India Country Profile

Market Overview:

Euromonitor reports that India should continue to be one of the world’s fastest-growing large economies. Real Gross Domestic Product (real GDP) increased by 6.8% in 2016 – after gains of 7.6% in 2015. Strong gains in private consumption are the main driver.  Public investment has also been rising rapidly although the pace slowed in the second half of the year. Exporters continue to under-perform.  The slow pace of reform is another constraint. The pace of growth will average about 7.5% per year in 2017-2020.               

The real value of private final consumption grew by 6.1% in 2015 and an increase of 5.5% was expected in 2016. Public sector pay hikes and a rapidly expanding middle class support consumer spending. Consumer confidence has been strengthening but the move to ban (Indian Rupee) Rs500 and Rs1,000 notes could temporarily curb consumer spending. Domestic investors remain hesitant owing to stress in the balance sheets of banks and corporations. Calls on the government to increase the recapitalization of banking sector funds will probably grow.

Foreign Direct Investment (FDI), however, is buoyant. Inflows of FDI increased by 29% in the fiscal year 2015/2016 (April 2015-March 2016). Much of this inflow is directed at projects involving the coal, oil, gas, and renewable energy. Investment (both domestic and foreign) should rise during the remaining years of this decade.

USDA’s Office of Agricultural Affairs, OAA, in Mumbai, hereinafter referred to as “Post”, reports that India offers promising export growth prospects for U.S. agriculture with a large and rapidly expanding middle class, rising disposable incomes and shifting consumption patterns toward higher-value agricultural commodities. India’s imports of U.S. agriculture have been growing, particularly consumer-oriented agricultural goods, where products have made major headway. However, political, cultural and policy factors have limited U.S. exports from reaching their full potential. Despite these constraints, agricultural imports will continue to rise as India’s demand exceeds supply for certain food and agriculture products.

India’s modern retail sector is expanding, food processors want access to a global supply chain, and food service chefs want to innovate and attract young and higher income consumers who are ready to try new products and global cuisines. Exporters should determine if a product has market access and be willing to start small and comply with specific labeling and packaging requirements. Nearly everything in India is flourishing, from its economy and middle class to its increasingly young population and growing demand for consumer-oriented agricultural products.

India’s economy is predicted to double between 2010 and 2020, and is projected to nearly double again between 2020 and 2030. Between 2015 and 2020, India’s middle class will double in size and overall consumption will quadruple. Disposable income will almost double between 2015 and 2025, and total consumer expenditure on food will also grow.  In ten years, India will have the world’s youngest population. With 1.3 billion people and a significant population growth rate, India is expected to add 148 million people by 2026, an increase larger than the current population of Japan or Mexico, at which time it will surpass China as the world’s most populous country. 

To feed its richer, younger and more urban population, India’s annual agricultural imports continue to rise and are expected to continue to grow in the future. Since 2010, India’s annual agricultural imports increased more than 60%, from US$14.1 billion to US$22.8 billion in 2015. Imports of bulk and intermediate goods, like pulses and edible oils, more than quadrupled over the past ten years. In addition, India’s imports of consumer-oriented agricultural products, the fastest-growing import category in recent years, doubled since 2010, as India’s consumers increasingly demand high-value foods.

As such an emerging market, India has good potential for the consumption of U.S. food and agricultural products. U.S. exports of consumer oriented foods reached US$686.7 million in 2016, although a decline of 13%. India now ranks 16th as an export market for U.S. consumer food products. Total U.S. agricultural exports from the U.S. to India grew 7% and totaled almost US$1.3 billion for the first time, a new record high. India is also a modest importer of processed foods from the U.S. totaling US$136.5 million in 2016, up 4% and also a new record high. Top U.S. processed food exports in 2016 included food preparations, syrups and sweeteners, chocolate and confectionery, prepared/preserved seafood, processed vegetables and pulses, fats and oils, processed fruit and distilled spirits and other alcoholic beverages.

Distinct challenges remain for U.S. exporters of food and agricultural products. In the quest for self-sufficiency for many basic food commodities, India’s trade policy has focused on export controls and a highly restrictive import regime. Other market-distorting government policies and trade barriers, including government involvement in aspects of marketing and procurement of agricultural goods, also limit India’s trading potential. High Indian agricultural tariffs impede many U.S. agricultural exports, such as fresh and dried fruits, vegetables, some nuts, and various processed food products and food ingredients.

