Why Invest In India

There are several good reasons for investing in India.

• Rich base of mineral and agricultural resources.
• Long history of market economy infrastructure
• Sophisticated financial sector.
• Vibrant capital market with over 9,000 listed companies and market capitalization of US$ 154 billion (March,
1996)
• Well developed R&D infrastructure and technical and marketing services.
• Policy environment that provides freedom of entry, investment, location, choice of technology, production,
import and export.
• Well balanced package of fiscal incentives.
• A sophisticated legal and accounting system.
• English is widely spoken and understood.
• Rupee is convertible on Current Account at market-determined rate.
• Free and full repatriation of capital, technical fee, royalty and dividends.
• Foreign brand names are freely used.
• No income tax on profits derived from export of goods.
• Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for five years for 100
percent Export Oriented units and units in Export Processing Zones.
• Corporate Tax applicable to the foreign companies of a country, with which agreement for avoidance of Double
Taxation exists, can be one which is lower between the rates prevailing in any one of the two countries and the
treaty rate.
• A long history of stable parliamentary democracy

Factors making India as a pool of opportunity in food processing sector:

1. Vast source of raw material

• India is one of the largest producers of wheat and rice.
• Coconuts, cashew nuts, ginger, turmeric and black pepper is widely grown in some parts of the country.
• India is the second largest producer of groundnuts, fruits and vegetables. That it accounts for about 10 per cent
of the world's fruits production with the country topping in the production of mangoes and bananas.
• Due to the high processing levels milk products offer a significant opportunity in India. India is the world's largest
producer of milk owing to the strong business models formed through cooperative movements in the country.
Milk and related products account for 17% of India's total expenditure on food. This segment enjoys liberal
regulations as all milk products except malted foods are automatically allowed 51% foreign equity participation
and all exports of dairy products are freely allowed.
• Alcoholic beverages have been categorised as the new high opportunity sector in India. Liquor manufactured in
India is categorised as Indian Made Foreign Liquor (IMFL). The sector is still barred from the import of potable
alcohol as it is subject to government licensing. In the meanwhile, India has recently started producing wine for
domestic consumption.
• Meat and poultry has also gained popularity due to the emergence of producers that have integrated breeding,
feed milling, contract growing and marketing facilities for improved productivity. Meat, fish, and poultry are in
rural areas as they are easily affordable and provide necessary nutrients. India has the potential to be a leading
global food supplier if it employs the right marketing strategies and creates an efficient supply chain
2. Conventional farming to commercial farming
In recent years, In recent years, there has been a shift from conventional farming of food grains to horticulture which
include fruits, vegetables, ornamental crops, medicinal and aromatic plants, spices, plantation crops which include
coconut, cashew nuts and cocoa and allied activities

3. Market in the form of large urban middle class

With a huge population of 1.08 billion and population growth of about 1.6 % per annum, India is a large and growing
market for food products. Its 350 million strong urban middle class with its changing food habits poses a huge market for
agricultural products and processed food.

4. Low Production cost

The relatively low-cost but skilled workforce can be effectively utilised to set up large, low-cost production bases for
domestic and export markets.

5. Change in consumption patterns

Increasing incomes are always accompanied by a change in the food habits. Over the last three decades in India a shift
in food habits have been observed. The report observes that the proportionate expenditure on cereals, pulses, edible
oil, sugar, salt and spices declines as households climb the expenditure classes in urban India while the opposite
happens in the case of milk and milk products, meat, egg and fish, fruits and beverages.
For instance, According to report of ICRA the proportionate expenditure on staples like cereals, grams and pulses
declined from 45 per cent to 44 per cent in rural India while the figure settled at 32 per cent of the total expenditure on
food in urban India.
A large part of this shift in consumption is driven by the processed food market, which accounts for 32 per cent of the
total food market. It accounts for US$ 29.4 billion, in a total estimated market of US$ 91.66 billion. The food processing
industry is one of the largest industries in India -- it is ranked fifth in terms of production, consumption, export and
expected growth.
According to the Confederation of Indian Industry (CII) the food-processing sector has the potential of attracting US$ 33
billion of investment in 10 years and generates employment of 9 million person-days.

