Rising disposable incomes and increasing urbanisation mean higher value food

Rising disposable incomes and increasing urbanisation

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Rising disposable incomes and increasing urbanisation mean higher-value food and drink products are likelyto experience strong growth rates.Although non-essential consumer goods are barely established at the mass-market level, premiumisation isalready becoming a viable growth option, particularly among younger consumers in major urban centres.The relaxation of restrictions on foreign direct investment - announced in June 2016 - will offer strongopportunities for international retailers.ThreatsLogistical problems, underdeveloped service networks and poor infrastructure hinder development in freshfood industries such as dairy.Many consumers remain wary of modern retail, due to its perceived detrimental impact on the role oftraditional retail in society.Taxation by volume in the alcoholic drinks sector will continue to hinder the development of the beer sector.The GST Council's announcement in November 2016 that aerated drinks are to be re-categorised in theluxury category will increase the tax burden on these products, which will likely impact sales.India Food & Drink Report | Q3 2018bmiresearch.com6
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Industry ForecastFoodBMI View:While operational and logistical costs remain high, especially in less urbanised areas, Indian households are purchasinggreater quantities of packaged foods, opening up significant growth opportunities for domestic and foreign brands. Daily foodstaples such as bread, dairy, fruit and vegetables will continue to form the bulk of the average Indian shopping basket. These will beincreasingly joined by premium foodstuffs, as disposable incomes rise and new products are introduced to the market over thecoming years.Latest UpdatesWe forecast that food sales (in local currency terms) will see growth of 10.9% y-o-y in 2018. Over our medium-term forecastperiod to 2022, headline food sales in India will grow by an average of 10.4% annually.India's processed food industry will welcome the government's decision to reduce the goods and services tax (GST) rates onseveral food products - including sauces and condiments, mixed seasonings, curry paste and instant food - from 18% to 12%.The GST regime, devised to streamline what has been a complex patchwork of national, state and municipal charges taxes, wasadopted on July 1 2017. We expect the food industry to campaign for further reductions in the tax rate for these popular lower-priced food products.India's 2017 budget announced a Dairy Processing and Infrastructure Fund of INR20bn (to be quadrupled in three years) toenable the modernisation and expansion of the country's milk processing capacity. The impact of this fund is expected toincrease India's milk production capacity by an additional 500 lakh litres of milk a day.
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  • Summer '18
  • Sagar Arora
  • ........., Alcoholic beverage, Food processing

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