India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

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FDI Regulations <strong>and</strong> Trends Beginning in 1991, as part <strong>of</strong> <strong>India</strong>’s policy <strong>of</strong> opening to the global economy, the <strong>India</strong>n government authorized FDI with foreign equity stakes <strong>of</strong> up to 51 percent in most industries, including food processing. The equity limit for FDI in food processing was later raised to 100 percent. Foreign investors generally are not permitted to own agricultural l<strong>and</strong> in <strong>India</strong> <strong>and</strong> are prohibited from investing in most direct agricultural (farming) activities. Exceptions exist for tea plantations <strong>and</strong> for investment in agriculture under “controlled conditions,” such as farming in climate-controlled facilities such as greenhouses (table 8.1). 1 TABLE 8.1 <strong>India</strong>: Specific FDI regulations in certain food-related industries Equity Industry cap (%) Entry route Other conditions Primary agricultural production Floriculture, horticulture, development <strong>of</strong> seeds, animal husb<strong>and</strong>ry, pisciculture, aquaculture, cultivation <strong>of</strong> vegetables <strong>and</strong> mushrooms under controlled conditions, <strong>and</strong> services related to agro <strong>and</strong> allied sectors. a 100 Automatic None reported. Tea sector, including tea plantations. b 100 Approval from the Foreign Investment Promotion Board required Food processing Subject to divestment <strong>of</strong> 26 percent <strong>of</strong> equity in favor <strong>of</strong> an <strong>India</strong>n partner or the <strong>India</strong>n public within 5 years, <strong>and</strong> prior approval <strong>of</strong> the state government concerned in case <strong>of</strong> any change in future l<strong>and</strong> use. Alcohol distillation <strong>and</strong> brewing 100 Automatic Subject to license by appropriate authority. Manufacture <strong>of</strong> cigars <strong>and</strong> cigarettes 100 Approval from the Foreign Investment Promotion Board required Subject to industrial license under the Industries (Development <strong>and</strong> Regulation) Act <strong>of</strong> 1951. Source: Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Commerce <strong>and</strong> Industry, Department <strong>of</strong> Industrial Policy <strong>and</strong> Promotion, “Consolidated Policy on Foreign Direct Investment,” March 31, 2008. a FDI is not allowed in any other agricultural sector/activity. b FDI is not allowed in any other plantation sector or activity. <strong>India</strong> also prohibits FDI in multibr<strong>and</strong> retail establishments, which may inhibit investment in the agriculture sector. The ban on FDI in multibr<strong>and</strong> retail is meant to protect the interests <strong>of</strong> <strong>India</strong>’s many small “kirana” retail shop owners. 2 For instance, foreign food companies with established br<strong>and</strong>s may find it difficult to break into the <strong>India</strong>n market through the kiranas because the shops are small <strong>and</strong> shelf space is at a 1 Beyond the agricultural industries noted in the table, FDI is not allowed in any other agricultural sector or activity. Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Commerce, Department <strong>of</strong> Industrial Policy <strong>and</strong> Promotion, “Consolidated Policy on Foreign Direct Investment,” 2008; government <strong>of</strong>ficial, interview by Commission staff, New Delhi, <strong>India</strong>, May 5, 2009. 2 <strong>India</strong> permits FDI in single-br<strong>and</strong> retail establishments, defined as shops that only sell products by a single producer, such as a footwear manufacturer. FDI is prohibited in multibr<strong>and</strong> retail establishments, which are shops that sell products from more than one manufacturer, as do most U.S. supermarkets <strong>and</strong> department stores. 8-2
premium. However, in the larger stores owned by organized retail chains, there is more space for br<strong>and</strong>ed foods. Additionally, the more sophisticated supply <strong>and</strong> distribution systems used by organized retail chains create greater access for high-volume br<strong>and</strong>name food items. 3 For more detail on the growth <strong>of</strong> <strong>India</strong>’s organized retail sector, see chapter 7. <strong>India</strong> began to liberalize its FDI regulations for the distribution industry in 2006. Although foreign investors are still prohibited from investing in multibr<strong>and</strong> retail establishments, a wholesaler can now be 100 percent foreign owned, <strong>and</strong> foreign companies can hold up to 51 percent equity <strong>of</strong> a single-br<strong>and</strong> joint venture. 4 Wal-Mart, for example, has initiated a wholesale distribution joint venture with <strong>India</strong>n conglomerate Bharti that commenced operations in 2009. The firm has announced plans to source more than 80 percent <strong>of</strong> its goods locally, partly to cater to small businesses. 5 In addition, the <strong>India</strong>n parliament has debated lifting the ban on FDI in multibr<strong>and</strong> retail organizations. Many observers expect the law to be changed, but as <strong>of</strong> November 2009, there has been no action. 6 From 2004 through 2008, FDI inflows into agriculture-related industries grew rapidly but continued to account for less than 3 percent <strong>of</strong> total FDI inflows into <strong>India</strong> (table 8.2). 7 Fermentation industries (alcoholic beverages) accounted for the largest share (51 percent) <strong>of</strong> agriculture-related FDI in 2008, followed by food processing industries (20 percent). 