largely imported, manufacture of casein & lactose has good scope in the country. Exports of milk products have now been decanalised and export in 1995-96 is estimated at Rs.30 crores (US $ 8.33 million).
Beer and Alcoholic Beverages

In earlier years the policy of the Indian government was to discourage the consumption of alcoholic beverages. This even went so far as to involve total prohibition in some states. However, the resulting problems of illicit distillation, the leakage of government excise revenue and the problems involved in enforcement, led to a review of this policy. The importation of potable alcohol is subject to government licensing. Alcoholic drinks carry a very heavy tax burden, which is itself a major source of revenue for state governments.

Liquor manufactured in India is categorised as beer, country liquor and Indian Made Foreign Liquor (IMFL). IMFL production includes wines, whisky, rum, vodka, gin and brandy. Draught beer has been recently introduced and has done well in the places in which it has been introduced. Canned beer is an even more recently introduced new beverage. Production of Alcohol drinks from non-molasses sources is very small in the country compared to the total production of Alcoholic drinks. It is in this context that Government of India encourages foreign investments as well as up gradation of technology in the field of non-molasses based alcoholic drinks and beer provided the Indian partner is in possession of a valid Industrial License under Industries (Development & Regulation) Act, 1951.
Packaged drinks

Soft Drinks The production of soft drinks has increased from 5670 million bottles in 1998-99 to 6230 million bottles in 1999-2000. Range & Scope Of Products These major product groups are non-alcoholic flavoured/sweetened beverages; Cola, Orange & Lemon are some of the accepted, tasted in India. Currently it is estimated that 65% prefer non-alcoholic drinks. FPO governs manufacture of Packaged drinks. Major Players Some of the major manufacturers are: Parle (Exports) Pvt.Ltd. Pepsi Foods Ltd. Coca-Cola. Pure Drinks (New Delhi) Ltd.

GOVERNMENT INITIATIVES The government has accorded it a high priority, with a number of fiscal reliefs and incentives, to encourage commercialisation and value addition to agricultural produce; for minimising pre/post harvest wastage, generating employment and export growth. The Government of India has established a full-fledged ministry, especially for the food processing industries along with export promotion councils for agricultural processed products and marine products. Exclusive commodity boards have been established for the promotion of milk, tea, coffee, cashew and spices. A good number of industry associations are also active in the country to represent the requirements of the industry. Special schemes have also been advised for 100 percent export oriented units located in the export processing zones enabling duty free import of capital goods and raw materials and other inputs, full convertibility of foreign exchange earnings at market rate, tax holiday for 5 years and the facility for selling 50 percent in the domestic tariff area. However, Indian food processing activity is still largely based on primary processing, which accounts for almost 80% of the value-addition estimated at a level of US$ 20.8 billion. From the experience that we have gathered from other countries, the share of processed food in the total consumption will increase

rapidly. This would necessitate moving into more sophisticated secondary and tertiary processing. This is where India looks up for necessary technology and investment. The food processing industry ranks fifth in size in the country and employs 1.6 million workers, which constitutes 19 percent of the countrys industrial labour force. It accounts for 14 percent of the tot al industrial output with only 5.5 percent of total industrial investment and contributes 18% to the GDP. The turnover of this industry is estimated to be US$ 36 billion.
National Level Organisations

In order to promote the food and allied industries within the country the Government of India has established, a few national level organisations, which in one way or the other support the industry. These institutions either do fundamental and or applied research or undertake some developmental activity like boosting production of raw material required for the industry, developing new varieties, developing physical infrastructure to reduce post-harvest losses and measures to promote exports. They also offer Consultancy services. The names of some important institutions: AGRICULTURAL AND PROCESSED FOOD PRODUCTS EXPORT DEVELOPMENT AUTHORITY (APEDA), N. DELHI. CONTAINER CORPORATION OF INDIA. CENTRAL FOOD TECHNOLOGICAL RESEARCH INSTITUTE, MYSORE. NATIONAL SEEDS CORPORATION. INDIAN COUNCIL OF AGRICULTURAL RESEARCH. INDIAN AGRICULTURAL RESEARCH INSTITUTE. EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. INDIAN DIPLOMATIC MISSIONS. INDIA INTERNATIONAL MARKETING CENTRE. NATIONAL HORTICULTURE BOARD. INDIAN INSTITUTE OF SUGARCANE RESEARCH, LUCKNOW (UP). SUGARCANE BREEDING INSTITUTE, COIMBATORE (TAMILNADU). CENTRAL TUBER RESEARCH INSTITUTE, TRIVANDRUM. NATIONAL RESEARCH CENTRE FOR CASHEWNUT, PUTTUR. NATIONAL RESEARCH CENTRE FOR MUSHROOMS, SOLAN (HP). PROJECT DIRECTORATE OF VEGETABLE RESEARCH, VARANASI (UP). NATIONAL DAIRY RESEARCH INSTITUTE, KARNAI (HARYANA). NATIONAL CENTRE FOR TRADE INFORMATION.

