H.E. Mr. Subodh Kant Sahay

The food processing sector is one of the most vibrant industries in India. It has immense potential in employment generation, in increasing incomes of farmers and in raising the level of industrial output, thereby contributing to the GDP. Taking into account the potential for the Indian food processing sector and its attractiveness among foreign investors, Asia News Agency (ANA) caught up with the Union Minister for Food Processing Industries, Mr. Subodh Kant Sahay who discusses here huge investment opportunities in the FP industry.

ANA: Sir, how do you perceive the role of the food processing industry in India?

Minister: Food processing is the sunrise sector for India. Of the top 5 to 10 industrial sectors in India food processing comes in the fifth place. Around 70 per cent of our population is involved in agriculture as compared to 4 percent generally in the West and 7 per cent in Europe. The focus in India is, therefore, obviously on agriculture. The question is how can we make it sustainable and add value. The importance of nurturing value-added agriculture lies in the food processing sector.

ANA: Sir, could you please identify the areas of opportunities for the FPI?

Minister: There are so many areas of growth in this industry. Geographically India is between the Middle East and the Far East; this location advantage makes it a very attractive destination. Besides, processed food is a leading sector for the entire European and western world; people in India are accustomed to consume ready to-eat and ready-to-cook products. India, despite being the second largest producer, has not been able to utilize the potential in processed food so far. The country is wasting fruits and vegetables worth about Rs. 30 - 40 thousand crore annually. There is, therefore, an obvious opportunity here. The level of processing is very low in India - around 10 per cent in general.

The processing level is even lower for fruits and vegetables - around 2 to 2.5 per cent. This is almost negligible compared to other countries which have a level of processing of 70-80 per cent. So if we look at the potential in this manner, sky is the limit from the opportunity point of view. In addition, India has a relatively larger area of arable land compared to other countries, including China. This puts us at a great advantage in terms of production potential. Milk, marine, fruits, grains, vegetables are all abundant in India. Moreover, about 10 States, including all hilly states, in India are organic regions. So anybody who is looking towards India as an opportunity in food processing would be spoilt for choice. For example, in the setting up of a supply chain the maintenance of a cold chain offers major opportunities. This is definitely an area where we are looking to encourage investments. More opportunities lie in processing, value addition, etc. The retail is growing in a big way and they will need Indian products to showcase. At present, the level of processing in India is so low that they don’t have any other option but to exhibit processed food products from abroad. In the last five years, retail has captured 30 per cent of the market share. I am confident that the coming five years, from 2010 to 2015, will be a turning point for food retailing. All these factors would generate demand for processed, value-added food as well as for farm fresh produce. I am happy that in all this the ultimate beneficiary would be the farmer.

ANA: What are the steps being initiated to make the sector investment friendly?

Minister: I am seeking to make this sector completely tax-less. I am trying to convince the States to keep the tax rate - VAT or GST - within the 0 to 4 per cent bracket. Perishables should be at zero and non-perishables should not be more than 4 per cent. With this let the process level go up, let it go up till 50 per cent, then we can ask for imposition of more tax. This is what I have been campaigning for the last four years.

I think all investments which are coming into the sector, would ultimately benefit the farmer. The farmer can earn and earn and earn…the limit is endless. And whoever is going to invest in the sector is going to earn enormously because of the existing income tax holiday. In the cold chain infrastructure, we are also having an income tax holiday. So I have literally made food processing a tax-less sector. Earlier agriculture was the main industry, but now there are hundred other opportunities and therefore agriculture has taken a back seat. This is a challenge as well as a mandate to perform better. The Prime Minister has called for a second Green Revolution and we must work towards realizing this.

ANA: Why is the Indian food processing industry an ideal destination for investment?
Minister: We need at least Rs. I lakh crore (US$ 22 billion) of investment in the sector within the next half a decade to raise the level of processing from 10 per cent to at least 20-25 per cent. So friends from abroad are welcome into the Indian kitchen. India is a hugely diverse market which has five distinct population classes, including the affluent, the upper-middle class, the middle class, the poor and people in the below poverty-level (BPL) category. The first three categories have the financial resources and disposable income to pay any amount for good quality products. It is interesting to note that Indians spend more than 40 to 45 per cent of their income on quality food. There is therefore a tremendous opportunity to cater to the domestic market. The demographic factors are also in favour of the growing demand for processed food.