8 The sharp upsurge in FDI in fermentation industries in 2008 reflects new investment in breweries, distilleries, <strong>and</strong> wineries by several multinational companies. The largest contributor was a change in ownership <strong>of</strong> a 37.5 percent equity stake in United Breweries, <strong>India</strong>’s largest beer company, a result <strong>of</strong> the acquisition <strong>of</strong> Scottish & Newcastle plc (United Kingdom), which owned a stake in United Breweries, by a consortium consisting <strong>of</strong> Carlsberg (Denmark) <strong>and</strong> Heineken (Netherl<strong>and</strong>s). Several other multinational breweries invested in <strong>India</strong> during 2007 <strong>and</strong> 2008. Carlsberg built its fourth <strong>India</strong>n brewery in West Bengal in 2008 at a cost <strong>of</strong> $16.1 million, <strong>and</strong> InBev (Belgium) invested $25.3 million in a brewery in Andhra Pradesh. In late 2006, SABMiller (United Kingdom) announced plans to invest $125 million in <strong>India</strong> over the following two to three years, both to exp<strong>and</strong> existing facilities <strong>and</strong> to construct two new breweries (begun in 2007 at an expected cost <strong>of</strong> $49.0 million). 9 3 Industry representative, interview by Commission staff, Gurgaon, <strong>India</strong>, May 6, 2009. 4 Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Commerce <strong>and</strong> Industry, Department <strong>of</strong> Industrial Policy <strong>and</strong> Promotion, Press Note 3 (2006); Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Commerce <strong>and</strong> Industry, Department <strong>of</strong> Industrial Policy <strong>and</strong> Promotion, Investing in <strong>India</strong>, n.d., 68. 5 fDi Markets database (accessed March 13, 2009). 6 Industry representatives, interview by Commission staff, New Delhi, <strong>India</strong>, June 4, 2009. 7 Detailed Government <strong>of</strong> <strong>India</strong> FDI data by industry is not available for 2003. 8 Government <strong>of</strong> <strong>India</strong>, Reserve Bank <strong>of</strong> <strong>India</strong>, CEIC database, September 25, 2009. 9 A significant share <strong>of</strong> the construction costs were likely recorded as FDI in 2008, as construction continued. Data regarding new FDI by breweries from fDi Markets database, June 22, 2009, Financial Times Ltd. 8-3
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United States International Trade C
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U.S. International Trade Commission
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Abstract This report describes <str
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TABLE ES.1 India:
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U.S. agricultural products face str
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U.S. Foreign Direct Investment U.S.
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CONTENTS Page Abstract ............
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CONTENTS―Continued Chapter 6 <str
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CONTENTS―Continued Figures 1.1. <
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ACRONYMS AND TERMS AAY Antodaya Ann
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ACRONYMS AND TERMS—Continued RGGV
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TABLE 1.1 India: A
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FIGURE 1.1 India:
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India’s central
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Despite their weak economic pr<stro
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Approach Current India</str
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Bibliography Birner, Regina, Surupt
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World Bank. Agriculture for Develop
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FIGURE 2.1 India:
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TABLE 2.1 India: A
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FIGURE 2.3 India:
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premium); (2) India</strong
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include government export restricti
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TABLE 2.3 India: A
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FIGURE 2.6 India:
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Exports by Major Trading Partner <s
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CHAPTER 3 Domestic Consumption Over
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TABLE 3.2 India: P
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more likely to have been exposed to
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BOX 3.3 Indian Con
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TABLE 3.3 India: T
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are expected to see income growth <
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Food Preferences India</str
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Regional Variation Geographic <stro
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CCC. “Know India
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CHAPTER 4 Indian A
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For most crops, however, In
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The Farm Sector soybeans 29 —but
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Food processing in India</s
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BOX 4.1 The Central Government’s
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BOX 4.2 Does the Minimum Support Pr
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August 3, 2009, New Delhi announced
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known as zamindars, have doubled or
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that the PFA Act was strictly enfor
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———. Bharat Nirman: A Time-Bo
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Organisation for Economic Co-operat
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CHAPTER 5 TARIFFS Overview
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sensitive. They include vegetable f
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wholly milled rice and</str
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The Indian governm
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India also reporte
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Reference Prices Reference prices,
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Landing Fees <stro
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Simulated Effects
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and nuts” by $0.
