The changing face of India

AgExporter, Feb, 2002 by Maria Nemeth-Ek

Is India a crouching tiger, ready to take off and participate in world trade? While skeptics may underestimate the country's commercial potential, India has appeared on the radar screen of those with long-term vision.

It would be inadvisable to dismiss the opportunities implicit in this vibrant and culturally diverse country. India has the world's second largest population--over 1 billion inhabitants--and an economy that has expanded by an average 5-6 percent annually in recent years. The growing middle class--estimated at 20-50 million--has acquired new tastes, sophistication and demands.

Just a little over a decade ago, the country had political leanings toward the former Soviet Union and touted self-sufficiency at the expense of efficiency. India was practically closed to world trade.

Now, it is emerging as a significant power in Asia, and U.S.-Indian trade relations have improved. Its northern neighbor, China, has captured much of the limelight and significant levels of direct foreign investment, but wise businesses are taking a good look at this emerging market.

Market access has improved. For example, last April, the Indian government lifted its remaining quantitative restrictions on imports of foods and beverages.

However, importation is by no means without constraints. Tariffs on food products typically range from 40 to 63 percent; for import-sensitive items, they can be much higher. Additional constraints include complex labeling requirements in Hindi, setting of maximum retail prices, administrative hurdles, cumbersome bureaucratic procedures, lack of cold chain facilities, fragmented distribution and an underdeveloped retail system.

Open to the New--But Loyal to the Familiar

India's population is about 82 percent Hindu, 12 percent Muslim, 2.3 percent Christian, 2 percent Sikh and the rest different beliefs. Religious background and income level highly influence food consumption and preferences: many Indians are vegetarian; beef is taboo for most of the population; and there is a strong preference for fresh products and traditional spices and ingredients.

On the other hand, thousands of Indians have worked in and returned from the United States, where they became accustomed to Western lifestyles, foods and convenience.

India has carved out a significant niche in high-tech industries, software development and services. With rising urban incomes, more women in the workforce and more fast food outlets, acceptance of new food products is increasing, provided they are tailored to Indian tastes.

Shopping the Old-Fashioned Way

Since home refrigeration is still rather a luxury, most Indians shop daily at small neighborhood specialty shops. Processed foods are sold in small quantities suited to consumers limited purchasing power.

Food products are sold in 3-4 million small grocery stores. The supermarket concept common to the United States is practically nonexistent. In size and looks, larger grocery and convenience stores resemble U.S. supermarkets of 40 years ago. No major foreign supermarket chain has opened outlets in India, although this will change with time and a more open trading environment. The southern parts of the country (Mumbai, Chennai, Bangalore, etc.) have more developed chains; however, they also are not comparable to typical U.S. outlets.

India's markets are supplied by about 400 distributors and suppliers, each typically handling 3 or 4 products. The share of imported products is small, primarily almonds, fruit juices, ketchup, chocolates, sauces, specialty cheeses, canned fruits and vegetables, peas and beans, snacks, cookies and cake mixes.

Distribution System

Container handling facilities are available at most major ports and in several cities. But the distribution system is highly fragmented, due to the country's large size, infrastructure limitations (roads, electricity, cold storage) and large number of retail stores.

Refrigerated warehousing and transportation facilities are limited and costly. Electricity capacity does not meet demand.

Initially, imports were shipped through regional hubs of Dubai, the United Arab Emirates, and Singapore, or through gray markets. Now more and more importers are preferring to source directly from producers. Once the products reach India, they are handled in a three-tiered structure: from distributor/dealers to wholesalers to retailers. These patterns are changing as marketeers search for more efficient approaches.

Local Markets and Retail Stores

India has a variety of local food stores, from traditional wet markets to small stores and mini-supermarkets. Most food stores in India focus on one food category--fruits and vegetables, meats or other grocery items. These small stores generally have about 300 square feet of floor space, with items stacked high on shelves along the walls and behind counters. Competing stores offering the same assortment of goods often face each other or stand next to each other. The few grocery chains in India can have up to 4,000 square feet of floor space and stock meats, produce, bakery products and other items.