Global Foreign Direct Investment (FDI) inflows rose 16 per cent in 2011. The FDI inflows in India are increased at the rate of 27.9 per cent per annum during the period 2000 to 2011. In India, FDI inflows in food processing sector were worth Rs.198 crore in the year 2000, these FDI inflows were rose to Rs.1314 crore in 2009 and it was fallen to Rs.826 crore in 2011. During this period the growth were registered 11.1 per cent per annum respectively. Ministry of Food Processing Industries (MoFPI) has formulated a Vision 2015 Action Plan that includes trebling the size of the food processing industry, raising the level of processing of perishables from 6 per cent to 20 per cent, increasing value addition from 20 per cent to 35 per cent, and enhancing India’s share in global food trade from 1.5 per cent to 3 per cent.

1. IOSR Journal of Business and Management (IOSR-JBM)
e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 17, Issue 1.Ver. I (Jan. 2015), PP 06-12
www.iosrjournals.org
DOI: 10.9790/487X-17110612 www.iosrjournals.org 6 | Page
Impact of Foreign Direct Investment (FDI) In Indian Food
Processing Sector
1
G. Suresh Babu, 2
Prof. M. Raja Sekhar
*G Associate Professor of Commerce, Head, Department of Commerce, Govt. Degree & PG
College, Puttur, Chittoor dist., Andhra Pradesh, India
Head, Department of Commerce, Sri Venkateswara University, Tirupati, Chittoor dist.,
Andhra Pradesh, India
Abstract: Global Foreign Direct Investment (FDI) inflows rose 16 per cent in 2011. The FDI inflows in India
are increased at the rate of 27.9 per cent per annum during the period 2000 to 2011. In India, FDI inflows in
food processing sector were worth Rs.198 crore in the year 2000, these FDI inflows were rose to Rs.1314 crore
in 2009 and it was fallen to Rs.826 crore in 2011. During this period the growth were registered 11.1 per cent
per annum respectively. Ministry of Food Processing Industries (MoFPI) has formulated a Vision 2015 Action
Plan that includes trebling the size of the food processing industry, raising the level of processing of perishables
from 6 per cent to 20 per cent, increasing value addition from 20 per cent to 35 per cent, and enhancing India’s
share in global food trade from 1.5 per cent to 3 per cent.
As per Ministry of Food Processing of India (MOFPI), the term 'food processing' is mainly defined as a process
of value addition to the agricultural or horticultural produce by various methods like grading, sorting and
packaging. In other words, it is a technique of manufacturing and preserving food substances in an effective
manner with a view to enhance their shelf life; improve quality as well as make them functionally more useful.
Food Processing Industry (FPI) in India is a sunrise sector that has gained prominence in the recent years.
Easy availability of raw materials, changing lifestyles and favourable fiscal policies has given a considerable
push to the industry’s growth. FPI serves as a vital link between the agriculture and manufacturing sectors of
the economy
India is one of the leading exporters of the processed food products. It has a competitive edge over other
countries due to the wide variety of crops cultivated as a result of geographical and climatic diversity. The
Government is trying to support the industry by formulating favourable policies. With adequate government
focus on the infrastructural support, research and development and technological innovation in this sector,
India could alleviate its domestic concerns on food security, malnutrition and food inflation.
Keywords: FDI, Food Processing Industries, MoFPI, Fruit processing.
I. Introduction
1.0 FDI policy in India
FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign country
through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site.
To put in simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the
production capacity of the economy. Foreign Investment in India is governed by the FDI policy announced by
the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The
Reserve Bank of India („RBI‟) in this regard had issued a notification, which contains the Foreign Exchange
Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. This
notification has been amended from time to time.
The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring and
reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy
is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial
Policy and Promotion (DIPP).The foreign investors are free to invest in India, except few sectors/activities,
where prior approval from the RBI or Foreign Investment Promotion Board („FIPB‟) would be required.
