CHAPTER

:-1

INTRODUCTION TO TOPIC

1.1 Foreign Direct Investment

Private Foreign Capital can be a good source of funds flow to developing countries. It may involve equity participation by foreigners which may take two possible forms: Direct Investment Portfolio Investment

Foreign Direct Investment [FDI] is investment made by a transnational corporation to increase its international business. When firms become multinational, they undertake FDI. It generally involves the establishment of new production facilities in foreign countries to earn extra returns .The foreign investment decision results from a complex interaction of factors that differ in many ways from that governing the domestic investment decision. Foreign investment is generally motivated by a complex set of strategic, behavioral and economic and financial considerations. The evaluation process of foreign investment is generally longer, more costly, less accurate and involves more political and foreign investments is generally longer, more costly, less accurate and involves more political and foreign exchange risks. Businesses and governments are motivated to engage in FDI to: 1. Expand markets by selling abroad 2. Acquire foreign resources [For example: Raw materials, Knowledge, production efficiency, etc.]In addition, government may also be motivated to gain political advantage. The IMF defines foreign investment as FDI when the investors hold 10% or more of the equity of an enterprise. Foreign investment has been a major factor in stimulating economic growth and developing in recent times.

1.1.1 Definitions
1.1.1(a) IMF DEFINATION
According to the BPM5, FDI is the category of international investment that reflects the objective of obtaining a lasting interest by a resident entity in one economy in an enterprise resident in another economy. The lasting interest implies the existence of a long term relationship between the direct investor and the enterprise and a significant degree of influence by the investor on the management of the enterprise.

1.1.1(b) UNCTAD DEFINATION

The WTR02 define FDI as an investment involving a long term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the FDI enterprise, affiliate enterprise or foreign affiliate. FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. Such investment involves both the initial transaction between the two entities and all subsequent transaction between them among foreign affiliates, both incorporated and unincorporated. Individual as well as business entities may undertake FDI. Flow of FDI comprises capital provided (either directly or through other related enterprises) by w foreign direct investment to an FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor. FDI has three components, viz, equity capital, reinvested earning and intra company loans. Equity capital is the foreign direct investors purchase of share of an enterprise in a country other than its own. Reinvested earning comprises the direct investor share (in proportion to direct equity participation) of earnings not distributed as dividends by affiliates or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested. Intra company loans or intra company debt transaction refer to short or long term borrowing and lending of fund between direct investors (parent enterprises) and affiliate enterprises.

1.1.2 ADVANTAGES AND DISADVANTAGE OF FDI FOR THE DOMESTIC COUNTRY 1.1.2(a) Advantages of foreign direct investment
Foreign Direct Investment has the following potential benefits for less developed countries.

1) Raising the level of investment:

Foreign investment can fill the gap between desired investment and locally mobilized savings. Local capital markets are often not well developed. Thus, they cannot meet the capital requirement for large investment projects. Besides, access to the hard currency needed to purchase investment goods not available locally can be difficult. FDI solves both these problem at once as it is a direct sources of external capital. It can fill the gap between desire foreign exchange requirement and those derived from net export earnings.

2) Up gradation of Technology:
Foreign investment brings with it technological knowledge while transferring machinery and equipment to developing countries. Production units in developing countries use out dated equipment and techniques that can reduce the productivity of workers and lead to production of goods of a lower standard.

3) Improvement in Export Competitiveness:

FDI can help the domestic country improve its export performance. By raising the level of efficiency and the standards of product quality. FDI makes a positive impact on the domestic countrys export competitiveness. Further, because of the international linkages of MNCs, FDI provides to the domestic country better access to foreign markets. Enhanced export possibility contributes to the growth of the domestic economies by relaxing demand side constraints on growth, this is important for those countries which have a small domestic market and most increase exports vigorously to maintain their tempo of economic growth.

4) Employment Generation:
Foreign investment can create employment in the modern sectors of developing countries. Recipients of FDI gain training of employees in the course of operating new enterprises, which contributes to human capital formation in the domestic country.

5) Benefits to Consumers:
Consumer in developing countries stands to gain from FDI through new products, and improved quality of goods at competitive prices.

6) Resilience Factor:
FDI has proved to be resilient during financial crisis, for instance, in East Asian counties such investment was remarkably stable during the global financial crisis of 199798. In sharp contrast, other forms of private capital flows like portfolio equity and debt flows were subject to large reversals during the same crisis. Similar observations have been made in Latin America in the 1980s and in Mexico in 199495. FDI is considered less prone to crises because direct investors typically have longer term perspective when engaging in host country. In addition to risk sharing properties of FDI, it is widely believed that FDI provides a stronger stimulus to economic growth in the domestic countries than other types of capital inflows. FDI is more than just capital, as it offer access to internationally available technologies and management know how.

7) Revenue to Government:
Profit generated by FDI contributes to corporate tax revenues in the domestic country.

1.1.2(b) Disadvantage of Foreign Direct Investment

FDI is not an unmixed blessing. Governments in developing countries have to be very careful while deciding the magnitude, pattern and condition of private foreign investment. Possible adverse implications of foreign investment are the following: 1) When foreign investment is competitive with home investment, profits in domestic industries fall, leading to fall in domestic savings. 2) Contribution of foreign firms to public revenue through corporate taxes is comparatively less because of liberal tax concession; investment allowances, disguised public subsidies and tariff protection provided by the host government. 3) Foreign firms reinforce dualistic socio economic structure and increase income inequalities. They create a small number of highly paid modern sector executives. They direct resources away from priority sector to the sophisticated products for the consumption of the local elite. As they are located in urban areas, they create imbalances between rural and urban opportunities, accelerating flow of rural population to urban areas. 4) Foreign firm stimulate inappropriate consumption patterns through excessive advertising and monopolistic market power. The products made by multinational for the domestic market are not necessarily low in price and high in quality. Their technology is generally capital intensive which does not suit the needs of a labor surplus economy. 5) Foreign firms able to extract sizeable economic and political concession from competing government of developing countries. Consequently, private profits of these companies may exceed social benefits. 6) Continual outflow of profit is too large in many cases, putting pressure on foreign exchange reserves. Foreign investors are very particular about profit repatriation facilities. 7) Foreign firms may influence political decisions in developing countries. In view of their large size and power, national sovereignty and control over economic policies may be jeopardized. In extreme cases, foreign firms may bride public officials at the highest level to secure undue favors. Similarly, they may contribute to friendly political parties and subvert the political process of the domestic country. Key question, therefore, is how countries can minimize possible negative effects and maximize positive effects of FDI through appropriate policies.

1.1.3 Determinants of Foreign Direct Investment

To understand the scale and direction of FDI flows, it is necessary to identify their major determinants. The relative importance of FDI determinants varies not only between countries but also between different types of FDI. Traditionally, the determinants of FDI include the following:

1. Size of the market:

Large developing countries provide substantial market where the consumers demand for certain goods far exceed the available supplies. This demand potential is a big draw for many foreign owned enterprises cases; the establishment of a low cost marketing operation represents the first step by the multinational into the market of the country. This establishes a presence in the market and provides important insights into the ways of doing business and possible opportunities in the country.

2. Political stability:
In many countries, the institutions of government are still evolving and there are unsettled political questions. Companies are unwilling to contribute large amounts of capital into an environment where some of the basics political questions have not yet been resolved.

3. Macro economic Environment:

Instability in the level of prices and exchange rate enhance the level of uncertainty, making business planning difficult. This increases the perceived risk of making investment and therefore adversely affects the inflow of FDI.

4. Legal and Regulatory Framework:

The transition to a market economy entails the establishment of a legal and regulatory framework that is compatible with private sector activities and the operation of foreign owned companies. The relevant areas in this field include protection of property rights, ability to repatriate profits, and a free market for currency exchange. It is important that these rules and their administrative procedures are transparent and easily comprehensive.

5. Access to basic Inputs:

Many developing countries have large reserves of skilled and semi skilled workers that available for employment at wages significantly lower than in developed countries. This provides an opportunity for foreign firms To make investments in these countries to eater to the export market. Availability of natural resources such as oil and gas, minerals and forestry products also determine the extent of FDI. The determinants of FDI differ among countries and across economic sectors. These factors include the policy framework, economic determinants and the extent of business facilitation such as macro economic fundamental and availability of infrastructure.

1.1.4 Types of Foreign Investment

Broadly there are two types of foreign Investment, namely, foreign direct investment [FDI] and portfolio investment. FDI refers to investment in a foreign country where the investor retains control over the investment. It typically takes the form of starting a subsidiary, acquiring a stake in an existing firm or starting a joint venture in foreign country. Direct investment and management of the firm concerned normally go together. If the investor has only a sort of property interest in investing the capital in buying equities bonds or other securities abroad it is referred to as portfolio investment . FDIs are governed by long term consideration because these investments cannot be easily liquidated. Hence factors like long term political stability, government policy industrial and

economic prospects etc. influence by short term gains portfolio investment are generally much more sensitive than FDIs Direct investments have direct responsibility with the promotion and

management of the enterprise . Portfolio investors do not have such direct involvement with the promotion and management.

TYPE OF FOREIGN INVESTMENT

Foreign investment

Foreign Direct Investment

Portfolio Investment

Wholly owned Subsidiary

Joint venture

Acquisition

Investment by FIIs

Investment in GDRs, FDRs

1.2 OBJECTICVE OF STUDY

To understand FDI functioning To study the benefits and impact on FDI in Food sector To make a valuable report on FDI To study about all aspects of FDI in India.