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5-19 TABLE 5.4 India</stron
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Bibliography Acharya, Keya. “Thor
Page 119 and 120: Indian Express.com
Page 121 and 122: CHAPTER 6 Nontariff</strong
Page 123 and 124: foreign sources. 6 For example, SPS
Page 125 and 126: BOX 6.1 Milk and M
Page 127 and 128: BOX 6.2 Wheat—Continued Yet, <str
Page 129 and 130: perpetuated continuously. The impor
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Page 135 and 136: Customs Procedures India</s
Page 137 and 138: Corruption Interests within <strong
Page 139 and 140: TABLE 6.2 India: E
Page 141 and 142: Bibliography American Apparel <stro
Page 143 and 144: Mattson, Jeremy W., Won, W. Koo, <s
Page 145: ———. 2009 National Trade Esti
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Page 150 and 151: First Point of Sal
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Page 154 and 155: approximately 65 million households
Page 156 and 157: 7-10 TABLE 7.2 India</stron
Page 158 and 159: poor communications infrastructure
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Page 162 and 163: The lack of infras
Page 164 and 165: found that 39 percent of</s
Page 166 and 167: Bibliography Banerjee, A. Dairying
Page 168 and 169: Tiwari, Shri Rajendra Kumar. “Pos
Page 172 and 173: TABLE 8.2 India: A
Page 174 and 175: Food Processing and</strong
Page 176 and 177: There is not necessarily a strong l
Page 178 and 179: For processing of
Page 180 and 181: BOX 8.3 Restrictions on Foreign Joi
Page 182 and 183: Under certain circumstances, FDI ca
Page 184 and 185: commenced. States tend to be quick
Page 186 and 187: Bibliography Bahn, Niti, an
Page 188 and 189: International Center for Alcohol Po
Page 190 and 191: Structure of the <
Page 192 and 193: BOX 9.1 The UPOV System for Plant V
Page 194 and 195: that the public sector in I
Page 196 and 197: Whether this situation will soon ch
Page 198 and 199: The U.S.-India Bus
Page 200 and 201: eggplant, which began field trials
Page 202 and 203: Maskus, Keith E. “Intellectual Pr
Page 205: APPENDIX A REQUEST LETTER
Page 208 and 209: The Honorable Sham L. Arano
Page 211 and 212: cprice-sewell on PRODPC61 with NOTI
Page 213: APPENDIX C HEARING WITNESSES
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Page 219 and 220: Summary of Views <
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advertising and pr
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highest in the Asia-Pacific region.
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to U.S. exports to India</s
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transparent sanitary regulations th
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hotel and catering
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Western Pistachio Association 26 In
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APPENDIX E POTENTIAL FOR U.S. AGRIC
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E-4 TABLE E.1 India</strong
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APPENDIX F INDIAN AGRICULTURAL PROD
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TABLE F.1 India: A
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FIGURE F.1 India:
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is in nonirrigated areas with yield
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Consumption India
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efrigeration. This characteristic i
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70 percent of tota
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eportedly preferred in southern <st
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Cotton During MY 2003/04-2007/08, <
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Government of <str
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APPENDIX G UNION AND STATE/UNION TE
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certain agricultural goods in the p
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Bibliography Chaulan, Shri U.K. “
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Simulation Framework The effects <s
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Producers determine the optimal sup
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Applied ad valorem tariff equivalen
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We considered the possibility that
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Estimation of <str
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Bibliography Anderson, Kym, Mariann
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