6. Government Assistance
The Government has introduced several schemes to provide financial assistance for setting up and modernizing of food
processing units, creation of infrastructure, support for research and development and human resource development in
addition to other promotional measures to encourage the growth of the processed food sector.

7. Foreign Direct Investment

Foreign direct investment (FDI) in the country's food sector is poised to hit the US$ 3-billion mark in coming years. FDI
approvals in food processing have doubled in last one year alone. The cumulative FDI inflow in food processing
reached US$ 2,804 million in March '06. In '05-06, the sector received approvals worth US$ 41 million. This figure is
almost double the US$ 22 million approved in 2004-05.
The US-based private equity fund, New Vernon Private Equity Limited (NVPEL), has decided to invest Rs 45 crore in
Kochi-based spice major, Eastern Condiments, which is the flagship company of Eastern Group.
America's largest chocolate and confectionery-maker Hershey is acquiring 51 per cent stake in Godrej Beverages and
Foods for US$ 54 million.

8. Food Parks
In an effort to boost the food sector, the Government is working on agri zones and the concept of mega food parks.
Twenty such mega parks will come are proposed across the country in various cities to attract Foreign Direct
Investment (FDI) in the food-processing sector.
The Government has released a total assistance of US$ 23 million to implement the Food Parks Scheme. It has so far
approved 50 food parks for assistance across the country. The Centre also plans US$ 22 billion subsidy for mega food
processing parks.

9. Conducive food processing policy environment

The national policy on food processing aims at increasing the level of food processing from the present 2 per cent to 10
per cent by 2010 and 25 per cent by 2025. The government has allowed100 per cent FDI in processing sector.
The Policy will seek to create an appropriate environment for entrepreneurs to set up Food Processing Industries
through:
• Fiscal initiatives and interventions like rationalization of tax structure on fresh foods as well as processed foods
and machinery used for the production of processed foods.
• A concerted promotion campaign to create market for processed foods by providing financial assistance to
Industry Associations, NGOs/Cooperatives, Private Sector Units, State Government Organization for
undertaking generic market promotion.
• Harmonization and simplification of food laws by an appropriate enactment to cover all provisions relating to
food products so that the existing system of multiple laws is replaced and also covering issues concerning
standards Nutrition, Merit goods, futures marketing, equalisation fund etc.
• Efforts to expand the availability of the right kind and quality of raw material round the year by increasing
production, improving productivity.
• Strengthening of database and market intelligence system through studies and surveys to be conducted in
various States to enable planned investment in the appropriate sector matching with the availability of raw
material and marketability of processed products.
• Strengthening extension services and to the farmers and co-operatives in the areas of post harvest
management of agro-produce to encourage creation of pre-processing facilities near the farms like washing,
fumigation, packaging etc.
• Efforts to encourage setting up of agro-processing facilities as close to the area of production as possible to
avoid wastage and reduce transportation cost.
• Promotion of investments, both foreign and domestic.
Simplification of documentation and procedures under taxation laws to avoid unnecessary harassment arising out of
mere technicalities.

Infrastructure Development

The Policy will facilitate:

• Establishment of cold chain, low cost pre-cooling facilities near farms, cold stores and grading, sorting, packing
facilities to reduce wastage, improve quality and shelf life of products.
• Application of biotechnology, remote sensing technology, energy saving technologies and technologies for
environmental protection.
• Building up a strong infrastructural base for production of value added products with special emphasis on food
safety and quality matching international standards.
• Development of Packaging Technologies for individual products, especially cut-fruits & vegetables, so as to
increase their shelf life and improve consumer acceptance both in the domestic and international markets.
• Development of new technologies in Food Processing & Packaging and also to provide for the mechanism to
facilitate quick transfer of technologies to field through a net work of R&D Institutions having a Central Institute
at the national level with satellite institutions located strategically in various regions to cover up the whole
Country and to make available the required testing facilities. This could be done by establishing a new
institution or strengthening an existing one.
• Development of area-specific Agro Food Parks dedicated to processing of the predominant produce of the area
e.g., apple in J&K, pineapple in North East, Lichi in Bihar, Mango in Maharashtra and Andhra Pradesh etc. etc.
• Development of Anchor Industrial Centre and/or linkage with Anchor Industrial Units having network of small
processing units.
Development of Agro-industrial multi-products units capable of processing a cluster of trans-seasonal produces.
Backward Linkage
The Policy will promote:
• Establishment of a sustained and lasting linkage between the farmers and the processors based on mutual
trust, understanding and benefits by utilizing the existing infrastructure of cooperative, village panchayats and
such other institutions.
• Mechanism to reduce the gap between the farm gate price of agro-produce and the final price paid by the
consumer.
• Development of Futures Market in the best interest of both the farmers and the processors ensuring a minimum
price stability to the farmer and a sustained supply of raw material to the processor.
• Setting up of an Equalization Fund to ensure sustained supply of raw material at a particular price level and at
the same time to plough back the savings occurring in the eventuality of lower price to make the Fund self-
regenerative.
Forward Linkage
The policy will promote:
• Establishment of a strong linkage between the processor and the market to effect cost economies by
elimination of avoidable intermediaries.
• Establishment of marketing network with an apex body to ensure proper marketing of processed products.
• Development of marketing capabilities both with regard to infrastructure and quality in order to promote
competitive capabilities to face not only the WTO challenge but to undertake exports in a big way.
• Given the trends in the Indian food and beverage sector including key industry consideration, it is imperative for
the Indian industry to leverage the emerging opportunities at once. These could be:
• Exploitation of the huge untapped potential in processed foods.
• Opportunities presented by contract farming, captive supplies of raw materials, disintermediation and direct
access to farmers, availability of new and improved seeds and farm technology.
• Value addition to unprocessed categories of food such as dairy, fruits and vegetable, staples and edible oils.
• Exploitation of increasing health and safety awareness of the Indian consumer - this would pave the way for
value added products on a health platform.
• Investment in supply chain in order to improve costs, tighten supplies and minimize wastage.
• Investment in better packaging and cold chain infrastructure will aid the processed food and beverage sector as
these would aid in processing of fruits and vegetables.
• Exploration of appropriate regional branding strategies in order to appeal to the deep rooted traditions, values
and customs of the consumer
 • Taking advantage of the inherent ethnic tastes and food habits of the Indian consumer -- this provides the local
food players a distinct advantage over foreign entrants into the sector and poses an entry barrier for the latter
• Exploitation of the increasing consumerism fuelled by new job opportunities, larger disposable incomes and the
emerging boom in modern retail trade.
• Opportunities for growth through the inorganic route, both domestically and outbound this would provide access
to new product categories, brands, markets and new technologies.
• The SEZ /AEZ opportunity would also provide players the added incentive to develop greenfield projects within
these zones and enjoy additional fiscal benefits.
The Indian Foods & Beverage industry is poised for a significant leap forward -- these are interesting times and
continued success will depend on a proper understanding of the landscape and challenges therein, quickly exploiting
emerging opportunities, skillful execution of strategic mergers and acquisitions and effecting a seamless organisation to
evolve into truly global players.

Thrust Areas
• The vision 2015 of the Government of India for the food-processing sector aims at:
• Enhancing and stabilizing the income level of the farmers
• Providing choice to consumers in terms of wide variety and taste including traditional ethnic food
• Providing greater assurance in terms of safety and quality of food to consumers
• Promoting a dynamic food processing industry
• Enhancing the competitiveness of food processing industry in both domestic as well as international markets
• Making the food processing sector attractive for both domestic and foreign investors
• Achieving integration of the food processing infrastructure from farm to market
• Having a transparent and industry friendly regulatory regime
• Putting in place a transparent system of standards based on science.
• The following specific targets would be to increase:
• The level of processing of perishables from 6% to 20%
• Value addition from 20% to 35%
• Share in global food trade from 1.5% to 3%, by the year 2015
An estimated investment of Rs. 100,000 crores is required to achieve the discussed vision, of which Rs.45,000 crores is
expected to come from the private sector, Rs. 45,000 crores from Financial Institutions and Rs. 10,000 crore from
Government.