Sanitary and phytosanitary (SPS) measures keep out specific U.S. products, such as poultry, swine, dairy, and most grain and oilseed crops, including genetically engineered (GE) cereal crops. Other nontariff barriers, including import bans, quality standards, and labeling and packaging rules, further limit India’s ability to import agricultural products from the United States and others. Such protectionist policies keep India’s per capita agricultural imports artificially low.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in India had been estimated to reach US$52.4 billion in 2016, and it has risen to the 10th largest market in the world. That also represents a growth rate of 96.2% or US$25.7 billion since 2012. The forecast for growth in this market is phenomenal. By the year 2021, the retail sales in the packaged food market in India is expected to reach US$100.3 billion, with a growth rate of 65%, or nearly US$39.5 billion. Forecast high growth products include rice pasta and noodles, savory snacks, breakfast cereals, processed meat and seafood, ice cream and frozen desserts, sauces dressings and condiments and confectionery.

Post reports that organized retail consolidated in 2016 with larger players expanding their presence through acquisition of regional players. Modern retail remains constrained by low profitability, as domestic and international players shift towards building a stronger cash and carry wholesale business offering higher margins. As for imported foods, a growing number of importers are establishing independent retail outlets to showcase their assortment.   

Post analysis indicates the total (food and non-food) retail sector was valued at US$600 billion in 2016. Retail food sales are estimated at US$360 billion or about 60% of total retail sales. Estimates indicate that food retail sales in modern outlets carved out about 2% of sales (US$7.2 billion) in 2016 which is up from 1% in 2005.

India has more than 12 million shopkeepers who account for 97% of all retail sales and their opposition to liberalization in the retail sector is vigorous. Though the central government in New Delhi reversed an earlier decision and will now allow foreign supermarkets to open shops in India, individual states can still deny approval for retail foreign direct investment (FDI). In June 2016, the Government of India published a Consolidated FDI Policy 2015 that clarified investment procedures in retail (multi-brand and single-brand) trading in an effort to attract foreign investment. In the case of FDI in multi-brand retailing, foreign equity up to 51% is allowed subject to a number of conditions and implementation is on a state-by-state basis. Only 12 states/union territories are listed in the circular as having agreed to allow FDI in multi-brand retail. While no official notification restricting FDI in multi-brand retail exists, the Government of India, in principal, has not liberalized sector growth.

The Government of India clarified in the Consolidated FDI Policy that 100% FDI is permitted in business to business (B2B) activities. Cash and carry or wholesale trading includes resale, processing and later sale, as well as bulk imports with ex-port or ex-bonded warehouse business sales and B2B e-Commerce. The determination of whether a transaction is wholesale or not depends on the type of customers to whom a sale is made and not the volume of sales. FDI is permitted in business to business (B2B) e-commerce activities and not in e-commerce retail trading or direct to consumer sale. FDI is not permitted in retail trading, in any form, by e-commerce for companies engaged in single or multi brand retail trading. However, 100% FDI is permitted under a marketplace model of e-commerce (i.e., a website serves as a platform for other private vendors to market single or multiple brands). No FDI is permitted under the inventory based model of e-commerce (where inventory of goods and services is owned by an e-commerce entity and is sold directly to consumers).

While consumption of processed foods such as domestically-produced chips, biscuits and vegetable oils penetrates the lower income categories, current opportunities for value-added imported foods are generally thought to be limited to upper, upper-middle, and middle class income consumers in urban metros and emerging city markets. According to data provided by Euromonitor, average consumer expenditure (for all products) per household by the top 10% of Indian households rose to US$9,711 in 2015 from US$8,067 in 2010. Trade sources estimate India’s market for luxury goods is US$3.27 billion in 2016 and data from Euromonitor indicates that during 2011-2016, the luxury goods market in India recorded real growth of 108%. There are nearly 656,000 households with annual incomes in excess of US$150,000, up from 444,000 in 2010. 

The “organized” or modern food retail sector in India has begun to emerge over the past ten years. The number of “modern” retail outlets has increased from an estimated 200 outlets in 2005 to over 3,200 outlets in 2016). The modern retail sector, which includes a mix of supermarkets, hypermarkets, specialty and gourmet stores, and convenience stores, is dominated by large Indian companies. Several foreign retailers have established operations in India, but have been limited to wholesale operations known as “cash and carry” stores because of India’s foreign direct investment laws. While many retailers are expanding and opening new stores, profitability continues to be an issue for many as factors such as high real estate costs, high capital borrowing costs, shrinkage, high debt levels, training of qualified staff and a costly supply chain add significantly to operating costs.