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1.3 Literature review And/or Theoretical Background

Since the beginning of the 1990s foreign direct investment (FDI) has become the most important source of foreign capital for emerging market economies (EMEs). Official flows have lost much of their erstwhile significance, while bank lending has been muted since the debt crisis of the 1980s. Portfolio investments have grown notably, but tended to be quite volatile. In particular, they have decreased markedly in the aftermath of the Asian crisis of 1997-98. In contrast, FDI flows to EMEs continued to increase over the nineties. Indeed, after the Asian crisis positive net private capital flows to EMEs persisted only because of substantial FDI activities. The increasing reliance of EMEs on FDI is often seen as an extremely welcome development. Many positive implications are ascribed to these particular capital transfers that apparently set them apart from other types of private capital flows. The import of improved management techniques and of more advanced technologies as well as the related easier access to international financial markets is among the commonly cited advantages associated with FDI. In addition, FDI is also expected to be a relatively stable long-term commitment on behalf of a multinational enterprise (MNE). All this together should have significant benefits for the recipient countries in terms of economic growth and reduced external vulnerability. Especially, even large current account deficits are often viewed as clearly sustainable as long as they are largely financed through FDI instead of bank lending or portfolio investments, which are both known to be highly volatile. Review of various literatures available on FDI reveals that foreign investment is still a matter of debate. Whether FDI is boom or bane for host countries economic growth and development? Opinions are still divided. FDI has its own advantages and disadvantages. Many scholars argue that through FDI developed nations may try to invade the sovereignty of host country. In order to earn quick profit they may exploit the natural resources at the faster rate and thus leave the host country deprived in the long run. It have been feared that FDI is a big threat to survival of domestic players. Many are of the opinion that basic objective of foreign investments is to earn profits by ignoring the overall social & economic development of the host nation. Thus, through this section an attempt has
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been made to discuss various issues raised by different scholars on the subject. It is universally acknowledged that FDI inflow offers many benefits to an economy. UNCTAD (1999) reported that Transnational Corporations (TNCs) can complement local development efforts by (i) increasing financial resources for development; (ii) boost export competiveness; (iii) generate employment and strengthening the skill base; (iv) protecting the environment to fulfill commitment towards social responsibility; and (v) enhancing technological capabilities through transfer, diffusion and generation. However, Te Velde, (1999) has rightly reported that in the absence of pro-active government policies there are risk that TNCs may actually inhibit technological development in a host country. Borensztein, ect. al. (1998) reveals that FDI has a net crowding in effect on domestic private and public investment thus advancing overall economic growth. Crowding in effects of FDI varies with regions. There has been strong evidence of crowdingin in Asia and strong net crowding out Effect in Latin America (Agosin and Mayer, 2000). By and large, studies have found a positive links between FDI and growth. However, FDI has comparatively lesser positive links in least developed economies, thereby suggesting existence of threshold level of development (Blomstrom and Kokka, 2003 and Blomstrom et. al., 1994). Athreye and Kapur (2001) emphasized that since the contribution of FDI to domestic capital is quite small, growth-led FDI is more likely than FDI-led growth. Dua and Rasheed (1998) indicted that the Industrial production in India had a unidirectional positive Granger-Casual impact on inward FDI flows. They also concluded that economic activity is an important determinant of FDI (UTMS Journal of Economics, Vol. 1, No. 2, pp. 1-16, 2010 M. Shamim Ansari, M. Ranga: INDIAS FOREIGN DIRECT INVESTMENT: CURRENT STATUS.)

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CHAPTER: - 2
Company / Industry profile

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2. 1 Food Industry
The food industry is on a high as Indians continue to have a feast. India is one of the worlds major food producers but accounts for less than 1.5 percent of international food trade. This indicate vast scope for both investors and exporters. Fuelled by what can be termed as a perfect ingredient for any industry large disposable incomes the food sector has been witnessing a marked change in consumption patterns, especially in terms of food. The Food Processing Industry sector in India is one of the largest in terms of production, consumption, export and growth prospects. The government has accorded it a high priority, with a number of fiscal reliefs and incentives, to encourage commercialization and value addition to agricultural produce; for minimizing pre/post harvest wastage, generating employment and export growth. Important sub-sectors in food processing industries are:-Food and Vegetable Processing, Fish Processing, Milk Processing, Packaged/Convenience Foods, Alcoholic beverages and soft drinks and Grain Processing etc. As a result of several POLICY INITIATIVES undertaken since liberalization in August 1991, the industry has witnessed fast growth in most of the segments. As per a recent study on the food processing sector, the turnover of the total food market is approximately Rs 250,000 croers (US $ 69.4 billion) out of which value-added food products comprise Rs 80,000 crores (US $ 22.2 billion). Since liberalization in Aug91 and up till Feb 2000 proposals for projects of over Rs.53, 800 crores (US 13.4 billion) have been proposed. In various segments of the food and agroprocessing industry. Besides this, Govt. has also approved proposals for joint ventures, foreign Collaboration, industrial licenses and 100% export oriented units envisaging an investment of

Rs.19,100 crores (US $ 4.80 billion) during the same period. Out of this, foreign investment is over Rs.9100 crores (US $ 18.2 billion).Processed food exports were at over Rs.13, 500 crores (US $ 3.2 billion) in 1998-99.Out of these exports, rice accounted for 46%, where as marine products accounted for over 34%. The Indian food processing industry was valued at Rs.5060 billion in 2005,a growth of 10% over the previous year. The food processing industry consists of segments like processed fruits and vegetables, cereal based products, dairy products, meat, poultry and fishery products, beverages and
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confectionery. In addition, the Indian food processing industry is becoming an attractive FDI destination; it attracted around INR 45.19 billion FDI during 1991-2005 which is 3.3% of total FDI inflow in India. No industrial license is required for almost all of the food and agro processing industries except for some items like; beer, potable alcohol and wines, cane sugar, hydrogenated animal fats and oils etc. and items reserved for exclusive manufacture in the small scale sector. Items reserved for SSI include pickles and chutneys, bread, confectionery (excluding chocolate, toffees and chewing gum etc.),rapeseed, mustard, sesame and groundnut oils (except solvent extracted),ground and processed spices other than spice oil and oleoresins, sweetened cashew nut products, tapioca sago and tapioca flour. Indias middle class segment will hold the key to success or failure of the processed food market in India. Of the countrys total population of one billion, the middle class segments account for about 350-370 million. Though a majority of families in this segment have non-working housewives or can afford hired domestic help and thus prepare foods of their taste in their own kitchens, the profile of middle class is changing steadily and hired domestic help is becoming costlier. This is conducive to an expansion in demand for ready-to-eat Indian-style foods. Indias food processing sector covers fruit and vegetables; meat and poultry; milk and milk products, alcoholic beverages, fisheries, plantation ,grain processing and other consumer product groups like confectionery, chocolates and cocoa products, Soya based products, mineral water, high protein foods etc. FDI policy for manufacture of items reserved for the SSI sector is uniform for all items so reserved and a separate dispensation for items in the food processing sector is not contemplated.

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Change in consumption patterns

Increasing incomes are always accompanied by a change in the food basket, says an ICRA report, which analyses food expenditure patterns over the last three decades in India. 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, the proportionate expenditure on staples (cereals, grams, 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 Rs 1,280 billion (US$ 29.4 billion), in a total estimated market of Rs 3,990 billion (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. The Confederation of Indian Industry (CII) has estimated that the food processing sector has the potential of attracting Rs 1,50,000 crore (US$ 33 billion) of investment in 10 years and generate employment of 9 million person-days. The Government has formulated and implemented several Plan 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. In order to boost the food processing sector, the Centre has permitted under the Income Tax Act a deduction of 100 per cent of profit for five years and 25 per cent of profit in the next five years in case of new agro processing industries set up to package and preserve fruits and vegetables. Excise Duty of 16 per cent on dairy machinery has been fully waived off and excise duty on meat, poultry and fish products has been reduced from 16 per cent to 8 per cent.

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Ready-to-eat food
The popularity of ready-to-eat packs and the bottom lines of eateries have a story to tell. Eating out no longer marks a special occasion. Not only does the traditional eat-at-home type prefer to eat out, he is very demanding too. He wants value for his money in terms of quality and variety. Italian, Mexican, Lebanese, Japanese, Cajun the list is growing. Corroborating this trend, Euro monitor International, a market research company, says the amount of money Indians spend on meals outside the home has more than doubled in the past decade, to about US$ 5 billion a year and is expected to double again in about half that time. The industry is estimated to grow at 9-12 per cent, on the basis of an estimated GDP growth rate of 68 per cent, during the tenth five-year plan period. Value addition of food products is expected to increase from the current 8 per cent to 35 per cent by the end of 2025. Fruit and vegetable processing, which is currently around 2 per cent of total production will increase to 10 per cent by 2010 and to 25 per cent by 2025. The popularity of food and agro products is not surprising when the sector is now offering a growth of more than 150 per cent in sales. With such promise in the sector, a number of foreign companies have joined the fray. While US brands such as McDonalds, Pizza Hut and Kentucky Fried Chicken have become household names, more are on their way. Among processed food products, the milk product market needs special mention. Retail shelves now offer multiple choices in the processed cheese segment such as Le Bon of Dabon International, Laughing Cow, Britannia and Amul. India is, in fact, one of the largest milk producers in the world. In 2004, world milk production was estimated to be 612 million tones, nearly 0.5 per cent higher than the previous year and India contributed about 15 per cent to this. The new wave in the food industry is not only about foreign companies arriving here attracted by the prospective size of the market. It is also about the migration of the Made in India tag on food products traveling abroad. Indian food brands and fast moving consumer goods (FMCGs) are now increasingly finding prime shelf-space in the retail chains of the US and Europe. These include Cobra Beer, Bikanervala Foods, MTR Foods' ready-to-eat food stuff, ITC's Kitchen of India and Satnam Overseas' Basmati rice.

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Food Parks
In a bid to boost the food sector, the Government is working on agrizones and the concept of mega food parks. Twenty such mega parks will come up across the country in various cities to attract Foreign Direct Investment (FDI) in the food processing sector. The Government approved 105 proposals between January 2002 and May 2005 from foreign industrialists to set up food processing industries in India involving Rs.643.47 crore (US$ 144 million). The ministry has released a total assistance of Rs.105.22 crore (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 Rs.100 crore (US$ 22 billion) subsidy for mega food processing parks.

Food-processing industry and supermarkets

Promising sub-sectors Soft-drink bottling Confectionery manufacture Fishing, aquaculture, fish-processing Grain-milling and grain-based products Meat and poultry processing

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Alcoholic beverages Milk processing Tomato paste Snack food Fast-food Ready-to-eat breakfast cereals Ice-creams Food additives, flavours etc. Food packaging Refrigerated food handling Supermarkets Overview of India's food processing industry

Table -1.01 Food processing industry and supermarkets

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2.1(a) FUTURE OF THE INDUSTRY