How to invest in India

1. About India
India is the seventh largest in terms of geographical area and second most populous country in the world. In terms of
Purchasing Power Parity India is the 4th largest economy in the world. Several ambitious economic reforms aimed at
deregulating the economy and stimulating foreign investment has moved India firmly into the front-runners of the rapidly
growing Asia Pacific Region and unleashed the latent strength of a complex and rapidly changing nation.
Today India is one of the fast developing economy with large market in the world. Skilled managerial and technical
manpower that matches the best available in the world and a middle class whose size exceeds the population of the
USA or the European Union, provide India with a distinct cutting edge in global competition. India’s time tested
institutions offer foreign investors a transparent environment that guarantees the security of their long-term investments.
These include a free and vibrant press, a well-established judiciary, a sophisticated legal and accounting system and a
user-friendly intellectual infrastructure. India’s dynamic and highly competitive private sector has long been the
backbone of its economic activity and offers considerable scope for foreign direct investment, joint ventures and
collaborations.

2. Reforms in Industrial Sectors in India

Industrial Sector was among priority sectors to be liberalized in India in a series of measures. Industrial licensing has
been abolished except in a small number of sectors where it has been retained on strategic considerations.

3. Industrial Policy
The liberalization and economic reforms programme by the Government was initiated in July 1991, under the new
Industrial Policy Resolution. The industrial policy reforms have substantially reduced the industrial licensing
requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct
investment which is an advantage to industrial reforms.

4. Foreign Direct Investment Policy

Foreign Direct Investment in India is allowed on automatic route in almost all sectors except following,
• Proposals that require an industrial licence and cases where foreign investment is more than 24% in the equity
capital of units manufacturing items reserved for the small-scale industries.
 • Proposals in which the foreign collaborator has a previous venture or tie-up in India.
• Proposals relating to acquisition of shares in an existing Indian company in favour of a Foreign/Non-Resident
Indian (NRI) or Overseas Corporate Body (OCB) investor; and
• Proposals falling outside notified sectoral policy or caps or under sectors in which FDI is not permitted and/or
whenever any investor chooses to make an application to the Foreign Investment Promotion Board and not to
avail of the automatic route.
5. Foreign Investment Promotion Board
Foreign Investment Promotion Board, FIPB, is a competent and authorized body to consider and recommend foreign
direct investment (FDI), which do not come under the automatic route. With the shifting of the FIPB to the Department of
Economic Affairs, Ministry of Finance, the FIPB has been reconstituted as under:
• Secretary, Department of Economic Affairs Chairman
• Secretary, Department of Industrial Policy & Promotion Member
• Secretary, Department of Commerce Member
• Secretary, (Economic Relation), Ministry of External Affairs Member

The Board would be able to co-opt Secretaries to the Government of India and other top officials of financial
institutions, banks and professional experts of industry and commerce, as and when necessary

6. Entry Strategies and setting up a Company

(i) Entry into India

Foreign nationals, excluding the citizens of Nepal and Bhutan, entering into India are required to carry a valid passport,
travel documents and a valid visa. Visas for the purpose of tourism, entry, transit, conferences, business and
employment in India re issued to foreign nationals by Indian Embassies and Consulates abroad.
Business visas may be issued for up to 5 years, with multiple entry provision. While an Indian Embassy abroad issues
a business visa, it can be renewed or extended within India if the applicant so desires. Foreign nationals who wish to
work in India must obtain a Residential Permit from the Foreigners Regional Registration Office (FRRO) that are located
in all major cities, or, in the case of smaller cities, from the principal police station. A foreign national, holding a visa
(other than a tourist visa) valid for a period exceeding 180 days, is required to be registered with the FRRO within 15
days of arrival in India. Change of purpose or type of visa is a not permitted. Further, visa other than employment,
education and entry are normally not considered for extension.
The transfer of residence scheme applies to foreign nationals visiting India for long durations. Under this scheme,
foreign nationals can import certain personal effects without paying customs duty. A bank guarantee has to be provided
for this purpose, which is returnable after the individual has stayed in India for a year. To avail of this scheme, the goods
have to be shipped within two months before the entry into India or one month after entry into India. The goods brought
into India under the transfer of residence scheme have to be owned by the importer or his family for at least one year.