II. Food Processing Industry In India
The term „food processing‟ is mainly defined as a process of value addition to the agricultural or
horticultural produce by various methods like grading, sorting and packaging. In other words, it is a technique of
manufacturing and preserving food substances in an effective manner with a view to enhance their shelf life;
improve quality as well as make them functionally more useful. It covers spectrum of products from sub-sectors
comprising agriculture, horticulture, plantation, animal husbandry and fisheries

2. Impact of Foreign Direct Investment (FDI) In Indian Food Processing Sector
DOI: 10.9790/487X-17110612 www.iosrjournals.org 7 | Page
The Indian food processing industry is one of the largest in the world in terms of production,
consumption, export and growth prospects. Earlier, food processing was largely confined to the food
preservation, packaging and transportation, which mainly involved salting, curdling, drying, pickling, etc.
However, over the years, with emerging new markets and technologies, the sector has widened its scope. It has
started producing many new items like ready-to-eat food, beverages, processed and frozen fruit and vegetable
products, marine and meat products, etc. It also include establishment of postharvest infrastructure for
processing of various food items like cold storage facilities, food parks, packaging centres, value added centres
and irradiation facilities .
Food processing sector is indispensable for overall development of an economy as it provides a vital
linkage and synergy between the agriculture and industry. It helps to diversify and commercialise farming;
enhance income of farmers; create markets for export of agro foods as well as generate greater employment
opportunities. Through the presence of such industries, a wider range of food products could be sold and
distributed to the distant locations.
The liberalisation of the Indian economy and world trade as well as rising consumer prosperity has
thrown up new opportunities for diversification in the food processing sector and opened up new avenues for
growth. Demand for processed and convenience food is increasing constantly because of urbanisation, changing
life-style and food habits of the people. Accordingly, the Indian consumers are being offered newer high quality
food products made by using the latest state-of-the-art technology. India has a strong agricultural production
base with diverse agro-climatic conditions and arable land of 184 million hectares. It is one of the major food
producers in the world and has abundant availability of wide variety of crops, fruits, vegetables, flowers, live-
stock and seafood.
The Indian food processing industry is primarily export orient. India's exports of Processed Food was
Rs. 31551.99 Crores in 2013-14, which including the share of products like Mango Pulp (Rs. 772.97 Crores),
Dried and Preserved Vegetable (Rs. 742.74 Crores), Other Processed Fruit and Vegetable (Rs. 2,266.66 Crores),
Foreign Direct Investment (FDI) is capital provided by a foreign direct investor, either directly or
through other related enterprise, where the foreign investor is directly involved in the management of the
enterprise. In recent years, however, FDI restrictions have been significantly reduced. India has been taking
many attractive steps to invite and invest foreign investor in a direct way. The economic reform adopted by
Indian Government since 1991 paved the way to formulate polices and strategies to attract foreign direct
investment into our country. FDI has to play an important role in promoting economic growth, raising a
country‟s technological level, and creating new employment in developing countries. FDI works as a means of
integrating developing countries into the global market place and increasing the capital available for investment,
thus leading to increased economic growth needed to reduce poverty and raise living standards.
III. Review Of Literature
Agarwal and Khan conducted the study on “Impact of FDI on GDP: A Comparative Study of China
and India”, the study found that 1% increase in FDI would result in 0.07%increase in GDP of China and 0.02%
increase in GDP of India. We also found that China‟s growth is more affected by FDI, than India‟s growth [1].
Kumar and Karthika found out in their study on “Sectoral Performance through Inflows of Foreign
Direct Investment (FDI)”, that Foreign Direct Investment has a major role to play in the economic development
of the host country. Most of the countries have been making use of foreign investment and foreign technology to
accelerate the place of their economic growth. FDI ensures a huge amount of domestic capital, production level
and employment opportunities in the developing countries, which a major step towards the economic growth of
the country [2].
Singh stated in their study that foreign direct investment (FDI) policies play a major role in the
economic growth of developing countries around the world. Attracting FDI inflows with conductive policies has
therefore become a key battleground in the emerging markets. The paper highlighted the trend of FDI in India
after the economic reforms, sector-wise and country-wise share of FDI, the manner in which FDI has affected
the growth of Indian states [3].