Because of the liberal government and other developmental measures being taken the future of the Industry looks very bright. The production base is being enlarged, modern methods of cultivation are being adopted thus improving the productivity and cutting the per unit cost. To some extent cold chain is being provided, which will help in retaining quality, freshness and reduce post-harvest losses. With the new hybrid varieties being added the production season is also being extended. These developments shall result in the greater availability of quality raw materials to the industry thus resulting in better capacity utilization and producing a wider range of products and of international quality. The quality is now the watchword for success. The multinational now entering the food industry have an international marketing network and have their brand loyalties all over the world. This will enable the Indian product reaching all over the world in the form and packing required. With the rise in the per capita income particularly of the middle class a drastic changes in the food habits has been noticed. This will lead to an increased domestic consumption of processed foodstuffs. India is the world's second largest producer of food next to China and even has the potential of being the biggest, with the food and agricultural sector contributing around 26% to Indias GDP. The total food production in India is likely to double in the next ten years and there is an opportunity for large investments in food and food processing technologies, skills and equipment. Recognizing this need, the government has planned to offer subsidies up to Rs 100 crore (US$ 22 mn) and excise sops to encourage foreign direct investment in mega food parks in India. The government would offer the subsidy in the form of land and infrastructure. These parks could come up as estates spread over 50-60 acres, or could be loosely spread across special economic zones Commenting on the situation, Mr. Subodh Kant Sahai, Union Minister of State for Food processing Industries said, The sector could grow faster, if the state government reduced its tax rates to nil on perishable goods and 4% for non-perishable goods. The adoption of Agricultural Produce Marketing Committee Acts would also be crucial, he added. Economic globalization meaning integration of national economies into the international economy through trade, foreign direct investment, short-term capital flows, movement of labor across nations and flow of knowledge and
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technology has been the dominant feature of the world economy for the last two to three decades. The process is somewhat irreversible and is bound to continue in the coming years. The national societies and the world community have to deal with its consequences and mange the process so as to get its benefits, while minimizing the downside risks. When managed well, globalization can be a powerful force for economic growth; for, engagement in the process of globalization provides a country like India with great opportunity to enhance productivity in its production and service sectors needed for increasing the nation's living standards. India's own experience in the past years provides testimony to this view. From the 1960s to the 1980s, India remained bound to its closed door policies, import-substitution industrialization strategy and relatively autarchic trade policies. During the same period, the East Asian countries shifted to outward orientation and export-oriented industrial development. While India's economic performance during these decades was dismal, with a GDP growth rate of about 3.5 per cent per annum - known as the 'Hindu rate of growth' - income and exports increased at dramatic rates in East Asia. Then India began to open its economy in a limited way in the 1980s and more systematically and boldly in the 1990s. This resulted in an average annual growth of real income or GDP of nearly 6 per cent during the two decades ending in 2000. More dramatic has been the experience of China, which has adopted outward-oriented economic policies more consistently and aggressively since 1978. There the annual growth rate of GDP has been about 10 per cent during the same period. Also your experience in specific industrial sectors shows the advantages of linking with the outside world. Take for example the automobile industry. For nearly 40 years the industry was protected from outside competition and produced the same models of car. The opening of the industry to foreign direct investment revolutionized, within a decade, an industry fossilized for nearly four decades. Similarly India's achievements in software and IT industry have been possible through its linkage with the outside world and by an active participation in the process of globalization. While India can be justly proud of its global achievements in software, it would, however, be a mistake to believe that the country can achieve a high rate of economic growth, say 8 per cent per annum or above, over the coming decades only on its performance and achievements in the services sector. It needs a strong manufacturing base and it is only through manufacturing development that a country can foster
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technological dynamism and productivity growth needed for long-term economic advancement. Manufacturing is also the export driver, which has been responsible for spectacular economic growth in South-East and East Asia, including China, in recent years. And the share of manufacturing in India's economy is quite low: manufacturing value added as share of GDP in 2001 was only 16 per cent, compared to 35 per cent in China, 30 per cent in the Republic of Korea, 31 per cent in Malaysia and 22 per cent even in the Philippines. There exists thus considerable potential for growth in manufacturing, which in a globalized world economy has to be based on productivity and competitiveness. And of course the focus will have to be on selected industrial sectors where the country may have relative comparative and competitive advantage. With liberalization of the world markets, industries must be internationally competitive to survive and grow. Today production in many areas has become more integrated through the spread of global value chains and production networks, exposing national economies to the market forces more than before. This has resulted in competition constantly taking new forms, with new products, processes and services becoming main factors of competitiveness. Even successful enterprises are finding it difficult to sustain their position unless they continue to innovate and improve their productivity and competitiveness. In fact, the main driver of productivity growth in both the rich countries of the West and the newly industrializing countries in East Asia has been technology and innovation. It is the increasing efficiency with which factors of production are combined to produce goods and services through the use of new and better technology that results in productivity growth. Also shifting resources from activities with low productivity to more productive areas enhances efficiency and competitiveness. The host of changes needed in the dysfunctional policies and regulations of the past, and the improvements to be brought about in the institutions as well as in the physical and financial infrastructure of the country has been well documented. The need for creating a congenial and competitive investment climate, which will promote efficiency and weed out inefficiency has also been emphasized many times. Two kinds of countries have been successful in absorbing new and improved technologies from abroad. Countries with successful export-promotion policies, such as the Republic of Korea and Taiwan Province of China, have earned sufficient foreign exchange to import and then assimilate technologies from abroad. Also, countries that have been able to attract large
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flows of foreign direct investment (FDI) have similarly been able to upgrade their technologies with considerable success. China, Malaysia and Singapore in Asia as well as Mexico, Poland and Hungary come under this category. Besides, for developing countries like India, trade is the primary vehicle for realizing the benefits of globalization. It exposes domestic firms to competition both inside and outside the country, also to the best practices of foreign firms and to the demands of discerning customers. All this encourages greater efficiency, boosting productivity as well. Similarly, perhaps the greater contribution of FDI is through innovation and productivity. Its contribution to growth is likely to be higher if the knowledge of better technology it brings can be spread to domestic businesses through business networking and linkages. On both these counts, trade and FDI, there is considerable scope and potential for improvement in India. In 2003, for example India's share of world merchandise exports was only 0.7 per cent as against 5.8 per cent for China. Also the stock of inward FDI in that year was US $ 30.8 billion as against US $ 501.5 billion for China. FDI inflow into India in 2003 was US $4.3 billion constituting 4 per cent of its capital formation, whereas the equivalent figures for China were US $ 53.5 billion and 12.4 per cent. India's very modest participation in world trade and much lower ability to attract FDI is probably reflected in its industrial competitive position vis-a-vis other countries. Using four variables, namely (1) manufacturing value added per capita; (2) manufacturing exports per capita; (3) industrial intensity reflecting the share of medium and high technology in manufacturing value added; and (4) export quality, UNIDO has prepared a Competitive Industrial Performance (CIP) index, which is included in its flagship Industrial Development Report 2004. This index compares the performance of 93 countries for the period 1980-2000. India, which ranked 38 in 1980, moved to the 36th position in 1990 and came down to the 40th rank in 2000. On the other hand China, which was placed at the 39th rank in 1980, has moved up to the 24th position during the same period. Among the Asian nations, Singapore, the Republic of Korea and Malaysia figure in the first twenty, with even Thailand occupying the 23rd position in 2000. All this clearly shows huge growth potential yet to be tapped by the Indian manufacturing sector. Fortunately exports and trade as percentages of GDP are increasing and according to the A T Kearney 2004 FDI Confidence Index Survey of CEOs of multinational companies, among the 23 leading countries, India has moved from
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the 6th to the 3rd position, after China and the USA as the most attractive FDI destination in the world; and the perception gap between India and the USA may be closing. Also, individual Indian companies are showing signs of increased competitiveness in some major sectors. For example, I believe that in the area of pharmaceuticals, there are one or two companies in the country who sell 70 to 80 per cent of their production UNIDO in its Endeavour to develop a strong pipeline of projects and programmed under the Indian CSF. UNIDO also values its collaboration and partnership with FICCI and other industry association, the ICCI and other institution and enterprises in the country. In concluding, let me briefly introduce the concept behind the proposed Business Partnership Programmed for the development of selected industrial sectors. Under this Programmed, technical assistance will be provided to two important industrial sectors - agro and food processing and paper and pulp industries. The agro/food processing industry is of enormous significance for India's development because of the vital linkages and synergies that it promotes between industry and agriculture. The paper and pulp industry also has a crucial role to play in the national economy and environment. UNIDO's focused interventions would, among others, include technology up gradation, Quality and standards testing facilities and market linkages for entering the global value chain, which are very much in line with the National Common Minimum Programmed of the Government of India. The focus is always on enhancing productivity and competitiveness of the industrial enterprises in these sectors. Liability and public action clauses need to be incorporated along with the outcome expectations introduced in the Budget. The size of the population is the key and food safety and standards must not marginalize them. THE Budget 2005-06 has sent positive signals for the agrarian segment of the economy. Efforts to enhance public and private investment in agriculture and allied sectors are indeed commendable. But these attempts at market integration must not lose sight of the production landscape. Also, the Budget is silent on the health aspects of processed food. The associated national and subordinate regulatory framework will determine the final outcome. Is the food business ready to engage with the "outlay24

outcome pairing" promised in the Budget? The food business in India is not a homogenous entity. Therefore, a segmented approach is called for to gain an edge. Fundamental to this is the primary production landscape. The dietary patterns make up the other side of the coin on many health counts. For instance, a WHO study predicts that India will soon have the largest number of diabetic in the world. Hence, questions arise as to who will set the standards for a dal makhani or an idli sambhar? The search for plausible answers must assess three business fundamentals effective decentralization, opportunity segmentation and meaningful partnership among stakeholders. These are applicable equally to public and private players. In this context, what is the rationale and utility of any integrated food law? The Food Safety and Standards Bill 2005 (FSSB) is an integrated food law. The idea and the scripting of the law is, indeed, towards attracting foreign direct investment to the food-processing sector. The idea was mooted for the first time in 1998 through the PMO's advisory council. In the age of globalization, standards and food safety should be given prime consideration. This will help protect human and plant health and also animal health and life. The agreement on application of sanitary and phytosanitary (SPS) measures of the WTO came into force in 1995 in response to these concerns. Facilitating smoother trade domestic and international in food products was thus addressed squarely. But what does the integrated food law bill aim to do?

The FSSB is a food processing sector inspired move. It aims to repeal nine disparate Acts and Orders. The major concern arises, as some of these laws may not be the immediate concern of the Ministry of Food Processing. The major food law is the Prevention of Food Adulteration Act 1954. It has been amended nine times. The associated Rules too have progressively moved up to meet newer challenges. A substantive body of case law literature and experience has also been developed that cannot be easily repealed from the juridical domain. For example, the PFA Act 1954 (Rules) has exhaustive Annexure B detailing pertinent standards for almost all food items. These food items commonly consumed in India, needed to be updated to be WTO complaint. Unfortunately, comparable subordinate laws may not materialise for a while and the consumers, in the interregnum, will pay a hefty price. At the same time, this will greatly jeopardize the health of the future generations as well. A confused set-up is a greater probability with the integration move. On
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the economics side, heroic assumptions become essential to redeem the new move. The assumption on competitiveness in the food business is a case in point. The processing industries are acutely aware of the linkage mechanism between the producers of primary material/commodities and the consumers. The demographics notwithstanding, the retail chain-driven modern system is highly skewed towards the promoters' bottom-line. The food processing business in India is estimated to be worth Rs 3,15,000 crore. The value added through transportation, storage, packaging and processing alone account RS 99,000 crore. The stronger consumer purse and the needs of their health demand stronger consumers protection laws to gain their confidence in the food standards. Who will first determine the standard; who will certify and carry out surveillance and monitoring? These questions need to be sorted out to gain the confidence of the consumers and the producers alike through the policy instrument and central agency. In India, the food processing industries are concentrated in the small-scale sector. This sector is sure to attract retail chain-driven modern agribusiness. The temptations are irresistible. Cost-inefficiencies of the processing industries and the retail chain will be passed on to the consumers and the primary raw material producers. Since these conglomerates do not worry about the internal economies of scale, mark-up and margins drive their business plans.