(ii) Setting up of a company

The major forms of business organization in India are:
• Companies – both public and private
• Partnerships
• Sole proprietorships
Companies incorporated in India and branches of foreign corporations are regulated by the Companies Act, 1956. The
Act, which has been enacted to oversee the functioning of companies in India, draws heavily from the United Kingdom’s
Companies Acts and although similar, is more comprehensive. The Registrar of Companies (ROC) and the Company
Law Board (CLB), both working under the Department of Company Affairs, ensure compliance with the Act.

(a) Types of Companies

A company can be a public or a private company and could have limited or unlimited liability. A company can be limited
by shares or by guarantee. In the former, the personal liability of members is limited to the amount unpaid on their
shares while in the latter; the personal liability is limited by a pre-decided nominated amount. For a company with
unlimited liability, the liability of its members is unlimited.
Apart from statutory government owned concerns, the most prevalent form of large business enterprises is a company
incorporated with limited liability. Companies limited by guarantee and unlimited companies are relatively uncommon.

(i) Private Companies

A private company incorporated under the Act has the following characteristics:
• The right to transfer shares is restricted.
• The maximum number of its shareholders is limited to 50, which is excluding employees.
• No offer can be made to the public to subscribe to its shares and debentures.
• Private companies are relatively less regulated than public companies as they deal with the relatively smaller
amounts of public money.
• A private company is deemed to be a public company in the following situations:
 • When 25 percent or more of the private company’s paid-up capital is held by one or more public company.
• The private company holds 25 percent or more of the paid-up share capital of a public company.
• The private company accepts or renews deposits from the public.
• The private company’s average annual turnover exceeds Rs.250 million during a period of 3 consecutive
financial years.
(ii) Public Companies
A public company is defined as one, which is not a private company. In other words, a public company is one on which
the above restrictions do not apply. Regarding the necessary procedures to be followed for registering the company, a
flow chart presents the summary of the steps involved in formation of a company with Registrar of Companies.

(iii) Foreign Companies

Foreign investors can enter into the business in India either as a foreign company in the form of a liaison
office/representative office, a project office and a branch office by registering themselves with Registrar of Companies
(ROC), New Delhi within 30 days of setting up a place of business in India or as an Indian company in the form of a
Joint Venture and wholly owned subsidiary. For opening of the foreign company specific approval of Reserve Bank of
India is also required.

7. Approvals and clearances required for new projects

For starting a new project, a number of approvals or clearances are required from different authorities such as Pollution
Control Board, Chief Inspector of Factories, Electricity Board, Municipal Corporations, etc.

8. Foreign Exchange Management Act (FEMA)

The Parliament has enacted the Foreign Exchange Management Act, 1999 to replace the Foreign Exchange Regulation
Act, 1973. This Act came into force on the 1st day of June 2000. The object of the Act is to consolidate and amend the
law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the
orderly development and maintenance of foreign exchange market in India.
This Act extends to the whole of India and will also apply to all branches, offices and agencies outside India owned or
controlled by a person resident in India. It will also be applicable to any contravention committed outside India by any
person to whom this Act is applicable.

9. Taxation in India
Since the beginning of liberalization in the country, tax structure of the country is also being rationalized keeping in view
the national priorities and practices followed in other countries. Foreign nationals working in India are generally taxed
only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. The
Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Further,
foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of
residence.
Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and
wages, pensions, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Taxable
payments include all allowances and tax equalization payments unless specifically excluded. The stock options granted
by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options.

