Food processing has not been attracting much FDI—with or without Maggi ban

Food processing minister says regulatory steps are hitting overseas investments, but data show the sector has never been hot property for foreign investors

According to DIPP data, FDI in food processing sector started declining even before FSSAI asked Swiss food major Nestle to withdraw its popular Maggi noodles on 5 June.

New Delhi: Regulatory overreach has scared foreign investors, threatened ‘Make in India’ and killed innovation in food processing, says India’s food processing minister, a month after Maggi instant noodles were banned in the country over alleged presence of undesirable ingredients.

The fears may be misplaced: India’s food processing sector has never been hot property for foreign investors, show data.

In an interview published in The Economic Times on 13 July, minister of food processing industries Harsimrat Kaur Badal expressed concerns over the recent regulatory steps taken by the Food Safety and Standards Authority of India (FSSAI), saying it was affecting overseas investments. Badal said “inspector raj” has created fear among foreign investors in the food processing sector.

However, according to the Department of Industrial Policy and Promotion (DIPP), the sector never attracted much foreign direct investment (FDI) in the past 15 years. One exception was the fiscal year that ended in March 2014, when American food and beverages giants Coca-Cola and PepsiCo announced ambitious investment plans till 2020 in India.

According to DIPP data, FDI in food processing sector started declining even before FSSAI asked Swiss food major Nestle to withdraw its popular Maggi noodles on 5 June. In the first four months of 2015, FDI in food processing was as follows—January: `215.89 crore, February:`272.71 crore, March: `320.05 crore and April: `155.06 crore.

The entire food processing sector received `3,164.72 crore FDI in 2014-15, the second largest since April 2000. However, it was the highest in the previous fiscal year (April 2013-March 2014) at a whopping `25,106.78 crore, while FDI during April 2012-March 2013 was `2,193.65 crore, the third largest since April 2000.

Between April 2000 and March 2015, Indian food processing sector received a total of `36,952.87 crore. Barring fiscal years 2001-02, 2009-10, 2012-13, 2013-14 and 2014-15, FDI in food processing was always under `1,000 crore in all fiscal years since 2000-01.

Since April 2000, the food processing sector has received just 2.51% of all FDI that India has received, according to the DIPP data. However, as a sector, food processing is the 13th largest in terms of FDI inflow, while the services sector tops the list with a 17.03% contribution, followed by construction development at 9.54% and telecommunications at 6.77%.

During the past two fiscal years (2013-14 and 2014-15) and April 2015, food processing sector was not among the top 10 sectors in terms of total FDI inflow, according to DIPP statistics.

FDI inflow was higher in 2013-14, thanks to two big-ticket investments by Coca-Cola and PepsiCo, announced in October and November 2013, respectively. Coca-Cola in October 2013 said it would invest $5 billion in India by 2020, while its rival PepsiCo announced its plans to spend $5.5 billion in India by 2020 the next month, part of which might have been accounted in the FDI inflow data for the year.