Notably, world over, the agribusiness strategy has been oscillating between the supply-push and demand-pull. That effectively means that the producers of primary raw materials, on the one side, and the final consumers, on the other, get fully exploited under the new business plans of the food processing industry. That will bring to naught all talk of productivity gains to the hapless producers. The French system of food standards regulatory reform is recommended for understanding the role of an independent apex body. The AFSSA is an apex agency. It is independently responsible to carry out exhaustive risk assessment based on scientific and technological innovations. The apex body is answerable to the Health, Agriculture and Consumer Affairs Ministries. Different institutions perform the enforcement and inspection roles. Parliament must create an independent body that will truly consist of scientific and technology-savvy visionaries. The main strategy should be to prevent the capture of policy space by private players and
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interests. The Ministry of Food Processing Industries is still in its infancy to take the driver's seat, as health concerns of the population are serious matters. The emerging food business is becoming increasingly science-based. That is driven by the chemistry of the food products processing sector. A high-class research and technical competence, therefore, has become essential. Who in India fulfils such characteristics? The public-funded research institutions and universities. The integrated food law is far removed from the backdrop in India in terms of landscape of processing sector, primary production and dietary pattern and the emerging scenario in the global context. An independent authority or agency, therefore, is a must and this requires further discussion and debate.

2.1(b) PROGRESS OF THE INDUSTRY

It was in the First World War that some mechanization and commercialization entered into this industry mainly to meet the demand of the armed forces. The Second World War gave it a muchneeded fillip. Since then it has been progressing fairly well and has been meeting the entire local demand and in a very limited way entered the exports market. It is, however, not a heavy weight industry but has the potential to develop into a Sunshine Industry of the country. In spite of the fact that India, is the second largest producer of fruit and also of vegetables in the world yet the commercial processing of fruit & vegetables is less than 2.0%. The main reason being that domestic consumption of processed items is quite meager because of economic reasons and also as a matter of habit. The Indian consumers by and large very much prefer fresh fruit & vegetables. The high cost of packaging pushes up the cost of the processed items and thereby makes them out of reach of the common man. Because of the varied agro climatic conditions some fresh fruit & vegetable are available throughout the year. The fruits like bananas are non seasonal and apples, oranges, and potatoes etc. are put in the cold stores thus prolonging their shelf life & making them available in the off season. Some fruits like guavas, oranges have two seasons so they are available in fresh form for four to five months in a year.
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2.2FDI IN FOOD SECTOR

Actual FDI inflow in food processing sector in 2004-05 and 2005-06 (till November, 2005) was Rs.332.00 crore. Automatic approval is granted for foreign investment upto 51% in high priority industries which include all food processing industries (except milk food, malted foods and flour) and all items of packaging for food processing industries. Since liberalization several policy measures have been taken with regard to regulation and control, fiscal policy, export and import, taxation, exchange and interest rate control, export promotion and incentives to high priority industries. Food processing and agro industries have been accorded high priority with a number of important relieves and incentives. As per extant policy FDI up to 100% is permitted under the automatic route in the food infrastructure (Food Park, Cold chain/warehousing).

2.3 India: "Best destination for FDI"

INDIA is the 'best destination' for foreign direct investment (FDI) and joint ventures, claims country's Commerce and Industry minister Kamal Nath. Addressing an audience of US investors at the Focus India Show in Chicago recently he said that India had emerged as an across the board low cost base, attractive enough to multinationals to relocate in the country. More than one hundred of the Fortune 500 companies have a presence in India, as compared to only 33 in China, he pointed out. Reiterating that India promises high return on investments, Nath said that repatriation of profits was freely permitted, while according to a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) a few months ago, 70 percent of foreign investors were making profits and another 12 percent were breaking even. These figures would have since improved further he said, adding that FDI policies in India were among the most liberal and attractive in emerging economies. He listed out the policy initiatives taken by the government in specific sectors such as telecom, ports, airports, railways, roads, energy and construction development with a view to improving competitiveness of the Indian economy.

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Further, lucrative investment opportunities were being offered to investors though tax incentives and customs duty concessions for import of plant and machinery needed for the projects. An Special Economic Zone (SEZ) Act was also in place to facilitate this process. The minister also sought to dispel the impression that India was lagging behind in manufacturing. This is far from the truth. Of course, we are good in Services & Business Process Outsourcing, but that does not mean that we lag behind in manufacturing skills. In sectors like auto-components, chemicals, apparels, pharmaceuticals and jewellery we can match the best in the world. More than a dozen Indian companies are among the top five global producers in their product categories. It is to showcase our manufacturing that we have come to Chicago, he said adding that in FDI India was looking for Greenfield investment investment that would create employment and bring in technology and not just investment that would replace Indian capital. Speaking at an interactive meeting with the Asia Society in New York Nath said that wooing foreign direct investment (FDI) was an integral part of the economic strategy of both the central and the state governments in India. What is important is that India has an open system with social and political safety valves, and a regulatory environment that provides comfort, long-term stability and security to the foreign investor, he added. In this context he quoted the Chief Minister of West Bengal Buddhadeb Bhattacharjee, as saying in an interview to a business magazine: We must come face to face with reality. We have to attract more funds, more foreign funds.. foreigners could come here. They are not coming here for charity. They will earn profit and create job opportunities. That is the mutual interest. After these words of the Chief Minister of West Bengal, the Indian State with the longest surviving Communist Government, you can make some estimate of the economic climate in India and our responsiveness to foreign investment, the minister added. The minister said that if he were to describe the Indian economy of today in just three objectives, he would put it as India: the Fastest-Growing Free-Market Democracy. He also took the opportunity to correct the misconception that India today was lagging behind in manufacturing skills while excelling only in services and business process outsourcing. In sectors like auto-components, chemicals, apparels, pharmaceuticals and jewellery we can match the best in the world. We have the skills; we have the positive environment and attitude. All we want is investment and better technology. Today few other countries have embraced foreign technology and management best-practices with as much enthusiasm as have India, he added.
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2.3(a) Foreign Direct Investment in India

WHEN A GROUP of businessmen in New York asked Prime Minister Nehru about the Indian Governments policy towards foreign investment, he is reported to have looked out of the window and commented on the weather. Nehru's lofty disdain for foreign direct investment (FDI) was not born out of a lack of faith in its potential to transfer technology and know-how, but of his resolve to shield the economy from the grip of foreign interests; indeed, science and technology formed the centrepiece of the prime ministers development strategy for India.. The sizeable presence of British capital in pre-independence India had done little to promote development, its large presence in extractive industries, plantations, shipping, banking and insurance were geared to promoting colonial interests. Nehrus ideals of democratic socialism and economic self-sufficiency were shaped by his aversion to Indias colonial past and dependence on Britain.The highly regulated foreign trade and investment regimes in place until recently formed an integral part of this design of self-sufficiency. Even so, foreign enterprise participation in the economy was not shunned, its spheres of activity and the form it took were highly regulated. Foreign capital was barred from specified industries and technical collaboration agreements or technology licensing agreements between Indian owned and foreign firms were preferred to FDI. And the policy framework was opaque with implementation of policy based on bureaucratic consideration of each case on its merits.

Determinants
Is India capable of attracting much larger volumes of FDI than she does at present? Should India throw all doors wide open to FDI as advocated by the Harvard economists? Is China's experience a role model for India? The literature on FDI sheds some light on these issues.

Why do firms go abroad? Why do they choose to invest in specific locations? The origins of the theoretical literature on determinants of FDI are to be found in Stephen Hymers doctoral dissertation (1978). His thesis briefly put is that firms go abroad to exploit the rents inherent in the monopoly over advantages they possess and FDI is their preferred mode of operations.
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Host countries with sizeable domestic markets, measured by GDP per capita and sustained growth of these markets, measured by growth rates of GDP, attract relatively large volumes of FDI

Resource endowments of host countries including natural resources and human resources are a factor of importance in the investment decision process of foreign firms.

Macro economic stability, signified by stable exchange rates and low rates of inflation is a significant factor in attracting foreign investors.

Political stability in the host countries is an important factor in the investment decision process of foreign firms.

Foreign firms place a premium on a distortion free economic and business environment. An allied proposition here is that a distortion free foreign trade regime, which is neutral in terms of the incentives it provides for import substituting (IS) and export industries (EP), attracts relatively large volumes of FDI than either an IS or an EP regime.

Fiscal and monetary incentives in the form of tax concessions do play a role in attracting FDI, but these are of little significance in the absence of a stable economic environment.

2.3(b) Foreign Direct Investment-Policy& Procedures

Government of India recognizes the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and transparent FDI policy. FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. The Government of India reviews the FDI policy on an ongoing basis. Important Policy initiatives taken in the recent past include raising FDI equity limit in domestic airlines sector to 49% and placing it under the automatic route; allowing FDI up to 100% under the automatic route for the development of townships, housing, built up infrastructure and construction development projects; procedural simplification for approval of proposals for new joint ventures, technology collaborations with existing joint ventures,

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technology transfer/trade marks agreement in India and transfer of shares from existing Indian companies.

2.4 WHY INVEST IN INDIAN FOOD PROCESSING SECTOR?

It is the seventh largest country, with extensive administrative structure and independent judiciary, a sound financial & infrastructural network and above all a stable and thriving democracy. Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value added products. It is one of the biggest emerging markets, with over 900 million population and a 250 million strong middle class. Rapid urbanization, increased literacy and rising per capita income , have all caused rapid growth and changes in demand patterns, leading to tremendous new opportunities for exploiting the large latent market. An average Indian spends about 50% of household expenditure on food items. Demand for processed/convenience food is constantly on the rise.

India's comparatively cheaper workforce can be effectively utilized to setup large low cost production bases for domestic and export markets. Liberalized overall policy regime, with specific incentives for high priority food processing sector, provides a very conducive environment for investments and exports in the sector. Very good investment opportunities exist in many areas of food processing industries, the important ones being : fruit & vegetable processing, meat, fish & poultry processing, packaged, convenience food and drinks, milk products etc.

(Source-Investment Opportunities in India for FPI).

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2.5 Investment in India - Foreign Direct Investment - Approval

Foreign direct investments in India are approved through two routes:

Automatic approval by RBI:

The Reserve Bank of India accords automatic approval within a period of two weeks (provided certain parameters are met) to all proposals involving: foreign equity up to 50% in 3 categories relating to mining activities (List 2). Foreign equity up to 51% in 48 specified industries (List 3). Foreign equity up to 74% in 9 categories (List 4). Where List 4 includes items also listed in List 3, 74% participation shall apply. The lists are comprehensive and cover most industries of interest to foreign companies. Investments in high-priority industries or for trading companies primarily engaged in exporting are given almost automatic approval by the RBI.

Opening an office in India

Opening an office in India for the aforesaid incorporates assessing the commercial opportunity for self, planning business, obtaining legal, financial, official, environmental, and tax advice as needed, choosing legal and capital structure, selecting a location, obtaining personal, developing a product marketing strategy and more. The FIPB Route: Processing of non-automatic approval cases FIPB stands for Foreign Investment Promotion Board which approves all other cases where the parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all types of proposals, and rejections are few. It is not necessary for foreign investors to have a local partner, even when the foreign investor wishes to hold less than the entire equity of the company. The portion of the equity not proposed to be held by the foreign investor can be offered to the public.