10. Repatriation of Earnings

A foreign national may open bank accounts in India and receive funds from abroad. A foreign national is allowed to
repatriate 75 percent of his net after-tax earnings after the government and the exchange control authorities approve his
employment. If employment is for a short duration, such approvals are not necessary, provided the amount of
remittance is within approved limits.

11. Ready Reckoner for NRI Investment

The Ready Reckoner for Non-Resident Indians, NRIs, and Investment provides information, at a glance, about
investment opportunities available to Non Resident Indians, NRIs, Persons of Indian Origin, PIO and Overseas
Corporate Bodies, OCBs.

12. Labour Rules and Regulations

Before investing in India one should be familiar with the labour rules and regulations of the country. under the
Constitution of India, Labour is a subject in the Concurrent List where both the Central and State Governments are
competent to enact legislation subject to certain matters being reserved for the Centre. Some of the important Labour
Acts, which are applicable for carrying out business in India, are:

• Employees’ Provident Fund and Miscellaneous Provisions Act, 1952

• Employees’ State Insurance Act, 1948
• Workmen’s Compensation Act, 1923
• Maternity Benefit Act, 1961
 • Payment of Gratuity Act, 1972
• Factories Act, 1948
• Dock Workers (Safety, Health & Welfare) Act, 1986
• Mines Act, 1972
• Minimum Wages Act
• Payment of Bonus Act 1965 Contract Labour [Regulation & Abolition] Act 1970 Payment of Wages Act, 1936

13. Intellectual Property

India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and establishing the World
Trade Organization (WTO). This Agreement, inter-alia, contains an Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS), which came into force from 1st January 1995. It lays down minimum standards for protection
and enforcement of Intellectual Property Rights in member countries, which are required to promote effective and
adequate protection of Intellectual Property Rights with a view to reducing distortions and impediments to international
trade. The obligations under the TRIPS Agreement relate to provision of minimum standards of protection within the
member country's legal systems and practices.
As regards the status of various Intellectual Property laws in India and standards in respect of various areas of
intellectual property, a law on Trade Marks has been passed by Parliament and notified in the gazette on 30.12.1999.
This law repeals and replaces the earlier Trade and Merchandise Act, 1958. A new law for the protection of
Geographical Indications, viz., the Geographical Indications of Goods (Registration and the Protection) Act, 1999 has
also been passed by the Parliament and notified on 30.12.1999. A law called the Designs Act, 2000 relating to Industrial
Designs, which repeals and replaces the earliar Designs Act, 1911 has also been passed by Parliament in its Budget
Session, 2000. The Act has been brought into force from 11.05.2001. A Bill on Patents to amend the Patents Act, 1970
was introduced in Rajya Sabha on 20.12.1999 and the Bill was passed by Parliament on 14.05.2002.

14. Incentives offered by States

India is a federal country consisting of States and Union Territories. States are also partners in the economic reforms
being undertaken in the country. Most of the States are making serious efforts for simplifying the rules and procedures
for setting up and operating the industrial units. Single Window System is now in existence in most of the States for
granting approval for setting up industrial units. Moreover, with a view to attract foreign investors in their states, many of
them are offering incentive packages in the form of various tax concessions, capital and interest subsidies, reduced
power tariff, etc. The specific website addresses containing the incentive packages offered by various states/UTs are
given in the List.

15. Foreign Investment Implementation Authority (FIIA)

Government of India has set up Foreign Investment Implementation Authority, FIIA, to facilitate quick translation of
Foreign Direct Investment, FDI, approvals into implementation by providing a pro-active one stop after care service to
foreign investors, help them obtain necessary approvals and by sorting their operational problems. FIIA is assisted by
Fast Track Committee, FTC, which has been established in 30 Ministries and Departments of Government of India for
monitoring and resolution of difficulties for sector specific projects. Senior officers of the Department have been
designated Nodal Officers for specific states for follow up of FDI cases and to bring to notice of FIIA any difficulties in
implementation. In case of any difficulties, nodal officers can be contacted. Approval holders can contact FIIA at its
email address - [email protected]