FOREIGN DIRECT INVESTMENT IN FOOD PROCESSING INDUSTRY

Areas in which RBI grant investment

Any proposal involving Foreign Investment earlier required approval of the Government of India. However, as part of the liberalization process, the approval procedures have been very much simplified decentralized and streamlined. Accordingly, automatic approval by Reserve Bank of India (RBI) would be granted for investment in the following areas:

Automatic Channel New Investment in High Priority Industries Automatic approval will be given by the Reserve Bank of India for direct foreign investment up to 51 per cent foreign equity in high priority industries. Trading (Super Star Trading House, Star Trading House, Trading House and Export House) To provide access to international markets, majority foreign equity holding up to 51 per cent equity will be allowed by the Reserve Bank of India to trading companies primarily engaged in export activities. Such trading companies will be treated at par with domestic trading and export houses in accordance with the Export/Import policy of the Government. The Company shall have to register itself with the Ministry of Commerce (office of the Director General, Foreign Trade) as registered Exporter/Importer. In case of existing companies already registered as an Export House, Trading House, Star Trading House, or Super Star Trading House, the Reserve Bank of India will give automatic approval for foreign investment up to 51 per cent equity, subject to the provision that the company passes a special resolution for preferential allocation of fresh equity to the foreign investors. 100% Export Oriented Industries In the case of 100% Export Oriented Units (EOU) and Units in the Free Trade Zone/Export Processing Zone (EPZ), foreign participation may go up to 100 per cent of equity. Automatic approval for the 100% EOUs will be granted by the Secretariat for Industrial Approvals (SIA), Department of Industrial Development, Department of Industries, and Udyog Bhawan subject to the fulfilment of certains norms (Appendix V). In case of the units set up in Free Trade Zone (FTZ)/ Export Processing Zones (EPZ), automatic approvals will be granted by the respective Development Commissioners located in each state. Non Automatic Channel Other foreign investment proposals, including proposals involving 51 per cent foreign equity, which do not meet the foregoing criteria, need prior clearance of the Government. All such proposals except for the units set up in the Free Trade Zone (FTZ)/Export Promotion Zones (EPZs) are considered for approval by the Foreign Investment Promotion Board (FIPB). The FIPB is located in the Prime Ministers Office. The non-automatic channel approval decision is conveyed by 45 days.

Transfer of Foreign Technology

Automatic approval will be granted by RBI subject to the conditions that the lump sum payment does not exceed Rs. 10 million (net of taxes), royalty does not exceed 5% (net of taxes) for domestic sales and 8% (net of taxes) for export and that the total payment of lump sum and royalty does not exceed 8% of the sales turn over in a period of ten years from the date of agreement or seven years from the commencement of commercial production granted by the Reserve Bank of India. Applications for automatic approval in the above cases should be submitted in FC (RBI) form to the Reserve Bank of India, Bombay. All other proposals including those, which do not meet any, or all of the above parameters will require the approval of the Government. For such cases an application in form FC. (SIA) is to be submitted to

the Secretariat for Industrial Approvals, Government of India, Ministry of Industry, Udyog Bhavan, New Delhi-110 001. Extension of foreign technology agreements including those which have received automatic approval in the first instance require the approval of the government for which applications should be submitted in form FC (SIA) to the Secretariat for Industrial Approvals, New Delhi.
Licensing

The new Industrial Licensing Policy of the Government of India has exempted all industries from the requirement of obtaining industrial license except those reserved for the Public Sector Substantial expansion of existing units will be exempt from licensing, provided the item of manufacture is not included in schedule I, II, or III, to the Notification dated the 25th July, 1991 of the Department of Industrial Development. However, substantial expansion will be subject to the locational conditions. Existing units may manufacture any new article without additional investment if the article is not otherwise subject to compulsory licensing. An industrial undertaking with a valid registration granted to it prior to the 25th July, 1991 is not required to apply for a license, even if the item of manufacture is one which compulsory licensing.