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Total foreign investment and FDI

Total foreign investment in IFY 1997-98 was estimated at $ 4.8 billion in 1997-98, compared to $ 6 billion in 1996-97. Foreign Direct Investment (FDI) in 1997-98 was an estimated $ 3.1 billion, up from $ 2.7 billion in1996-97. The government is likely to double FDI inflows within two years. Foreign portfolio investment by foreign institutional investors was significantly lower at $ 752 million for fiscal 1997-98, down compared to $ 1.9 billion in1996-97, partly reflecting the effect of the recent crisis in Asia.

Foreign institutional investors Foreign institutional investors (FIIs) were net sellers from November 1997 through January 1998. The outflow, prompted by the economic and currency crisis in Asia and some volatility in the Indian rupee, was modest compared to the roughly $ 9 billion which has been invested in India by FIIs since 1992.

FII investments FII net investment declined to $ 1.5 billion for IFY 1997-98, compared to $ 2.2 billion in 1996-97. The trend reversed itself in February and March 1998, reflecting the renewed stability of the rupee and relatively attractive valuations on Indian stock markets.

Large outflows of capital Large outflows began again in May 1998, following India's nuclear tests and volatility in the rupee/dollar exchange rate. In an effort to avoid further heavy outflows, the RBI announced in June that FIIs would be allowed to hedge their incremental investments in Indian markets after June11, 1998.

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Diverse Market The Indian market is widely diverse. The country has 17 official languages, 6 major religions, and ethnic diversity as wide as all of Europe. Thus, tastes and preferences differ greatly among sections of consumers. Therefore, it is advisable to develop a good understanding of the Indian market and overall economy before taking the plunge. Research firms in India can provide the information to determine how, when and where to enter the market. There are also companies which can guide the foreign firm through the entry process from beginning to end --performing the requisite research, assisting with configuration of the project, helping develop Indian partners and financing, finding the land or ready premises, and pushing through the paperwork required.

Developing up-front takes: Market Study is there a need for the products/services/technology? What is the probable market for the product/service? Where is the market located? Which mix of products and services will find the most acceptability and be the most likely to generate sales? What distribution and sales channels are available? What costs will be involved? Who is the compete?

Check on Economic Policies The general economic direction in India is toward liberalization and globalization. But the process is slow. Before jumping into the market, it is necessary to discover whether government policies exist relating to the particular area of business and if there are political concerns which should be taken into account.

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Clearance from FIPB

There is no restriction on the number of Euro-issue to be floated by a company or a group of companies in the financial year . A company engaged in the manufacture of items covered under Annex-III of the New Industrial Policy whose direct foreign investment after a proposed Euro issue is likely to exceed 51% or which is implementing a project not contained in Annex-III, would need to obtain prior FIPB clearance before seeking final approval from Ministry of Finance.

Use of GDRs The proceeds of the GDRs can be used for financing capital goods imports, capital expenditure including domestic purchase/installation of plant, equipment and building and investment in software development, prepayment or scheduled repayment of earlier external borrowings, and equity investment in JV/WOSs in India.

Restrictions However, investment in stock markets and real estate will not be permitted. Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end uses. Any investment from a foreign firm into India requires the prior approval of the Government of India.

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2.6 FOREIGN INVESTMENT POLICY

Any proposal involving Foreign Investment earlier required approval of the Government of India. However, as part of the liberalization process, the approval procedures have been very much simplified decentralized and streamlined. Accordingly, automatic approval by Reserve Bank of India (RBI) would be granted for investment in the following areas:

2.6(a) AUTOMATIC CHANNEL

i) New Investment in High Priority Industries Automatic approval will be given by the Reserve Bank of India for direct foreign investment up to 51 per cent foreign equity in high priority industries. The list of high priority food industries is given at Appendix-III. The clearance can be given within 15 days if the foreign equity covers the foreign exchange requirement for imported capital goods. It must comprise of plant and machinery which are new and not second hand. ii) Trading (Super Star Trading House, Star Trading House, Trading House and Export House)To provide access to international markets, majority foreign equity holding up to 51 per cent equity will be allowed by the Reserve Bank of India to trading companies primarily engaged in export activities. Such trading companies will be treated at par with domestic trading and export houses in accordance with the Export/Import policy of the Government. The Company shall have to register itself with the Ministry of Commerce (office of the Director General, Foreign Trade) as registered Exporter/Importer. In case of existing companies already registered as an Export House, Trading House, Star Trading House, or Super Star Trading House, the Reserve Bank of India will give automatic approval for foreign investment up to 51 per cent equity, subject to the provision that the company passes a special resolution for preferential allocation of fresh equity to the foreign investors. Criteria for recognition of a trading company as a Super Star Trading House, Star Trading House, Trading House or an Export House are given at Appendix IV.

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iii) 100% Export Oriented Industries In the case of 100% Export Oriented Units (EOU) and Units in the Free Trade Zone/Export Processing Zone (EPZ), foreign participation may go up to 100 per cent of equity. Automatic approval for the 100% EOUs will be granted by the Secretariat for Industrial Approvals (SIA), Department of Industrial Development, Department of Industries, Udyog Bhawan subject to the fulfillment of certains norms (Appendix V). In case of the units set up in Free Trade Zone (FTZ)/ Export Processing Zones (EPZ), automatic approvals will be granted by the respective Development Commissioners located in each state. Enhancement of Foreign Equity in Existing company i) An existing company engaged in the manufacture of items included in Appendix V which have foreign holding less than 51 per cent also increase their foreign holding to 51 per cent, as part of their expansion programmed, which should relate to Appendix-V items. The additional equity should be a part of the financing of the expansion programmed and the money to be remitted should be in foreign exchange. It is not necessary that the company should be exclusively engaged in activities as given in Appendix-V only. The proposed expansion must relate exclusively to the high priority industries. iv) A company exclusively engaged in high priority industries may increase the foreign equity to 51 per cent even without any expansion programme. The increase in equity level must result from expansion of the equity base of the existing company and the additional equity must be from remittance in foreign exchange. In all the foregoing cases, the import of components, raw materials and intermediate goods and payment of know-how fees and royalty will be governed by the general policy applicable to domestic units. The payment of dividends in the case of industries in the consumer goods sector, are required to be balanced by export earnings over a period of seven years from the commencement of production or from the date of allotment of the shares for raising foreign equity without an expansion programmed in respect of the companies engaged in the high priority industries Appendix III. The list of consumer goods industries to which the condition of "Dividend Balancing' will apply is given at Appendix VI.

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The condition of Dividend Balancing however, does not apply to investments approved by international organizations like the International finance Corporation, the Deutsche Entwicklungs Fescllschaft (DEG), the Commonwealth Development Corporation, the Asian Development Bank etc.

2.6(b) NON-AUTOMATIC CHANNEL

Other foreign investment proposals, including proposals involving 51 per cent foreign equity which do not meet the foregoing criteria, need prior clearance of the Government. All such proposals except for the units set up in the Free Trade Zone (FTZ)/Export Promotion Zones (EPZs) are considered for approval by the Foreign Investment Promotion Board (FIPB).The FIPB is located in the Prime Ministers Office.

The non-automatic channel approval decision is conveyed by 45 days.The FIPB is specially empowered to "engage in purposive negotiation" and also consider proposals "in totality, free from predetermined parameters or procedures" .Applications for approval of such foreign investment proposals should be submitted in form FC (SIA) to The Foreign Investment Promotion Board, Prime Ministers Office, South Block, New Delhi OR to the Secretariat for Industrial Approvals (SIA), Department of Industrial Development, Ministry of Industry, Udyog Bhavan, New Delhi-110001. Applications on plain paper carrying all relevant details are also accepted. Foreign equity proposals need not necessarily be accompanied by foreign technology agreements. Proposal which do not fulfill the conditions of automatic approval and are desired to be set up in the FTZs/EPZs will be referred to the Board of approvals for granting permission. In such cases applications are to be made to the concerned Development Commissioner in which FTZ/EPZ are located.

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2.7 PROCESSING UNITS AND INSTALLED CAPACITY

Presently there is a little over 5198 units registered under the Fruit Products Order of 1955 distributed all over the country. Most of the units fall in the cottage and or small-scale sector. A few modern processing plants have, now come up and many more are in the pipeline. The installed capacity which was 11.08 lakh tones, in Dec. 93 increased to 21.00 lakh tones at the end of the year 1999.

MODERN UNITS
After the liberalization of the economic policies in the country a few very modern plants to produce mango pulp, tomato paste etc. in aseptic packing, freeze drying of many fruit & vegetables including mushroom is being taken up. It is expected that in the years to come many modern state of the art plants shall come up.

JOINT VENTURES
Since liberalization in July, 1999 till February, 2000 1120 proposals of industrial licenses and 100% export oriented units were approved and about 248 such proposals have already been implemented. The important countries with which the Joint Ventures have been signed are U.S.A., U.K., Netherlands, Switzerland, and Germany. The proposals include in the fields like technology transfer, financial and or marketing tie-ups. These tie-ups include production of items like canned mushrooms, banana & mango puree, fruit concentrates, dehydration of vegetables particularly of onion. A few proposals of frozen fruit and vegetables have also been approved. The list of such projects is given at the end.

PRODUCT RANGE
The important items manufactured in the country are fruit pulps particularly of tomatoes & mangoes, ready to serve juices, canned fruits, jam, pickles, squashes, etc. Recently, items like frozen fruits, pulps, dehydrated & freeze dried vegetables, canned mushrooms etc. are also being produced. In the

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coming years new items like carbonated fruit drinks, dehydrated and freeze dried fruits, fruit juice concentrate are expected to be manufactured.

EXPORTS
India in a small way has been in the export market for almost 30 years. Among the popular items in export are mango chutneys, pickles. Fruit juices, canned and dehydrated mushrooms, frozen & canned fruit & vegetables. In the year 1997-98 the exports of processed fruit and vegetables were in the order of 299 thousand tones valued at Rs. 761 crores or US $ 200 million.

DIRECTION OF EXPORTS
The main markets for mango pulp are Saudi, Kuwait, UAE, and Netherlands & Honkong. In case of pickles & chutneys the popular markets are USA, UK, UAE, Germany, & Saudi. Other items like tomato Paste, Jams, Jellies & Juices are exported to USA, Russia, UK, UAE, and Netherlands.

SCOPE OF THE Ministry

The scope of the Ministry has been very much enlarged. It includes development of fruit &. Vegetable processing and promote food-grain milling including dairy products and processing of poultry, eggs & meat products. Processing of fish including canning & freezing and technical assistance to the industry also form a very important part of its activity. In addition planning & developing of industries relating to bread, oilseeds, breakfast food, biscuits, confectionery specialized packaging, including non-alcoholic beer, aerated drinks also fall within the scope of this Ministry.