Devajit conducted the study to find out the impact of foreign direct investments on Indian economy and
concluded that Foreign Direct Investment (FDI) as a strategic component of investment is needed by India for
its sustained economic growth and development through creation of jobs, expansion of existing manufacturing
industries, short and long term project in the field of healthcare, education, research and development [4]
IV. Objectives Of The Study
 To study the FDI inflows in the Food processing industry of India
 To study the trend of FDI inflows in the Food processing industry of India

3. Impact of Foreign Direct Investment (FDI) In Indian Food Processing Sector
DOI: 10.9790/487X-17110612 www.iosrjournals.org 8 | Page
4.1 Data base and methodology
This study is based on analysis of secondary data taken from the various agencies and organisations.
The present study makes use of data and information provided by Reserve Bank of India and World Investment
Reports published by UNCTAD. The FDI inflows of food processing industries data was collected from
Ministry of Food Processing Industries, Department of Industrial Policy & Promotion, Ministry of Commerce &
Industry, Government of India, RBI bulletin, Economic survey of India and various websites.
Exponential Annual Compound Growth Rate (ACGR)
In order to examine the study objectives makes use to different statistical tools, such as percentage
shares, and exponential growth rates are estimated.
The Exponential is
Y = aebt
Where, Y = FDI inflows
and t = time
Annual percentage of growth rate was generally bˆ X 100
The significance of the growth rate was tested using student‟s‟„t‟ values and „r‟ values.
V. FDI In Indian Food Processing Sector
The Government has permitted 100 per cent foreign Direct Investment (FDI) in the food processing
industry, several overseas companies are ready to invest in India. Significantly, American companies are showing
interest as the Indian government has +made food processing a priority sector. From 1999 to 2008, imports and
exports in the food processing sector increased at an average annual rate of 17.4 per cent and 19.25 per cent
respectively. Likewise, there has also been a growth in the inflow of foreign direct investments flowing into the
food processing industry.
Table 1: Sector specific limits of Foreign Investment in India
Sector FDI/Cap/Equity Entry Route
1. Agriculture
Floriculture, Horticulture, Development of
seeds, Animal Husbandry, Aquaculture,
cultivation of Vegetables & mushrooms
and services related to agro and allied
sectors.
100 % Automatic
Source: RBI report on FDI 2011-12
The MOFPI has asked for 100 per cent foreign direct investment in the retails sector. This can help
boost exports of processed foods, since the domestic market alone cannot create sufficient demand for
processed foods. If the FDI is allowed, retail chains would bring in foreign expertise and technology, which
would benefit the farmers. The FDI in retail can therefore boost the prospects of the processing industry17
.
The Indian food processing industry is becoming an attractive FDI destination; it attracted around Rs.
45.2 billion FDI during 1991-2005, which was 3.3 per cent of the total FDI into India for the same period. Table
2.12 shows the FDI inflow in the food processing sector from 2000-01 to 2008-09.
One of the major changes in the external sector of the Indian economy following the reforms process of
1991 was the liberalisation of inflow of foreign capital, in general and that of Foreign Direct Investment (FDI)
in particular. In the aftermath of these reforms, the country has received substantial inflows of FDI especially in
the food processing sector.
FDI is permissible for all the processed food products up to 100% through automatic route except for
items reserved for MSMEs. For MSMEs, the permissible FDI limit through automatic route is 24%. For any
foreign investment more than 24%, the government route can be opted. In such a case, the enterprise will have
to be licensed under Industrial License and Industries (Development & Regulation) Act, 1951.
India's economic policies are designed to attract significant capital inflows into the country on a
sustained basis and to encourage technology sharing between Indian and foreign firms. The food processing
sector, considered to be one of the sunrise industries, is speedily increasing the share of FDI over the year. The
above table 2.12 clearly shows the inflow of foreign direct investment (FDI) in Indian food processing sector.
The FDI is permitted through the following forms of investment
> Financial collaborations
> Joint ventures and technical collaborations
> Capital markets via Euro issues
> Private placements or preferential allotments

4. Impact of Foreign Direct Investment (FDI) In Indian Food Processing Sector
DOI: 10.9790/487X-17110612 www.iosrjournals.org 9 | Page
Table-2: Represents FDI inflows in India during the period 2004-2012
Year FDI (in Cr.)