Supermarkets are typically 3,000 to 6,000 square feet as high real estate costs continue to present a challenge to retailers seeking store locations. Some are located in or near shopping malls. These are self-service stores stocked with a wide range of Indian and, more recently, imported groceries, snacks, processed food, confectionary, personal hygiene and cosmetic products. Imported items in the supermarkets consist mainly of almonds and other dry fruits, fresh fruit, fruit juices, ketchup, chocolates, sauces, specialty cheese, potato chips, canned fruits/vegetables, cookies, and cake mixes. They stock most national brands, regional and specialty brands, and sometimes their own brand of packaged dry products, and some international brands. Many have a small bakery/confectionary section, and some have fresh produce, meat and dairy products.  A few sell small quantities of frozen foods. A typical supermarket carries about 6,000 stock-keeping units (SKUs).

A few retailers are establishing large hypermarkets with an area of 25,000 to 100,000 square feet in an effort to take advantage of scale and create a unique one-stop shopping experience in India that differentiates them from smaller supermarkets and traditional small retailers. These stores are catering to consumers who seek wider selection and have the means to have storage space (including refrigerators) and their own transportation.

Imported food products in the Indian retail market face a high level of competition from domestic products. India is a significant agricultural producer and a net exporter of food products. Domestic production has the added advantage of low-cost labor, easy access to raw materials and the protection of high tariffs, which provides an edge over imported food products. Many foreign multinational opt to invest and manufacture in India rather than import food products. Consequently, a growing number of international brands are now made and marketed in India. Products from the U.S. also face competition from products coming from various other countries, which enjoy geographical proximity as well as preferential tariff treatment with India.

Best Prospects:

U.S. exporters of consumer ready food products have good potential with pears, apples, grapes chocolate, almonds and pistachios. Whiskies and other alcoholic beverages also have potential. Other products with stronger recent growth include sugar and chocolate confections, snack foods, frozen processed potatoes, fruit juices, spirits and sauces.

Food Service Sector:

Post reports that India’s hotel restaurant and institutional (HRI) food service sector continues growing as restaurant dining and tourist numbers climb. Household income growth and the rise of dual-income households make dining out accessible. Fast expansion of varied-format food service outlets are gaining popularity across major and emerging-market cities while franchising remains the most popular growth model. International hotel brands are expanding their presence in the market. While opportunities for foreign food exporters in the sector are improving, the market for imported food products continues to be relatively small due to aforementioned high tariffs, ongoing import restrictions, and strong competition from domestic foods.

According to Euromonitor India expects to see median incomes per household increase by 90% in real terms from 2015-2030. This will not only bring discretionary spending power to large groups of new potential food service customers, but it will also help transition India from a “bottom of the pyramid” market towards a middle class consumer market with greater and more sophisticated dining-out demand.

India has a vast hotel sector, but only a small percentage of hotels are considered three stars and above. The overwhelming majority of hotels are small, traditional outlets that provide inexpensive accommodations for travelers and source all of their food locally. There are over 576 hotels and resorts in India that constitute the “organized” or modern sector. Nevertheless, as foreign and domestic travel has increased in recent years, the number of modern hotels that carry at least small amounts of imported foods on their menus is on the rise. Furthermore, hotels are able to obtain a special license that enables them to purchase food and beverage items (and other items such as equipment and furniture) duty-free subject to their foreign exchange earnings. Hotels tend to use the duty-free licenses to purchase the items with the highest import tariffs and may not use the licenses to purchase food.

Most hotels purchase imported food and beverages from Indian firms that import and distribute food products. However, some of the larger hotel chains procure via consolidators based in Dubai, Singapore, and Bangkok. Indian importers typically import mixed containers and offer a range of products. Hotels often deal with multiple importers in order to get the desired range of imported foods. Exporters seeking to access the Indian hotel market should identify an importer that specializes in distributing to hotels and be prepared to offer small quantities of products or mixed containers.