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QUALITY CONTROL (ISO 9000)

There is an all round realization at every level that quality production of international standard is the watchword for survival now. Consequently, the processor, small or big, have started taking steps to improve quality right from the selection of the raw material and that of the ingredients. Side by side steps have also been taken by them to upgrade the hygienic and sanitary conditions of the workers, plant and machinery so as to ensure quality of the finished product. There is a much greater emphasis now to invest in research and development and also in product innovation. The Agricultural and Processed Food Products Export Development Authority (APEDA) gives subsidy to upgrade the laboratory facilities etc. It has also brought out a book entitled ``ISO 9000 on The Food Industry A Practical Guide''. It deals with the entire spectrum of Quality Control, e.g. documentation, installation, certification of quality management system etc.

2.8 FRUIT & VEGETABLE PROCESSING AND THE ROLE OF MINISTRY OF FOOD PROCESSING INDUSTRIES:
Historically speaking, processing of fruit & vegetables in the simplest form like pickling, sundering and or making preserves has been practiced in the country from very ancient times almost in every home. It has generally been the exclusive domain of grandma's who developed their own fine recipes without any formal training except their age-old experience and conventional wisdom. Food processing industry has been recognized by the government as a major sector of growth.

2.9 Foreign Investment in the Small Sector

Manufacturing units with an investment in plant and machinery up to Rs. 6 million, ancillary units with an investment in plant and machinery upto Rs. 7.5million and units which are willing to undertake an export obligation to the extent of 30% of their annual production by the third year with
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an investment up to Rs. 7.5 million are eligible for Small Scale Registration which are given by the State Directorate of Industries located in each state. To provide access to the capital market and to encourage modernization and technological upgradation in the Small Scale Sector, foreign equity participation to the extent of 24% of the total share holding has been allowed. Equity participation beyond 24% in respect of items exclusively reserved for the Small Scale Sector is considered for approval if there is a commitment of 75% export.

2.10 Food processing industry still divided on allowing FDI in retail sector
EVEN as there is consensus within the food processing industry on the need for large-scale organized food retailing, the house is divided on the issue of foreign direct investment (FDI) in the retail sector. At a meeting between the top honchos of food companies and the Prime Minister, Dr Manmohan Singh, a section of the industry felt that large domestic companies should first be encouraged to enter food retailing in a big way, after which foreign investment must be allowed. Another group was of the view that both domestic and foreign investment must be permitted in this sector at the same time. Briefing newspersons, officials at the Prime Minister's office said, "The Prime Minister has told industry representatives that the Government is in the process of building a consensus on FDI. Also, the fiscal issues raised by the industry would be taken up with the Finance Minister." The Minister of State for Food Processing, Mr Subodh Kant Sahai, said, "We have to look into how the market can be widened so that not only the supply of raw materials is ensured, but also price stability is maintained. FDI in retailing would also be a welcome intervention." Mr Y. C. Deveshwar, Chairman, ITC Ltd and President of the Confederation of Indian Industry, said, "We have sought moderation in the tax structure for the food processing industry." The taxes, as a percentage of the sale price in India, could be as much as 25 per cent, while in other countries they are less than half. The industry has sought the abolishment of all Central excise taxes and sales tax besides levying a moderate value added tax. It has said that investments of Rs 1,50,000 crore would have to be made in the next 10 years to expand the sector. "There is need to invest in branding of Indian processed food and creation of a dedicated
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India brand fund," he added. Also, globally benchmarked infrastructure should be in place along with establishing 20 strategic hubs for export competitiveness. There is a need to amend the Agricultural Produce Marketing Committee (APMC) Act at the State level, which is critical for strengthening the engagement of the organized private sector in food processing business, said Mr Rajeev Bakshi, Chairman, PepsiCo India. Besides, research and development (R&D) must be strengthened to improve the quality of fruits and vegetables.

2.10(a) Transfer of Foreign Technology

(i) Automatic approval: Automatic approval will be granted by RBI subject to the conditions that the lump sum payment does not exceed Rs. 10 million (net of taxes), royalty does not exceed 5% (net of taxes) for domestic sales and 8% (net of taxes) for export and that the total payment of lump sum and royalty does not exceed 8% of the sales turn over in a period of ten years from the date of agreement or seven years from the commencement of commercial production granted by the Reserve Bank of India. Applications for automatic approval in the above cases should be submitted in FC (RBI) form to the Reserve Bank of India, Bombay. All other proposals including those which do not meet any or all of the above parameters will require the approval of the Government. For such cases an application in form FC. (SIA) is to be submitted to the Secretariat for Industrial Approvals, Government of India, Ministry of Industry, Udyog Bhavan, New Delhi-110 001. (ii) EXTENSION : Extension of foreign technology agreements including those which have received automatic approval in the first instance require the approval of the government for which applications should be submitted in form FC (SIA) to the Secretariat for Industrial Approvals, New Delhi.

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Licensing
(A) ESTABLISHMENT OF NEW UNITS: The new Industrial Licensing Policy of the Government of India has exempted all industries from the requirement of obtaining industrial license except those reserved for the Public Sector; (Appendix-I) those in respect of which industrial Licensing is compulsory (Appendix VII) License is also required for industries related to the items reserved for exclusive manufacture in the Small Scale Sector. The exemption from industrial licensing is subject to:

(a) The proposed project (except in the case of a project relating to electronics, computer software, printing industry, industry located within an area designated as industrial area by the State Government before the 25th July, 1991 or the small scale or the ancillary sector) being not located within twenty five (25) kilometers from the periphery of more than one million according to the 1991 census; (Appendix-VIII) and (b) The Central and State environmental laws and regulations including local zoning and land use laws and regulations.

(B) SUBSTANTIAL EXPANSION OF EXISTING UNITS: Substantial expansion of existing units will be exempt from licensing, provided the item of manufacture is not included in schedule I, II, or III, to the Notification dated the 25th July, 1991 of the Department of Industrial Development. However, substantial expansion will be subject to the locational conditions. Existing units may manufacture any new article without additional investment if the article is not otherwise subject to compulsory licensing. An industrial undertaking with a valid registration granted to it prior to the 25th July, 1991 is not required to apply for a license, even if the item of manufacture is one which compulsory licensing.

45

(C)FILLING OF MEMORANDA: In respect of new projects for the manufacture of not covered by compulsory licensing or their substantial expansion, the only requirement is that the industrial undertaking should file, a memorandum) to the Secretariat for Industrial Approvals. Another memorandum in the prescribed form is to be filed with the secretariat for industrial approvals when the unit commences its commercial production.

Repatriation
Foreign Capital invested in India, profits and dividend earned in India can be repatriated after payment of taxes due on them. However, units operating in a limited list of Consumer Goods Industries are subjected to dividend balancing with matching export earnings for a period of seven years.

Disinvestment
Reserve Bank of India permits transfer of shares with regard to Disinvestment proposals from foreign investors on a near automatic basis. Applications in this regard in form ST-I along with the necessary documents should be submitted to the Controller, Reserve Bank of India, Bombay.

Investment Protection
Bilateral Investment Protection and Promotion: The first Bilateral Agreement has been signed with U.K. on 14th March, 1994.

It's broad intent is to promote and protect investment from either countries. Investment is defined broadly as every kind of asset established or acquired in accordance with the national laws of each country in which the investment is made and, in particular, includes intellectual property rights, goodwill, technical assistance and know how in accordance with the relevant laws of the country in which the investment is made.
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Taxation
Income derived by foreign companies as dividend, interest, royalty of technical fees, is taxed at a rate lower than that applicable to domestic companies. While the rate of tax for domestic companies is 40% plus a Surcharge of fifteen percent if total income exceeds Rupees seventy five thousand, in the case of foreign companies and non-resident assesses the rates are as follows: Dividend income and interest 20 percent Royalty and fees for technical services 30 percent.

The rates applicable to the non-residents and foreign companies may be less where agreements for the avoidance of double taxation exist between India and the country of which the non-resident or the foreign company is a resident and the agreement so provides.In the case of the NRIs, the rate of tax is 20% on income from foreign exchange investment as arising from * Shares in an Indian Company * Debentures issued by or deposits with an Indian Company which is not a private company. Interest payable on moneys borrowed or debts incurred in a foreign country by an industrial undertaking in India for purchase of plant and machinery is exempt from income-tax to the extent such interest does not exceed the amount of interest calculated at the rate approved by the Government.
Indian companies and other persons resident in India are entitled to a deduction of 100% of the profits derived by them from the export of goods.

In the case of 100% Export Oriented. Unit and units in Export Processing Zones there is a tax holiday (in relation to income tax) for a period of five consecutive years of which the unit may avail itself during any block of five years in the first eight years form the commencement of production.

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Points to be noted:
Foreign direct investment of around US$1 billion has already been approved in India's food processing industry since 1991. Changing lifestyles, breakdown of the joint-family system, increasing number of working wives and Western influence (via TV channels) in the urban areas are fuelling a demand for packaged foods. India already has all the requirements for a head-start in the food-processing industry. Basic materials such as food grains, pulses, vegetables and meats (non-beef) can be sourced locally or easily imported if local availability is inadequate. Foreign investors can own 100 per cent equity in plants they set up. However, it is advisable to take a local partner. Many Indian firms are eagerly seeking foreign partners for joint-ventures to avail of their technological advantage. Supermarkets are just beginning to appear in India's big cities and this is the time for international chains to set a foothold. Competition will only increase with time. There has been some civilized resistance from ultra-nationalistic quarters of opinion to foreign food products. This resistance will be less if a local partner is involved. Indias liberal intelligentsia is gradually building the opinion that foreign investments in the processed food sector will benefit rural agriculture, thus beating the nationalists with their own slogans. The liberal intelligentsia is gradually prevailing.

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Indias four export worthy food sectors 1 2 3 4 Pulses Corn (for poultry feed) Vegetable oils Nuts and dry fruits (excluding cashew)

Table 1.02 Indias four export worthy food sector Nuts and dry fruits (excluding cashew)

(in million tones or million metric tons) Nuts and dry fruits (excluding cashew) Total local output Total exports Total imports 1994-95 1995-96 1996-97

0.044 0.006 0.026

0.046 0.007 0.028

0.046 0.007 0.030

(in million tones or million metric tons) Nuts and dry fruits (excluding cashew) Total local output 1994-95 1995-96 1996-97

0.044
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0.046

0.046

Total exports Total imports

0.006 0.026

0.007 0.028

0.007 0.030

Sub-sector prospects In-shell almonds

Excellent prospects

Walnuts

Good prospects, but seek advice Good prospects, but seek advice Good prospects, but seek advice Seek advice

Pistachios

Raisins

Prunes

Table- 1.3 Nuts and dry fruits

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Points to be noted:
There are excellent prospects for exporting in-shell almonds to India. The US is the dominant supplier with approximately a 90 per cent market share. Exporting nuts and dry fruits in bulk and having them repackaged in consumer packs presents an excellent opportunity. The packs can be sold locally or exported to other countries. Relatively high import duties remain a barrier, but if the stated purpose is to repackage in smaller units in free trade zones and export them out, the duties are inapplicable. Locally produced dry fruits and nuts are not of the same quality as the imported ones.