2004-05 174.08
2005-06 182.94
2006-07 441.00
2007-08 279.01
2008-09 455.59
2009-10 1,314.23
2010-11 858.03
2011-12 826.16
2012-13 2,193.65
Source: Annual Report 2013-14, Ministry of Food Processing
Table-3: Represents FDI inflows in India during the period 2012-2013
( in US $ billion)
Year Total FDI inflows in
India (US $ billions)
% Growth over
previous year
(US $ billions)
2000-01 2.31 --
2001-02 3.4 47.19
2002-03 3.45 1.47
2003-04 4.27 23.77
2004-05 5.5 28.81
2005-06 7.6 38.18
2006-07 20.3 167.11
2007-08 25.5 25.62
2008-09 43.4 70.20
2009-10 35.6 -17.97
2010-11 24.2 -32.02
2011-12 36.5 30.17
2012-13 46.3 62.6
Source: Annual Report 2013-14, Ministry of Food Processing

5. Impact of Foreign Direct Investment (FDI) In Indian Food Processing Sector
DOI: 10.9790/487X-17110612 www.iosrjournals.org 10 | Page
According to the World Investment Report 2012, World FDI inflows reached US $ 1524 billion and
FDI outflow noted US $ 1694 billion in 2011. Global foreign direct investment inflows rose 16 per cent in 2011,
surpassing the 2005-2007 pre-crisis level for the first time, despite the continuing effects of the global financial
and economic crisis of 2008-09 and the ongoing sovereign debt crises.
The FDI inflows were worth US $ 2.31 billion in the year 2000 these inflows were increased to US $
43.4 billion in the year 2008, and then fallen to US $ 31.5 billion in the year 2011. The FDI inflows in India are
increased at the rate of 27.9 per cent per annum during the period 2000 to 2011. It is observed that there is a
steep increased because the government has been providing transparent and investor friendly climate. Last five
years FDI inflows in India were observed highly fluctuated.
Ministry of Food Processing Industries have taken many steps to give impetus to this sector which
include virtual delicensing of the sector, inclusion in the priority sector for lending, allowing 100 per cent FDI
except in alcoholic beverages and retail, several duty and tax reliefs, financial assistance for infrastructure
building, setting up of food processing units etc. In case of export-oriented units, foreign investment is permitted
even in case of items reserved for small scale sector in addition, the export oriented units are given a number of
incentives and concessions under the Export-Import Policy, such as, duty free import of capital goods, raw
materials and intermediates, export income being exempt from Corporate Tax etc. FDI inflow in food
processing is becoming stronger.
According to Ministry of Commerce & Industry the FDI inflows in food processing sector were worth
Rs.198 crore in the year 2000, these FDI inflows were rose to Rs.1314 crore in 2009 and then it was fallen to
Rs.826 crore in 2011. During this period the growth were registered 11.1 per cent per annum respectively.
Table - 4: Total Inflow of FDI in the FPI Sector (Rs. minion)
Year FDI Percentage of FDI
2000-01 1,981.30 6.25
2001-02 10,361.20 32.67
2002-03 1,765.30 5.57
2003-04 5,108.50 16.11
2004-05 1,740.80 5.48
2005-06 1,829.40 5.77
2006-07 2,220.00 7.00
2007-08 3.125.20 9.85
2008-09 3,585.00 11.30
Total 31,716.70 100.00
Source: RBI report 2012-13 on FDI
Table – 5: Share of Top Five Investing Countries
Rank Country No. of FDI
Approvals
Amount of FDI
Approved
(Rs.Million)
Percentage of
Total FDI in
FPI
1 USA 137 54,997.40 55.97
2 Netherlands 74 5915.40 6.02
3 France 30 4646.80 4.73
4 Italy 36 4381.80 4.46
5 Thailand 19 3939.80 4.01
Total 296 73,881.20 75.19
Source: RBI report on FDI 2011-12

6. Impact of Foreign Direct Investment (FDI) In Indian Food Processing Sector
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Sate-wise FDI Approved and Implemented in the Processed Food Segment
Maharashtra received almost 45 per cent of FDI in India till March, 2008. Uttar Pradesh, Tamil Nadu,
Punjab and Andhra Pradesh received substantial investments in FPI sector from FDI. Andhra Pradesh, which is
the area of the present study, received a marginal sum of Rs. 852 core till March, 2008, whereas its
neighbouring States, namely Tamil Nadu and Karnataka have much higher FDI inflows into the sector.