Traditionally, Indians have tended to eat at home and the cuisine of choice has been traditional Indian foods. Those who dined outside the home often ate street foods from the enormous number of street stalls and informal eateries that are common across India. Eating in a restaurant was reserved for special occasions. India appears to be in the early stages of a significant transformation in the restaurant sector. Indian consumers are dining out more frequently and younger Indians are shedding the biases of their elders against international franchises and foreign foods. With only an estimated 100,000 modern, organized restaurants (20 or more seats, wait staff, menus) in India, there is plenty of room for growth in the industry. It is estimated that Indians spend 8% to 10% of their food expenditures outside the home in restaurants, cafeterias and other food establishments.

As per the 2016 India food service report published by the National Restaurant Association of India, the restaurant sector is valued at US$46.5 billion and is expected to grow to US$75 billion by 2021, with compound annual growth rate of 10%. The report states that the share of organized market is 33% and in terms of market segments, Quick Service Restaurants (QSR) and Casual Dine-in formats account for 74% of the total market, while Cafés make up 12%, and Fine Dining, Pub Bars Clubs & Lounges (PBCL) comprise the rest. 

After struggling with supply chain issues for many years, major franchises have developed a handful of suppliers in India who can meet quality requirements, placing existing restaurants in a better position to expand and easing the way for new restaurants seeking to enter the market aided by internet and ecommerce. The trade continues to indicate that lack of well-planned and well-priced rental spaces, over regulation, and licensing structures limit the scaling of the operations. While the number of casual dining, fast food restaurants and coffee shops is growing, high tariffs and other trade restrictions tend to limit the use of imported food products on restaurant menus. Imports are typically limited to specialty ingredients that are not available in India.

Most foreign and local chains are doing well in major cities, and are expanding into mid-sized Indian cities referred to as tier-two and tier-three cities. Many of these fast food chains have developed a range of Indian styled products to suit local preferences. Although these chains procure most of their products locally, several products such as french fries, specialty cheeses, some meats and seafood, flavors, condiments, and other ingredients are often imported. Over the past few years, the ‘coffee shop’ culture has spread via chains like Costa Coffee, Starbucks, and Café Coffee Day in major cities, and seems poised for future growth. These chains are sourcing syrups, nuts, berries, and some bakery ingredients from foreign origins.

The institutional sector is geared in large part to serving public sector institutions such as the Indian railways and public offices. Corporate catering is a relatively new concept, but some large companies are providing meals to their employees at subsidized rates. Catering for parties and special events is a common and longstanding practice in India, but is dominated by traditional caterers providing local foods and cuisines. However, even traditional caterers are expanding their menus to include pasta bars and other non-Indian cuisines. Cost is a major factor in the institutional sector and the high cost of imported food products, after tariffs and other fees are applied, tends to limit opportunities for exporters in this sector.

Regional trading hubs such as Dubai and Singapore continue to be important suppliers to the Indian market. However, as the food import community shifts its focus from simply trading to professional brand management, distribution and marketing, importers are increasingly looking to represent foreign exporters in India. Key importers are located in cities such as Delhi, Mumbai, Chennai, Kolkata, Cochin and Goa, but tend to be concentrated in Mumbai and Delhi.

The import process continues to be complex and relatively costly. Consequently, hotels and restaurants typically source their products from local importers and distributors who have the expertise in clearing, storing, and transporting products. Most hotel chains purchase through centralized procurement offices on annual contracts with local importers, ordering small quantities of food products as needed and minimizing food storage at hotels. Restaurants also rely on local distributors for their needs and some require importers to become an approved supplier.

There are no reliable statistics for specific information on imports of food and beverage products destined for the HRI sector. Based on a qualitative assessment of the market and information obtained from market sources, products from Australia, New Zealand, the European Union, the Middle East, and other Asian countries directly compete with items from the U.S. In addition to the freight cost advantages, suppliers from these regions are often willing to supply mixed consignments of a wider range of smaller individual product lots, and willing to modify product specifications to meet Indian food laws.

Best Product Prospects:

Products present in the market that have good sales potential include almonds, pistachios,  fresh or dried grapes, distilled spirits, fresh apples pears and quinces, cocoa and  preparations, fruit juices, wine, sauces, dressings condiments and cheese.

Food-Processing Sector:

Post advises that India’s food processing sector is poised for growth in response to changing demographics, evolving preferences for branded items, a modernizing retail sector, growing consumer acceptance of processed foods, and government advocacy to develop food manufacturing. Packaged food sales more than doubled between 2012 and 2016 to US$52.4 billion and there is opportunity for further growth.  Imports of non-standardized foods and ingredients remain a challenge.