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CHAPTER:-3
Research Methodology

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3.1 Purpose of the study To understand FDI functioning To study the benefits and impact on FDI in Food sector To make a valuable report on FDI To study about all aspects of FDI in India.

3.2 Research Objectives of the study

This study is conducted to on the basis of the following objectives To understand the FDI. To understand the role of FDI in Indian food sector. Role of FDI in Indian Growth. To understand Foreign Direct Investment-Policy& Procedures To identify factors those are responsible for comparatively lesser flow of FDI. To identify reasons for regional imbalances in terms of flow of FDI. To review FDI policy of India To address various issue and concern relating to FDI. To make policy recommendation to improve the level of FDI.

3.3 Research Methodology of the study

Research methodology is a systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods / techniques but also the methodology.

53

Researchers also and need to understood the assumptions underlying various techniques and they need to know the criteria by which they can decide that certain techniques and procedures will be applicable to certain problems and others will not. We are particulars method of research in the context of our research study and explain why we are using a particular method or technique and why are not using other so that research results are capable of being evaluated either by the researcher himself or by others.

RESEARCH METHODOLOGY CAN BE

1. 2. 3. 4. 5. 6. Research Research Design Sampling unit Sampling size Sampling area Data Collection Method

Research
Research in common parlance refers to a search for knowledge. One can also define research as a scientific and systematic search for pertinent information on a specific topic. The meaning of research is a careful investigation or inquiry specially through search for new facts in any branch of knowledge According to Clifford Woody research comprises defining and redefining problems formulating hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions and reaching conclusions; and at last carefully testing the conclusions to determines whether they fit the formulating hypothesis.

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Objective of Research
The purpose of research is to discover answers to questions through application of scientific procedures. The main of research is to find out the truth which is hidden and which has not been discovered as yet. Through researcher study has to its own specific purpose, we may thin of research objectives as falling into a number of following broad groupings. To gain familiarly with a phenomenon or to achieve new insight into it, To portray accurately the characteristics of a particular individual situation or a group. To determine the frequency with which something occurs or wit it is associated with something else. To test hypothesis of a casual relationship between variables.

3. 3.1 Research Design

RESEARCH DESIGN
A research design is purely and simply the frame work of plan for a study that guides, the collection and analysis of the data. Application and specification are the main characteristic in a research designs. Marketing research designs can be classified on basis of the fundamental objectives of the research. There are mainly three types research designs. a. b. Exploratory Conclusive (ii) Causal

(i) Descriptive

Exploratory Research: - Exploratory Research is conducted into an issue or problem where

there are few or no earlier studies to refer to. The focus is on going insights and familiarity for later investigation.

Conclusive Research: - Conclusive research involves the use of highly structured techniques
(such as questionnaires with closed questionnaires) with statistically representative sample in order to prove or disprove hypotheses.
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Descriptive Research: - Descriptive researches describe phenomena as they exit. Here data is
often quantitative and statistics applied. It is used to identify and obtain information on a particular problem or issue.

Causal Research: - Casual research seeks to explain what is happening in a particular situation. It
aims to generalize from an analysis by predicting certain phenomena on the basis of hypothesized general relationships.

3.3.2 Data Collection Techniques Primary Data:

Ask question from the group of 50 people and interpret the result in the form of graphical method.

3.3.3 Sample design

3.3.3.1 Sample size
The sample size in this research is 50 people

3.3.3.2 Sampling method

The sampling method in this research is random sampling

3.3.4 Method of data collection

Methods of data collection are PRIMARY and SECONDARY In primary face to face meetings In secondary the financial reports and data provided by the companies and shopkeepers included
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3.3.4.1 Instrument for data collection

Face to face interaction

3.3.5 Limitations
All the research work must have some errors and limitation. In my research work is also affected by some error and limitation. My research report work is typically based on the data and all analysis is totally depending upon secondary source. It might be possible that the data which I get is having some errors (statistically) and all the analysis based on these types of data may have some variation in actual result. FDI is a very wide area of the study and food processing too. So its not possible to cover that much area in short report It is time taking process so we do not have too much time for deep study. Data provided by the people could be wrong.

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CHAPTER:-4
ANALYSIS & INTERPRETATION

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Que: - 1 FDI is good in India

Ans a) 60% good b) 30% not good c) 10% neutral

FDI

GOOD NOT GOOD NEUTRAL

Chart 4.01 FDI in India S.No. 1 2 3 FDI % of Respondents GOOD 60% NOT GOOD 30% NEUTRAL 10 Table 4.01 FDI in India

Some people said FDI is good in India but some saidFDI is not good in India and some are neutrals about it. All the three things happened may be because of good knowledge about the FDI and less knowledge about the FDI. There are 60% who said that its good, there are 30% who said that its not good and there are 10% who were neutral.
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Que:- 2 FDI in food sector will provide benefit for small food seller

Ans a) 55% yes b) 30% no c) 15% neutral

FDI

YES NO NEUTRAL

Chart 4.02 FDI in food sector provide benefits to small seller S.NO. FDI % OF RESPONDENT 1. YES 55% 2. NO 30% 3. NEUTRAL 15% Table 4.02 FDI in food sector provide benefits to small seller
Yes it could help small food sellers by buying their product . 55% people said yes

FDI provide benefits to small sector, 30% said no and 15 % were neutral.

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Que:- 3 FDI will help in development of nation and economy Ans

a) 70% yes b) 20% no c) 5% may be d) 5% neutral

FDI
YES NO MAY BE NEUTRAL

Chart 4.03 FDI help in developing of nation and economy S.NO. FDI % OF RESPONDENT 1. YES 70% 2. NO 20% 3. MAY BE 5% 4. NEUTRAL 5% Table 4.03 FDI help in developing of nation and economy
Yes, definitely that FDI will help in development of nation and economy because of the flow of the market. FDI provides inflows of money in the market and economy so it will help in development of economy and 70% respondents said it will help in economic development 20% no, 5% said may be and 5% are neutral. people are not so aware about FDI they are having less knowledge about it so they are not able to understand it deeply.
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Que:- 4 Government should allow 100% FDI Ans

a) 20% yes b) 70% no c) 10% neutral

FDI

YES NO NEUTRAL

Chart 4.04 Government should allow 100% FDI S.NO. FDI % OF RESPONDENT 1. YES 20% 2. NO 70% 3. NEUTRAL 10% Table 4.04 Government should allow 100% FDI
Allowing 100% FDI could be harmful also because it can give more power to the other countries company over our economy. So that they could be able to control our economy also. So 20% respondents said yes the government should allow 100% FDI while 70% said no and 10% were neutral.
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Que:- 5 Government should allow FDI in all Sectors. Ans

a) 60% yes b) 22% no c) 8% may be d) 10% neutral

FDI
YES NO MAY BE NEUTRAL

Chart 4.05 Government should allow FDI in all Sectors

S.NO. 1. 2. 3. 4.

FDI YES NO MAY BE NEUTRAL

% OF RESPONDENT 60% 22% 8% 10%

Table 4.05 Government should allow FDI in all Sectors

60% respondents said yes government should allow FDI in all sector because it will increase the market and employment also but there are respondent also who said no that government should not allow FDI in all sectors because they think that it would be harmful for the small dealers and domestic business while 8% respondents said that may be government should allow FDI in all sectors and 3 % are neutral they are having less knowledge about it.
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Que:-6 FDI will boom up the food processing sector in India Ans

a) 65% yes b) 30% may be c) 5% no

FDI

YES MAY BE NO

Chart 4.06 FDI will boom food sectors in India S.NO. FDI % OF RESPONDENT

1. YES 65% 2. MAY BE 30% 3. NO 5% Table 4.06 FDI will boom food Sectors in India
Yes it will boom up food procession sector in India because foreign companies are taking interest in investment in India and they are having good products, good technology and good capital so 65% respondents said that it will boom up the food processing sector in India while 30% said it may be and 5% said no.
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Que:- 7 Change in consumer pattern will increase the demand of FDI Ans

a) 75% yes b) 12% no c) 13% neutral

FDI
YES NO NEUTRAL

Chart 4.07 Change in consumer pattern will increase the demand of FDI S.NO. FDI % OF RESPONDENT 1. YES 75% 2. NO 12% 3. NEUTRAL 13% Table 4.07 Change in consumer pattern will increase the demand of FDI
Yes change in consumer pattern will increase the demand of FDI because as consumer wants new products, and want to taste foreign foods so the demand of FDI in food will increase to bring the foreign food in India. 75% respondent said yes that consumer pattern will increase the demand of FDI while 12% said no and 13% were neutral.
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Que:-8 Government be strict while making laws related to FDI in the

economy
Ans

a) 50% yes b) 20% no c) 30% neutral

FDI
YES NO NEUTRAL

Chart 4.08 Government be strict while making laws related to FDI in the economy

S.NO. 1. 2. 3.

FDI YES NO NEUTRAL

% OF RESPONDENT 50% 20% 30%

Table 4.08 Government be strict while making laws related to FDI in the economy
Law restricts the investment and operation in any country, the same is with FDI also yes investment or FDI related law should be strict up to some extent because if laws very flexible then I can create problem to that country because the other country could be dominant over the invested country. So 50% said that government should be strict while making laws related to FDI in the economy while 20% said no and 30% were neutral.
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Que:- 9 FDI mean power of another economy to Indian economy Ans

a) 80% yes b) 20% no

FDI

YES NO

Chart 4.09 FDI mean power of another economy to Indian economy

S.NO. 1. 2.

FDI YES NO

% OF RESPONDENT 80% 20%

Table 4.09 FDI mean power of another economy to Indian economy

Yes when one country invest more and more in another country then I makes dominant the country over the other country in which the investment is made. Because it makes the investing country powerful in the invested country. It can influence politically, economically or socially. 80% said yes FDI could be a mean of power of another economy to Indian economy while 20% said no.

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Que:- 10 FDI bring transparency in work and remove mediators

Ans a) 70% yes b) 20% no c) 10% neutral

FDI
YES NO NEUTRAL

Chart 4.10 FDI bring transparency in work and remove mediators

S.NO. 1. 2. 3.

FDI YES NO NEUTRAL

% OF RESPONDENT 70% 20% 10%

Table 4.10 FDI bring transparency in work and remove mediators

Transparency is very important in any trade and investment. Yes FDI will remove up to some extent the mediators because the company will provide the food directly to its stores without any mediator. So it will also help in cost cutting and better revenue to the farmers for their crops. 70% said FDI will bring transparency in work and would remove mediators while 20% said no while 10% neutrals.
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CHAPTER:- 5 Finding & Conclusion

69

Finding
While there may be decline in FDI in the long term, there is no reason for any decline at least over the next 5-10 years. While FDI is new to India, the bureaucrats have been quick to learn and have ensured adequate regulatory framework is maintained so that no difficulties are faced. An example of this would be restricting of FDI in sensitive sectors like defense and media, to some extent, while completely relaxing the Manufacturing sector. The signs are indeed positive and India is poised for long term growth and FDI is sure to play a crucial role in this.

