Indias regulatory challenge

India's regulatory challenge

Ferrero Group is purportedly re-thinking its investment plan in India due to difficulties with regulators in the country. The Indian market - with its massive population and still growing middle class - is a huge opportunity for FMCG manufacturers. But, as the Ferrero case shows, Indian regulations continue to discourage investment in local production to the detriment of the country's economic outlook.

Ferrero India has operated in the market since 2004. Ferrero's Indian workforce is the group's third largest - behind only Italy and Germany. It has established a corporate office in Pune and four regional offices in Chennai, Delhi, Kolkata and Mumbai. Significantly, the company operates local production in India using locally sourced raw materials and packaging materials.

In short, Ferrero India is a significant employer and a local producer providing a market for Indian-made commodities. As such it pays Indian taxes and contributes to India's economic prosperity. And the company was considering investing a further INR50bn in the country as it works to build its Indian business into a local "hub" serving Asia.

One would think that this kind of overseas investment would meet with popular acclaim. But, apparently, this is not the case.

According to a report in The Financial Express, the Italian confectioner is re-thinking plans to invest in expanding production in India (although Ferrero did not respond to requests for comment on the issue).

Delays in approvals in India and a red carpet welcome in China has prompted Ferrero to commence work on a new plant in China - and the company could potentially divert further investment away from the country and into China, Ferrero India secretary-general Inder Chopra is quoted as saying.

In particular, Chopra highlighted delays in approvals from the Food Safety and Standards Authority of India (FSSAI), which have inhibited product development and stopped new products going into production.

"Three to four products have been pending for more than a year," Chopra said. "They are not regulating, they are strangulating us."

The FSSAI was established by the 2006 Food Safety and Standards Act. Its purpose was to "consolidate the laws relating to food and to establish the Food Safety and Standards Authority of India for laying down science based standards for articles of food and to regulate their manufacture, storage, distribution, sale and import, to ensure availability of safe and wholesome food for human consumption."

For the food industry to prosper in the long-term, safety is a must. Consumers need to trust the food they are buying - and this is even more crucial when you think about the export opportunity presented to India's nascent food processing industry. The FSSAI has a crutial role to play - not just in protecting consumers but also in allowing the food sector to prosper.

However, Fererro India's comments would point to a different reality - one in which red tape and a cumbersome regulatory process is stifling innovation. This situation could ultimately act as a deterrent for large multinationals operating in the country

Given the political climate of protectionism in India, it is probable that there are many in the country who would say 'good, as this will enable local companies to flourish'. This is a misguided assessment. If India is to compete on the world stage, it should leverage the expertise of global corporations like Ferrero.