Table -6: Sate-wise FDI Approved and Implemented in the Processed Food Segment (Rs. in Core)
Source: RBI report 2012-13 on FDI
From August 1991 to October 2008, the Government of India approved 37,273 foreign collaboration
(technical and financial) proposals, with a corresponding foreign direct investment of Rs. 4,689.66 billion. Out of
this, the total number of approvals for food processing industries were 1,161(4.45 % of the total approvals) with
an equity participation of Rs. 115.25 billion (5.62 % of total investment). The Food processing sector ranked 8th
in the list of sectors in terms of cumulative FDI approved from August 1191 to October 2008.
VI. Conclusion And Suggestions
The growth of FDI gives opportunities to Indian Food processing industry for technological up
gradation, gaining access to global managerial skills and practices, optimizing utilization of human and natural
resources and competing internationally with higher efficiency . FDI plays an important role in economic
growth of an economy. Literature on factors determining FDI inflows into food processing industry shows that
many factors influences inflows such as market size, inflation, trade openness, interest rate, wage rate, business
environment, etc.
According to the World Investment Report 2012, Global foreign direct investment inflows rose 16 per
cent in 2011. The FDI inflows in India are increased at the rate of 27.9 per cent per annum during the period
2000 to 2011. It is observed that there is a steep increased because the Government has been providing
transparent and investor friendly climate. Last five years FDI inflows in India were observed highly fluctuated.
According to Ministry of Commerce & Industry the FDI inflows were worth Rs.198 crore in the year 2000,
these FDI inflows were rose to Rs.826 crore in 2011. During this period the growth were registered 11.1 per
cent per annum respectively.
Ministry of Food Processing Industries (MoFPI) has formulated a Vision 2015 Action Plan that
includes trebling the size of the food processing industry, raising the level of processing of perishables from 6
per cent to 20 per cent, increasing value addition from 20 per cent to 35 per cent, and enhancing India‟s share in
global food trade from 1.5 per cent to 3 percent.
According to the website of MoFPI, the Government of India is actively promoting the concept of
Mega Food Parks (MFPs) and is expected The to set up 30 such parks across the country to attract FDI. The
government has released a total assistance of USD 23 million to implement the Food Parks Scheme. It has, until
State Approved Implemented
Andhra Pradesh 852 125
Gujarat 625 -
Haryana 535 26
Kmachala Pradesh 252 112
Jammu and Kashmir 35 -
Karnataka 356 19
Kerala 85 25
Madhya Pradesh 180 08
Maharashtra 4,250 425
Punjab 825 285
Rajasthan 48 07
Tamil Nadu 610 410
Tripura 15 01
Uttar Pradesh 725 501
West Bengal 49 12
Pondichay 16 02
Goa 48 05
Locations not specified 2,025 715
Total 11,531 2,678

7. Impact of Foreign Direct Investment (FDI) In Indian Food Processing Sector
DOI: 10.9790/487X-17110612 www.iosrjournals.org 12 | Page
now, approved 50 food parks for assistance across the country. The Centre has also planned for a subsidy of
USD 22 billion for mega food processing parks.
The Government has established 60 fully equipped Agri- Export Zones (AEZs), in addition to food
parks, to provide a boost to agricultural and food processing exports. India‟s relatively in expensive but skilled
workforce can be effectively utilised to set up large low cost production bases for domestic and export markets.
The second biggest bottleneck in expanding the food processing sector, in terms of both investment and export,
is lack of adequate infrastructure facilities. Another constraint is poor infrastructure for storing raw food
materials. Financial incentives and support should be provided on liberal scale to promote the modernization of
agro-processing industry and for establishing new such industries in production catchments.
The results of our analysis show that FDI is related positively with real GDP and previous period FDI
inflow but inversely related with inflation. It showed that the macro economic instability in terms of inflation
has been an important factor which influenced the inflow of FDI in India.
Finally, the study observes that FDI is a significant factor influencing the level of food processing
growth in India. It provides a sound base for food processing growth and development by enhancing the
financial position of the food processing sector. It also contributes to the GDP and foreign exchange reserves of
the country.
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