In respect of new projects for the manufacture of not covered by compulsory licensing or their substantial expansion, the only requirement is that the industrial undertaking should file, a memorandum to the Secretariat for Industrial Approvals. Another memorandum in the prescribed form is to be filed with the secretariat for industrial approvals when the unit commences its commercial production.

Repatriation

Foreign Capital invested in India, profits and dividend earned in India can be repatriated after payment of taxes due on them. However, units operating in a limited list of Consumer Goods Industries are subjected to dividend balancing with matching export earnings for a period of seven years.
Disinvestment

Reserve Bank of India permits transfer of shares with regard to disinvestment proposals from foreign investors on a near automatic basis. Applications in this regard in form ST-I along with the necessary documents should be submitted to the Controller, Reserve Bank of India, Bombay.
Investment Protection

Bilateral Investment Protection and Promotion: The first Bilateral Agreement has been signed with U.K. on 14th March 1994. Its broad intent is to promote and protect investment from either countries. Investment is defined broadly as every kind of asset established or acquired in accordance with the national laws of each country in which the investment is made and, in particular, includes intellectual property rights, goodwill, technical assistance and know how in accordance with the relevant laws of the country in which the investment is made.
Taxation

Income derived by foreign companies as dividend, interest, royalty of technical fees, is taxed at a rate lower than that applicable to domestic companies. While the rate of tax for domestic companies is 40% plus a surcharge of fifteen percent if total income exceeds Rupees seventy five thousand, in the case of foreign companies and non-resident assesses the rates are as follows:

Dividend income and interest 20 per cent. Royalty and fees for Technical service 30 per cent.

The rates applicable to the non-residents and foreign companies may be less where agreements for the avoidance of double taxation exist between India and the country of which the non-resident or the foreign company is a resident and the agreement so provides. In the case of the NRIs, the rate of tax is 20% on income from foreign exchange investment as arising from: Shares in an Indian Company. Debentures issued by or deposits with an Indian Company, which is not a private company. Foreign direct investment of around US$1 billion has already been approved in Indias food processing industry since 1991. Changing lifestyles, breakdown of the joint-family system, increasing number of working wives and Western influence (via TV channels) 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 and meats (non-beef) 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. However, it is advisable to take a local partner. Many Indian firms are eagerly seeking foreign partners for joint ventures to avail of their technological advantage. Supermarkets are just beginning to appear in Indias big cities and this is the time for international chains to set a foothold. Competition will only increase with time. There has been some civilised resistance from ultra-nationalistic quarters of opinion to foreign food products. This resistance will be less if a local partner is involved. Indias liberal intelligentsia is gradually building the opinion that foreign investments in the processed food sector will benefit rural agriculture, thus beating the nationalists with their own slogans. The liberal intelligentsia is gradually prevailing. PROSPECTS OF FOOD PROCESSING INDUSTRY IN INDIA India has all the makings of an agricultural super-power. From the stage of struggling 10 taking care of basic food requirements of its burgeoning population during the independence, it has come a long way towards visualizing The tremendous potential for commercial and export oriented agri-business. Exploitation of this potential can bring about an era of prosperity with the right mix of employment generation and profits. India has a strong competitive advantage in food processing, being blessed with unsurpassed natural advantages. India has 169 million hectares of arable land and enjoys a wide range of agro-climatic conditions ranging from hot tropical to temperate, with rainfall varying from less than 13 cm in some parts to about 600 cm in others. This makes it possible to grow all possible varieties of agricultural products. Further, Indias geographical situation gives it the unique advantage of being at the centre of the most prosperous economies of the Eastern World, that is, the Middle East in the West

