For this to happen, investment, both domestic and international is needed, according to a recently-released report on the Indian non-alcoholic beverage sector.
Currently the influx of FDI in overall food processing sector is 1.8% of the total FDI ($147.08 billion) India got between 2001 and 2011. Out of this, the non- alcoholic beverage sector got approximately $19.44 million under automatic route while its contribution to India’s GDP was around $1.6 billion.
Challenges
Although India has the potential but factors like difficult regulatory framework, absence of long-term policies, non-implementation of policies, bureaucratic delays, Centre-state divergence on government on investment-related policies, high level of corruption and bribery, inflexible labour laws and so on have been affecting investment. In fact, due to all this, some companies have relocated their manufacturing units to neighbouring countries.
The report, jointly released by the Indian Beverage Association, Indian Council for Research on International Economic Relation and Academic Foundation New Delhi, further says that for the growth of the sector, India should – streamline its multi-layered taxation system, have facilitating environment regulations, counter mechanism to check spurious products, and have policies to facilitate water usage among others.
It suggested that there was need for industrial water supply to the beverage industry.
The report further pointed out that transport and better infrastructure would add to competitiveness of the sector while there should be pan-India consistency in implementation of the regulations with more transparency. Also there should be reassessment of the impact of subsidies, as report pointed out that several tax concessions and subsidies are not aligned with the industry requirement. It says while the government wants large-scale investment in the food processing sector, subsidies are targeted at small-scale sector.
Barriers
Inflation is another barrier, which the report talks about. India’s food inflation was average 10.1% between 2011 and 12. The cost of raw material therefore went up resulting in squeezing of profit margins. The report also highlighted that the trade deficit of the non-alcoholic beverages sector increased from $3million in 2001 to $60 million in 2011 and there is need to curb it.
Tax issues
According to Arvind Varma, secretary-general, IBA, companies under the Indian beverages sector have operations in more than one state and the difference in taxation and other factors create barrier for the sector. Issues like implementation of GST (Goods and Services Tax) would certainly help the entire F&B industry.
Varma further stated that the association would also pitch for streamlining of the other subjects pertaining to development of the beverage sector before relevant authorities, as identified and proposed by the study report.
“The beverage industry (in particular) has operations in several states therefore with uniform tax regime, the industry expects to grow further with easing out issues like supply chain and so on,” observed Varma. He added that the industry expected the GST to be a reality soon.
“We hope that the recommendations of the report will enable the industry to get positive policies and measures from the government,” he said.
Meanwhile, a survey of the manufacturers done during the making of this report suggests that despite the shortcomings, the manufacturers expect ‘good possibilities’ in future. However, an expert from the beverage sector pointed out that integrated supply chain, value addition, nutritional content and so on were some of the relevant issues needed to be taken care of.
The expectation was based on recent developments like announcement of $2 billion investment by Coca Cola in next five years starting from 2012, PepsiCo India announcing $500million in phased manner, investment of $21.8million by Field Fresh Foods Pvt. Ltd (a joint venture between Del Monte Pacific Ltd and Bharti Enterprise to set up manufacturing unit and backward supply chain).
Also the reason is being that Indian consumers are becoming more receptive of packaged drinks with growing number of working women. Juices were fast moving product category in the sector with energy drinks attributed to growing health concerns.
Exports
The total export of non-alcoholic beverages was $26.5 billion led by fruits and vegetable juices worth $18 billion (2011). The exports of milk and milk products remained more or less around $1 billion, the reasons for this being large fragmented dairy sector and lack of promotion of high value-added products.