Increasing urbanization, lifestyle changes, greater affluence, and increased rates of women working outside of the home are driving demand for processed foods. According to the Ministry of Food Processing, the food processing sector accounts for 1.7% of gross domestic product and is valued at US$25 billion (based on a revised series). According to the latest Annual Survey of Industries, there are 37,175 registered food processing units in the country that have employed approximately 1.7 million people. As per an assessment of the extent of food processing in various food sub-sectors done in 2014 by the Institute of Economic Growth on behalf of the Ministry of Agriculture, the average extent of processing of agro-products in 2010-11 was 6.7%.

A significant segment of food processing was confined to primary processing (e.g., milling and crushing) of cereals, pulses and oilseeds along with the processing of foods such as traditional pickles, spice mixes and snack foods (cookies and savory snacks). Until the late 1990s, most of the food processing sector was limited to small-scale industries (SSI) where only small firms were allowed to obtain a license to process foods. In recent years, laws have changed to allow large firms to invest in the sector and Indian and global food companies have entered the sector.  

Despite increasing investment and modernization in the industry, various challenges, including; dynamic policy regulations; lack of appropriate processing, lack of training in food processing/safety/etc.; storage and transportation infrastructure; awareness of price consciousness, which affects food safety and quality; etc. exist. While food processing and storage infrastructure has expanded (e.g., the recent drive for food processing parks), transportation and logistics-related infrastructure growth is sluggish.

The ‘Make in India’ campaign launched in 2014 facilitates investment, generates employment and helps build a manufacturing infrastructure in the various sectors including food processing. The government aims to reduce food losses and keep a check on food inflation by attracting investment into food processing and the food value chain. Food parks are being developed across the country to support domestic demand for processed foods, beverages, and ingredients for food service and retail/consumer sale.

With the spread of cafés, chain restaurants, modern retail and efforts to attract investment in cold chains and food logistics, the food processing industry is expected to expand. Incentives and subsidies are offered for a variety of programs. The Ministry of Food Processing Industries has set targets to increase the level of processing of perishables from 6% to 20%, value addition by 20% to 35% and India’s share of global processed-food trade from 1.5% to 3% by the year 2015. A government study entitled “Human Resource and Skill Requirements in the Food Processing Sector (2022)” indicates that by 2022, food processing industry is expected to generate 4.4 million job opportunities. The report states that the organized sector will contribute to 25% of total employment for the sector. Through subsidies and incentive programs, the Ministry of Food Processing is supporting cold chain infrastructure, storage facility, modern slaughter houses, food parks and laboratory development.

India’s domestic industry is the primary competitor for U.S. food ingredient exporters. India, with its diverse agro–climatic conditions, produces a variety of foods and ingredients, the quality of which is expected to improve as firms invest in the food processing and logistics sectors. As indicated, some competing suppliers enjoy a freight advantage and consolidators in markets like Dubai and Singapore offer quick delivery of small quantities. High import duties and restrictions on a number of imported raw materials pose as an additional challenge for the U.S. exporters interested in Indian market. In addition, there are several additional fees that apply. Exporters should work closely with their prospective importers to determine the likely landed post customs clearance cost of their products.

Post advises that the best way to begin exporting to India is to identify a firm that imports and distributes food ingredients. These firms are adept at navigating the import and distribution processes and are able to engage directly with India-based food processors. While a few firms specialize in ingredients, others may handle retail-ready products in addition to ingredients. Some importers are also approved suppliers for multinational food processors and restaurants operating in India. U.S. processors that already supply major food processors in the U.S. or other foreign markets may wish to investigate similar supply relationships with firms that have a presence in India. Key initial factors to consider when researching the market are whether a product has a market access and the landed post duty cost of a product.

Best Product Prospects:

Post reports that the Indian food processing sector is poised for significant growth in coming years, given investor interest and consumer preference. Food processors are also introducing new products and traditional recipes using improved technology, innovative packaging, and aggressive marketing. This should create additional demand for raw material and food ingredients. Best prospects in the sector include nuts (especially almonds), cocoa and cocoa preparations, malt, starches, insulin and wheat gluten as well as dried shells and pulses, fresh apples and pears and fresh or dried grapes, fruit juices, beverages, spirits and vinegar and modified albuminoidal substances.   

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