Indian Food Processing – a Sunrise Investment Sector

India’s ties with Malaysia have been documented for over two thousand years. The regular exchanges between the people of the two countries over the centuries have seen a sizeable proportion of people of Indian origin making their mark in Malaysia.

As the dust of the turmoil of post-World War II settled down, the colonial aspirations of the European powers dwindled as they had to grant Independence to their former colonies. In light of these developments, the history of both India and Malaysia turned a new leaf after Malaysia’s independence in 1957. In addition to trade, opportunities mushroomed for cross-border investments as well.

India and Malaysia have generally enjoyed amicable relationships. Both are members of regional organizations like the Indian Ocean Rim Association for Regional Cooperation. The overlapping economic interests of the two countries have seen them gravitate towards each other. But, it is the palm oil connection that has redefined the relationship between the two countries more than anything else. Malaysia ranks amongst the largest producers and exporters of palm oil. India has become the largest importer of edible oils and provides a ready market for the increasing production of palm oil in Malaysia.

On the trade front, for Malaysia, India emerges in the top ten largest trading partners. Conversely, for India, Malaysia is the 13th largest trading partner. Industries, both in the Public sector and Private sector, are also on the lookout for investment opportunities in each other’s countries.

With the world shrinking into a neighborhood, there is remarkable growth in cooperation in a wide gamut of touch points like trade and commerce, defense, education, tourism, preventive and corrective health, manpower resources, and many more.

As India’s pace of development increases, especially with  growth-friendly budgets and the stated objective of making the country self-reliant, opportunities are opening up. The willingness to adopt new technologies and encouragement for start-ups are seeing areas where investment becomes very attractive. Opportunities abound for Malaysian investment in these hungry-for-capital ventures.

In the food processing industry, 100% Foreign Direct Investment is now permissible. This has given a fillip to more foreign inflow of capital, which has also provided a shot in the arm for the ‘’Make in India’’ objective.

One of the avowed future aspirations for the country is to become self-reliant in edible oils. Presently a major part of the domestic requirement is met through imports, as high as 70%. More areas are being sought to be brought under oilseeds and oil palm cultivation. The areas that are being proposed to be utilized are not being used for other crops. One such region that has been earmarked is the North-East states. In the south too, the Telangana government has been proactively allotting land for oil palm cultivation. The newer areas that are being opened up for cultivation provide ample opportunity for Malaysia to look at to widen its footprint in India.

India’s population continues to balloon. With the rapid progress the country is making, the standard of living of the masses is also rising. This has seen India presenting itself as one of the largest markets for palm-based oleochemicals which are useful in a diverse range of applications. The rearrangement of lifestyle due to the Corona pandemic has seen an escalating demand for products made from oleochemicals.

Malaysia is amongst the world’s largest processors of palm oil. It has the  latest technical know-how and expertise in the field of refining, with continuous research adding value. With India aspiring to hike up its domestic production, avenues will open up for Malaysia to invest in India’s refining space. They can bring technology and know-how to oil palm management, palm oil processing, and the industry’s ecosystem. New areas for cooperation could be explored to rejuvenate business linkages to ensure continuous progress in bilateral trade and investment.

One of the fastest-growing industrial sectors in India is Food Processing. It has depth in terms of production, consumption, exports, and tremendous prospects in terms of expansion. The sector is projected to double to US$482 billion by the end of this financial year. India is blessed with a large agriculture sector and varied abundant types of livestock. India is the largest producer of milk globally and second-largest producer of fruits and vegetables. The nation is endowed with 20 agroclimatic regions. It is also blessed with all 15 major climates that permeate the world. This has enabled making the food sector a high-growth one.

The changing demographics and eating habits of Indians sees the Food Processing Industry become a sunrise sector. The burgeoning demand for ready-to-eat instant food is indeed making this sector attractive. While the industry is expected to boom, investors need to be aware of the need of maintaining strict quality checks. Retaining quality control has been the bane of many sectors in the past. Many of the tasks required to process various food items will necessitate a high level of automation and investment. With automation will come the maintenance of safety norms for workers.

In 2015-16, the Indian Government approved the setting up of five Mega Food Parks. This was to give a fillip to the “Make in India’’ aspiration. A provision was made of INR 2,000 crores (USD 300 Million) to provide affordable credit to the food processing industry. To take this forward, the Ministry of Food Processing Industries, MoFPI, is pulling out all stops to encourage investments. There are immense opportunities in the Mega Food Park Scheme, which has been launched in India’s various states. Mega Food Parks typically consist of supply chain infrastructure including collection centers, primary processing centers, central processing centers, cold chain, and around 25-30 fully developed plots for entrepreneurs to set up food processing units.

According to official sources, 100% foreign investment under automatic route has been permitted for Oil Palm plantation since November 2015. It is heartwarming to note that the Government is continuously reviewing and taking various initiatives to boost investment measures to improve ease of doing business, facilitating Micro, Small, and Medium Enterprises (MSME), reforms in the Foreign Direct Investment (FDI) Policy, etc.

In the quest for Green Technology, India stands at the cusp of opportunities and challenges. The Government’s business-friendly policies coupled with the prevailing robust business environment have ensured that foreign capital keeps flowing into the country. Over the last few years, the Government has taken many initiatives in relaxing FDI norms across various sectors. According to statistics from the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow into India topped the US$ 500 billion mark between April 2000 and September 2020. This is a clear indicator of how efforts to improve ease of doing business and relaxing FDI norms have yielded results. In the days to come, more such good news is expected to follow.

Foreign Direct Investment is a critical driver of economic growth. It has also been a significant non-debt financial resource for the economic development of the country. India provides a host of benefits for FDI seeking to invest here – plentiful cheap labour, special investment privileges like tax breaks, and a large pool of English-speaking savvy people to help run the business. This, coupled with the very robust environment for business that the Government is creating, makes for a compelling case for investments.

According to a CII and EY report, it is estimated, India could attract foreign direct investments (FDI) of USD 120-160 billion per year by 2025. The last decade has seen India witnessing a 6.8% rise in GDP on robust FDI.

The FTAs open up opportunities for better traction and more significant trade. Industries from India and Malaysia should be on the constant lookout to increase and boost ties. Many of the sunrise sectors, specially food processing, provide for massive escalation in opportunities.

Prepared by: Bhavna Shah

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