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

Food processing in <strong>India</strong> involves mainly primary processing, such as packaging fruits
<strong>and</strong> vegetables <strong>and</strong> milling <strong>and</strong> crushing grains, oilseeds, <strong>and</strong> pulses, as well as the
preparation <strong>of</strong> simply prepared or dried foods such as pickles, spice mixtures, tea, <strong>and</strong>
some snack foods. Such primary processing accounts for approximately 60 percent <strong>of</strong>
<strong>India</strong>n processed foods. 48
Until the 1990s, food processing was governed by laws that relegated it to small-scale
industry with a prescribed maximum investment. Under these laws, large-scale or
vertically integrated operations were effectively prohibited. Although changes in the law
have opened up the sector to large <strong>and</strong> medium-sized domestic firms, as well as
multinationals, currently about 75 percent <strong>of</strong> <strong>India</strong>n food processing output is generated
by small enterprises in the unorganized sector. 49 Most processing in the sector is done
manually, with limited use <strong>of</strong> controlled-atmosphere storage <strong>and</strong> irradiation facilities, <strong>and</strong>
low levels <strong>of</strong> processing technology. 50
<strong>India</strong>n Government Policies Affecting Farm-Level
Production
As stated above, <strong>India</strong>’s support for the farm sector can be largely subdivided into three
types: input support programs, output price support programs, <strong>and</strong> farmer welfare funds,
all designed to either boost farmers’ incomes directly or lower the cost <strong>of</strong> production.
Output price support programs <strong>and</strong> input support programs give domestic agricultural
production a competitive advantage over foreign production, while farmer welfare funds
boost overall dem<strong>and</strong> for food through higher incomes. In principle, higher dem<strong>and</strong> for
food will stimulate dem<strong>and</strong> for both domestic <strong>and</strong> foreign goods in the absence <strong>of</strong> trade
barriers. <strong>India</strong>n government policies regarding food processing <strong>and</strong> food safety set up
frameworks under which all companies in <strong>India</strong> operate <strong>and</strong> are intended to affect <strong>India</strong>n
<strong>and</strong> foreign companies uniformly. 51 Table 4.2 summarizes the <strong>India</strong>n policies described
in this chapter.
<strong>India</strong>’s legal approach to agricultural policies is important in discerning why government
funding <strong>of</strong> the farm sector <strong>of</strong>ten varies significantly from state to state <strong>and</strong> why <strong>India</strong>n
agricultural policies tend to lack transparency. According to the <strong>India</strong>n constitution, the
implementation <strong>of</strong> most agricultural policies falls within the legal domain <strong>of</strong> <strong>India</strong>’s
states <strong>and</strong> not the union (central) government. 52 The Ministry <strong>of</strong> Agriculture (Ministry) in
New Delhi formulates broad agricultural policies under five-year plans <strong>and</strong> allocates
funds for those purposes (box 4.1). The Ministry <strong>and</strong> other central government agencies
make key decisions about research <strong>and</strong> development, infrastructure, investment, credit,
<strong>and</strong> trade. For the most part, however, policies are implemented by the states, an
arrangement that gives the states some latitude to adjust policies to fit their economic <strong>and</strong>
social needs. 53
48 Ibid., 3.
49 The unorganized sector consists <strong>of</strong> small traditional outlets, primarily family owned <strong>and</strong> operated.
Dhankhar, <strong>India</strong>: Food Processing Sector, July 2, 2008, 3.
50 IBEF, Food Processing: Market <strong>and</strong> Opportunities, 8.
51 Whether government policies actually affect foreign <strong>and</strong> domestic companies uniformly depends
largely on how they are implemented.
52 Singh, Federalism, Nationalism <strong>and</strong> Development, 2008, 104.
53 OECD, Agricultural Policies in Emerging Economies, 2009, 99. For more information on <strong>India</strong>’s
constitutional structure related to agriculture, see appendix G.
4-7