Important Facts

and the far East in the East, including countries like Iran, Iraq. Japan, Singapore, Thailand, Malasiya, Korea etc. This gives India the competitive edge for linking these markets as the third country export centre. Indias food production today ranks next only to Chinas and is equal to that of the U.S. It is a $70 billion industry now and by 2005 this is expected to double. The value added food segment will grow at a faster rate, rising from $20 billion to $60 billion during this period. Higher agricultural yields will raise incomes and open up new markets and job opportunities. The food processing industry (FRI) is likely to grow three-fold in the five years. The burgeoning market opportunities in the wake of liberalization of the economy since 1991 have encouraged the growth of the FPI. There are over 27,500 units, large and small, operating in the foodprocessing sector. According to a study made by the Confederation of Indian Industry (CI1) and the management consultants, Mckinsey & Co., India can be t he worlds largest food factory. Food proces-sing activity is poised for rapid expansion. The green revolution in food grains, the white revolutions in milk and the blue revolution in fish and other marine foods have laid the foundation for rapid expansion of the FPI.
Immense growth potential

The food processing industry will be one of the hinges of the Indian economy in the next century. India is among the leading producers of sugar, tea, milk, fruits and vegetables. Agricultural production and food processing account for 30 percent of Indias GDP and employ more than 70 percent of its workforce. Yet the countrys yields in milk, fruits and vegetables are only 40 percent of the worlds best. About 40 percent of the fruit and vegetable output is wasted. The sector is caught in a vicious cycle which is typified by inefficiencies, wastage and value loss of the order of Rs. 50.000 crores. This anomaly can be corrected by channelling more investment towards the farm sector and related agro-based industries. The need is to adopt an integrated approach to agriculture, procurement and food processing. The study conducted by McKinsey for the Confederation of Indian Industry (CII), entitled Food and Agriculture Integrated Development Action (FA1DA) suggests that, over the next 10 years, agriculture and food processing will need an investment of about Rs. 1,40,000 crores. This huge investment will be attracted by market opportunities but will materialize only with a conducive policy framework. At present, about 35 percent (Rs. 120,000 crores) of the total food market comprises some form of processed food. According to the Food and Agricultural Organizations FAO) definition, processed foods can be of three types: primary, secondary and tertiary. Primary processed foods involve basic cleaning, grading and packaging, examples of which are product-like packaged atta or branded tea. Secondary processing means modification of the basic product to a stage just before the final preparation at the consumers kitchen, like tomato puree or roast and ground coffee. Tertiary processing leads to high value-added ready-to-eat products like bakery products, ice cream, instant noodles or culinary products like sauces and jams. The Indian processed foods industry, growing overall at about 15 percent, straddles all three categories, which individually are at different stages of development. For example, the packet tea market size is of

about 2,500 crores, the packaged oils and vanaspati market Rs. 2.000 crores, packaged atta Rs. 2.00 crores, ice cream Rs.450 crores and ketchup Rs. 60 crores. CONCLUSION As companies respond to these opportunities, they will invest in the upstream element of the food chain agriculture and procurement. They will give farmers access to appropriate technology and inputs to raise yields. They will help develop the necessary cold storage and transport infrastructure, ensuring that the output is scientifically stored and transported to the markets and customers in good time. This will reduce both wastage and intermediaries between the farmer and the consumer, now six to seven compared to two or three in the U.S. The integration will have two benefits. Consumers will gel more hygienic and value added packaged products at affordable prices; the farm sectors advantag e will be higher income from assured and captive markets. The additional gain for the country, as a whole, will be the potential for cost-competitive exports, based on natural advantages of agricultural resources. However, this beneficial cycle will largely depend upon a conducive policy framework. The key need is to adopt an integrated view of the food chain. Issues pertaining to agriculture and food processing now come under the ambit of three different Ministries of Agriculture, Food and Food Processing. Their linkage under a broader umbrella would ensure greater focus continuity and quicker decision-making through a unified policy regime. The agriculture sector must be quickly liberalized. The emphasis should be on mobilizing large investments in roads, power, irrigation and farm equipment, rather than on subsidies. It also entails a pragmatic approach to land reforms to attract capital to actual farm activities.