We have so many climatic zones here, around 15 of them. So we can produce actually anything round the year. We can cater to the world market as well as to the domestic. I want the Indian processed food sector to become like a real BPO sector for us. We are determined to create a food processing hub in India with mega food parks, an effective cold chain from farming to retailing, research and development opportunities and in the process, generate maximum job opportunity for landless labourers to the top class CEOs. India has witnessed the IT revolution and the BT (Biotechnology) revolution. Now the time has come for the FT (food technology) revolution.

ANA: How successful has the sector been in attracting FDI in the last few years? What has been the role of retail in the food processing sector?

Minister: I would say that there has been growth but the result has not been as good as it should be. But I must say that our domestic players are expanding in a major way. Retail is the showcase of the entire food processing sector. Without this the sector cannot grow, cannot attain the target. When the consumer has access to different varieties of products through the retail outlet, it gives him the liberty to choose. The people in India have started realizing it. It is a positive sign that all the domestic big players want to become part of the retail sector growth story. The big players investing in retail are also investing in establishing value and supply chains as well as in processing. However, I am aware of the apprehensions of the local retail players on Wal Mart and Metro because of their huge investment capacities.

There is no denying the fact that FDI has not been as much as it should have been. But we must not compare the amount we receive from abroad with the amount received by other countries. Our situation is different in the sense that around 70 per cent of the food processing sector is unorganized in India, with small and medium enterprises playing a prime role. At the same time, I must acknowledge that the local entrepreneurs are our important partners and we understand their strong potential. But we continue to stress the need for more FDI in the sector.

ANA: Which States have been successful in encouraging the food processing industry?

Minister: I must say that I have succeeded in raising the level of awareness and have made most states wake up to the potential of the food processing sector. Most of the states in India are horticulture or agricultural states. Southern states like Andhra Pradesh have done well in this field. There are States like Punjab and Haryana which are producing greater agricultural produce but have not been able to add value. They are feeding the entire country but have not been able to do much in this sector but they have a tremendous potential. The issue is to amend the Agriculture Produce Marketing Committee (APMC) Act to allow third parties to invest money in this sector. As the farmer will not be able to invest substantially, third party investment is of priority now.

ANA: How is the issue of infrastructure development impacting the sector?

Minister: We are going in for a mega food park which will cover the entire value chain and supply chain from the farm to the market, including the cold chain and the processing hub. Infrastructure development, including the upgradation of the integrated cold chain, is a major thrust area for us. Whoever wants to come and invest in India now feels that without an effective supply chain it would be difficult for them to sustain their operations. These issues must be addressed with more investment in the field. This is the reason that we have made the sector tax-free. Setting up of a cold chain as well as a processing unit is completely tax-free.

Packaging is slightly costly still as compared to other segments. So I am trying to do something in every budget for the sector.

ANA: What are your expectations from the upcoming budget?

Minister: Basically we have to think that if public money is not coming into the rural market then private money should come and vice-versa. So we have to balance the investment scenario. We have several flagship rural development schemes in place, like the Bharat Nirman. Food processing is one area where the budget has to primarily come from the public sector because the private sector still feels comfortable in investing in the urban sector where the returns are quick. For example, setting up a cold storage in a rural area involves a longer gestation period than that in an urban area. The budget, therefore, plays a critical role for the rural food processing industry.

ANA: What are the immediate priorities of your Ministry?

Minister: There are a number of priorities that we can envisage for the food processing sector in India. The first is that the processing level must go up to reduce the wastage. The producer and the processor must have a link. We have a fragmented farming culture and we do not have thousand acre farms. The majority of farms in India are one acre or one and-half acres. If the producer that is the farmer and the processor come together, this will give an impetus to cluster farming. With proper linkage between farmers and processors, farm produce becomes a raw material and once it becomes a raw material, the farmer gets the edge to bargain. Secondly, the food processing industry must get its raw material seamlessly. The flow of raw material should not be disturbed. This will give a definitive edge to the industry. At the same time, the cold chain, the supply chain, all should work in tandem.

Thirdly, quality standard is another priority area. I have created a separate quality standard for the Indian food processing industry. By March 2010, the new standard would come into effect which will abide by the international standard and will help exporters immensely. For the processed food industry, attaining international standard is a must, because without the international market we cannot grow. We can easily cater to the booming ready-to-eat market internationally with our world class processed food.