According to the data base collection: FDI is 60 % good in India, which show that the generation think about the FDI and invest money. 55 % told its provide benefits for small food seller. FDI help in developing in the nation and economy. But also they dont want to allow 100% FDI, only 20% people wants 100% FDI in economy. 70% people wants FDI bring transparency in work and remove mediators. Apart from this 50% people want government be strict while making laws related to FDI in the economy, and Government should allow FDI in all sectors.

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Some strength and opportunity: It is the seventh largest country, with extensive administrative structure and Independent judiciary, a sound financial & infrastructural network and above all a Stable and thriving democracy Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material base suitable for food processing industries. Presently a very small percentage of these are processed into value added products It is one of the biggest emerging markets, with over 1 billion population and a 250 million strong middle class Rapid urbanization, increased literacy and rising per capita income, have all caused rapid growth and changes in demand patterns, leading to tremendous new opportunities for exploiting the large latent market. An average Indian spends about 50 per cent of household expenditure on food items. Demand for processed/convenience food is constantly on the rise India's comparatively cheaper workforce can be effectively utilized to setup large low cost production bases for domestic and export markets Liberalized overall policy regime, with specific incentives for high priority food processing sector, provide a very conducive environment for investments and exports in the sector Very good investment opportunities exist in many areas of food processing industries, the important ones being : fruit & vegetable processing, meat, fish & poultry processing, packaged, convenience food and drinks, milk products etc. India has arable land of 184 million hectares and produces annually 90 million tones of milk, 150 million tones of fruits and vegetables, 485 million livestock, 204 million tones food grain, 6.3 million tonnes fish, 489 million poultry and 45,200 million eggs. India's agricultural production base is huge. India ranks first in the world in production of cereals, livestock population and milk. It is second largest fruit and vegetable producer and is among the top five producers of rice, wheat, groundnuts, tea, coffee, spices, sugar and oilseeds. This gives it the unique advantage and tremendous potential for processing of agriculture produce.

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Conclusion
As we have studied in this project report that Foreign Direct Investment is very good investment opportunities in India and it will provide many benefits to Indian economy to grow up. 1. The economic rationale for offering special incentives to attract FDI derives from the belief that it will facilitate faster economic growth; produce externalities in form of larger employment, technology transfers, skills to local industry, boosted productivity or filled idea gaps between rich and poor countries. 2. Strong economic rationale must lay behind the incentives to attract the FDI, as the economic impact of foreign direct investment is not always positive. The impact of FDI is dependent of what form it takes. This includes the type of FDI, sector, scale, duration, location of business, density of local firms in the sector and many other secondary effects. Greenfield FDI has more positive externalities; M&A proved to have little positive and often negative effects to host economies. 3. One more aspect that is important is that FDI might serve not only a way of doing money, but also a way of acquiring a certain control, both economical and political, in the host country. 4. There are market failures, imperfect information, and different conditions in receiving countries, different needs and level of development which all has to be taken into the consideration while setting an appropriate strategy towards foreign investments. One size cannot fit all. 5. Large country is able to affect its trading partners' accumulation of capital, and so it can alter future market conditions. A danger in attracting FDI is that capital movements can be regulated by perfectly discriminatory policy to maximize the welfare of the large country. 6. There are cases when incoming capital together with foreign know-how may have positive impact on other domestic firms, not only those receiving a capital from abroad. On the other hand, there is no clear evidence that FDI always has an advantage over other kinds of investment, like loans for developing local businesses. 7. The use of investment incentives focusing on foreign firms is not a recommendable strategy. The main argument in support of this is that the strongest theoretical motive for financial subsidies to inward FDI tends to be based on external effects such as spillovers of technology and human capital, which do not follow automatically from foreign direct investment. 8. Individual strategy needs to be created and properly implemented what would ensure that FDI will provide those benefits and local economy will be able to absorb them. But governments may be imperfect as well as market. The question is then whether market or government failures are more costly for the economys growth and development
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FDI in retail: Positive and Negative arguments and my opinion

The Indian government is thinking to open their door for foreign companies to invest in India. Here I have prepared some arguments for analysing this whole FDI issue.

Positive arguments:

Because of the investment of foreign companies, job opportunities in areas like marketing, agroprocessing, packaging, transportation, etc. will be created. According to the Government, 10 million new jobs will be created. Because of FDI, the post of middlemen in India will be removed. Because of that, farmers will get a good price for their crops and their exploitation will stop (which is going on for the last 150 years). Foreign companies will invest around $100 million in India. Because of that, infrastructure facilities, refrigeration technology, transportation, etc. will be renovated. That will lead to lowinflation rate. According to the Indian Governments conditions, foreign companies have to source a minimum of 30% of their goods from Indian micro and small industries. This will provide the scales to encourage domestic manufacturing, by creating a big effect for employment and to upgrade the technology. Countries like China, Indonesia, and Thailand already have 100% FDI in retail. After allowing FDI in retail, these countries have experienced tremendous growth in the agro processing industry, refrigeration technology and infrastructure. Foreign companies will also create a supply-chain in the India market. Because of that, food which perishes due to bad infrastructure facilities and refrigeration, will not be wasted.

Negative arguments :

FDI will lead to job losses. Small retailers and other small Kirana store owners will suffer a large loss. Giant retailers and Supermarkets like Walmart, Carrefour, etc. will displace small retailers. Supermarkets will establish their monopoly in the Indian market. Because of supermarkets fine tuning, they will get goods on low price and they will sell it on low price than small retailers, it will decrease the sell of small retailers.

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Possible positive effects

FDI provides capital which is usually missing in the target country Long term capital is suitable for economic development Foreign investors are able to finance their investments projects better and often cheaper Foreign corporations create new workplaces FDI bring new technologies that are usually not available in the target country. There is empirical evidence that there are spill-over effects as the new technologies usually spread beyond the foreign corporations Foreign corporations provide better access to foreign markets Ex. Foreign corporations can provide useful contacts even for their domestic subcontractors Foreign corporations bring new know-how and managerial skills into the target country Again, there is a spill-over effects as people leave the corporations they leave with the knowledge and know-how they accumulated Foreign corporations can help to change the economic structure of the target country With a good economic strategy governments can attract companies from promising and innovative sectors Crowding in effect The foreign corporations often bring additional investors into the target country (ex. their usual subcontractors) Foreign corporations improve the business environment of the target country Ethical business or rules of conduct Foreign corporations bring new clean technologies that help to improve the environmental conditions Foreign corporations usually help increase the level of wages in the target economy Foreign corporations usually have a positive effects on the trade balance

Possible negative effects

Foreign corporations may buy a local company in order to shut it down (and gain monopoly) Crowding out effect We can see this effect if the foreign corporations target the domestic market and domestic corporations are not able to compete with these corporations Foreign corporations may cut working positions (privatization deals or M&A transactions) Foreign corporations have a tendency to use their usual suppliers which can lead to increased imports (no problem if the production is export driven) Repatriation of the profits can be stressful on the balance of payments The high growth of wages in foreign corporations can influence a similar growth in the domestic corporations which are not able to cover this growth with the growth of productivity The result is the decreasing competitiveness of domestic companies Missing tax revenues If the foreign corporations receive tax holidays or similar provisions The emergence of a dual economy The economy will contain a developed foreign sector and an underdeveloped domestic sector
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My Analysis:
At the first sight, we can see that benefits are more in numbers, but I think detriments are more serious.

In India, we have 11 shops per 1000 people. India has 1.2 crore shops, which gives employment to about 4 crore people.

What about the problems which these 4 crore people will suffer? As Indian governments condition, companies will buy 30% from small industries of India, but what about the other 70%? Walmart and all these big giants import their majority goods from China. If we consider Walmart as a country then Walmart will be the one of the top-10 countries which is importing goods from china. These giants will dump goods from China. We cant stop them for doing this. Our PM is saying that allowing this major FDI will bring new technology to India and it will bring proper refrigeration technology so that wastage of food/grains can be stopped. But dont you think India itself is capable for that? Why cant our government build storages for refrigeration of food? Is it ok to open our countrys gates for foreign giants just because of thi s reason? Why we are not passing Food Security Bill, which is still in the parliament? If government is not capable of building a supply chain and infrastructure, we can open this field for Indian entrepreneurs. Government is saying the cities which have a population of more than 1 million are open for these foreign companies. This is totally illogical. I bet, in the next 10 years they will open their stores in small cities, after opening their stores in metros first and so on. Today, when the American President is requesting their citizens to buy goods from small retailers, we are inviting them to our country. These companies have ruined their own country and we are expecting that they will save our farmers and food. We are expecting that they will give new technology and will invest in India to help our poor fell as. This is bull. Argument that only foreign companies can create the supply chain for farm produce is totally illogical. International retail players have no role in building roads or generating power. They are only required to create storage facilities and cold chains. This could be done by government of India also. I think there is no need to allow 51% FDI in India at this point. No need to go so fast. We should discuss this point in parliament (peacefully!).

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CHAPTER:-6
Recommendation

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Recommendation
However, processing level is very low i.e. around 2.20% in fruits and vegetables, 35% in milk, 21% in meat and 6% in poultry products, etc. India's share of processed food is about 1.6%. Hence, there is immense potential for investment in this sector. To facilitate the prompt growth of food processing industry, the Government has implemented the scheme for infrastructure development comprising a food park scheme, establishing packaging centers, integrated cold chain facility, value added centers, Irradiation Facilities and Modernized Abattoir. The retail sector is directly related with the food processing sector, but unfortunately it is not consider as an industry in India. The retail sector 24% developed market in India and rest part should be developed. Emergence of Tier 1 and Tier 2 cities will present a key opportunity for future growth due to rising income, increased awareness and limited availability of products currently in these markets. The food processing sector totally depends upon the agriculture but due to the urbanization, it decreases by the passage of time. So government should take some action regarding to improvement of rural area. The required level of investment for the development of marketing, storage and cold storage infrastructure is estimated to be huge. The government has not been able to implement various schemes to raise investment in marketing infrastructure. Utilize and make value addition to agricultural produce for enhancement of income of farmers. Minimize wastage at all stages in the food processing chain by the development of infrastructure for storage, transportation and processing of agro-food produce. Use efficiently agricultural residues and by-products of the primary agricultural produce as well as of the processed industry. Encourage R&D in food processing for product and process development and improved packaging. Provide policy support, promotional initiatives and physical facilities to promote value added exports.

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BIBLIOGRAPHY
BIBLIOGRAPHY
1) http://www.indiainbusiness.nic.in 2) http://www.finmin.nic.in 3) http://www.india.gov.in 4) http://dipp.nic.in/fdi_statistic/india_fdi_indix.htm

REFERENCES: JOURNALS: Klaus, E. Meyer, Evis, Sinani (2009). When and where does foreign direct investment generate positive spillovers? A meta-analysis. Journal of International Business Studies, Volume 40, Number 7, 1074-1094. Beena, P. L., Bhandari, Laveesh (2003). Survey of FDI in India. DRC Working Papers, Foreign Direct Investment in Emerging Markets, Center for New and Emerging Markets, London Business School, No.6.

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