72 mn new households in $5-10K income grp to drive F&B mkt

However, regulatory hurdles may hold back MNC investments in the sector, says BMI Research report

Entry of 72.5 million households in the $5,000-10,000 (Rs 3-6 lakh) income bracket over next 5 years will drive the expansion of food and drink industry in India, but regulatory hurdles may hold back MNC investments in the sector, says a report.

Although strong demographic and urbanisation dynamics, alongside rising household incomes, bodes well for the rapid growth in food and drink industry, regulatory challenges remain, according to the report by BMI Research, a Fitch Group company.

"Consumer dynamics are very favourable in India over the next five years, as more households enter the middle class and urbanisation accelerates. This will drive expansion of the food and drink industry," the report said.

The report noted however that regulatory hurdles would hold back multinational investment.

"In addition to a weak infrastructure network, India suffers from burdensome administrative procedures, a complex taxation framework and regulatory hurdles," the report said, adding that the Goods and Services Tax (GST) is unlikely to be implemented by its suggested date of April 1 2016.

"In the meantime, food and drink companies will continue to face complex federal and state tax laws, which make cross-state transportation difficult," it said.

India is home to almost 1.3 billion people, and according to BMI Research the population is expected to grow by more than 10 per cent over the next decade.

Between 2015 and 2019, an additional 72.5 million households will enter the $5,000-10,000 income bracket.

The report kept $5,000 level as the threshold at which households start to adopt more modern patterns of consumption, such as consuming more packaged food.

Meanwhile, consumer confidence has been on a downward trend since July 2015, with the ANZ-Roy Morgan consumer confidence index declining from 124.7 in July to 114.4 in September.

The report noted that this decline in consumer sentiments would not have any impact on staple products as the main consequence of lower confidence is that households postpone major purchases.