Establishing a Food Manufacturing Unit in India

author Garv Sood

calender September 24, 2024

Establishing a Food Manufacturing Unit in India

Being one of the most populous country across the world, India's food culture and the diversity it produces remains unmatched. Despite this massive demand of food products in the Indian market, the food manufacturing sector in India stands at a critical juncture, poised for transformative growth and innovation and has been struggling to meet the demands of the Indian market. Howsoever easy it may seem, but the ground reality of numerous compliances of registrations and licenses that are to be procured to certify that the product matches the prevalent standards, makes establishing a food manufacturing unit a difficult and a tedious process. This sector is a highly profitable sector but since the consumables that would be manufactured will have a direct effect on the health of the consumers, it is at the same time a deeply regulated sector.

The Ministry of Food Processing Industries (“Ministry”) under the Government of India is the primary authority that is responsible for regulating the food manufacturing sector through formulation of rules, regulations and laws relating to food processing in India. Additionally, Food and Safety Standards Authority of India (“FSSAI”), which has been established under Ministry of Health and Family Welfare under the Government of India through Food Safety and Standard Act, 2006 is responsible for prescribing the standards for food manufacturers. FSSAI prescribes standards on science-based calculations for articles of foods, and additionally regulates their manufacture, storage, distribution, sale and import, to ensure safe and wholesome food for human consumption.

Regulations and Compliances

The Indian food manufacturing sector is regulated through a two-fold mechanism with certain compliances that are applicable on the entire manufacturing sector and with some sector specific compliances that regulate only the food manufacturing sector. However, it is imperative to note that when it comes to registrations and compliances relating to specific food products, it may vary a bit depending upon the nature of food being processed since it may fall under different category of the food categorization code.

Primarily, the presence of a company is established in India by duly incorporating itself into either a company, or a partnership firm or a limited liability partnership depending upon the intentions and ambitions of the company. Further, if the company has foreign investors, it needs to comply itself with the Foreign Exchange Management Act, 1999 and its subsequent guidelines including the sector specific guidelines. Furthermore, the company is mandated to procure certain licenses and approvals through registrations and clearances including, but not limited to, environmental clearances, employment compliances, registrations relating to government schemes.

Certain mandatory compliances (without limitation) have been mentioned below:

FSSAI License

FSSAI to facilitate the licensing system has segregated the manufacturers into different categories on the basis of their annual turnovers and production capacity for the purpose of registrations and granting licenses. As per the Food Safety and Standards (Licensing and Registration of Food Businesses) Regulations, 2011, the food manufacturer shall obtain a central license and/or a state license and/or a basic license, depending upon the volume of their productions and/or their annual turnovers. Further, if a food manufacturer has his business premises operative in two or more than two states, then the food business owner is bound to take a central license from the licensing authority.

FSSAI in a further clarification, issued a circular, to clarify its stance towards manufacturing of such substances that are added to various products as added preservatives or flavours and are not for direct consumption. According to FSSAI such manufacturers of such premixes are also required to obtain FSSAI license since they shall fall under food category 99 of the food categorization code.

Water testing certificate

Additionally, water testing report shall necessarily be obtained from an FSSAI recognized and National Accreditation Board for Testing and Calibration Laboratories (NABL) accredited laboratory. Since, the manufactured food will be consumed directly or indirectly by the consumers, therefore the authorities, with intent to check that whether the quality of water being used in the food manufacturing units is safe and fit for consumption, have mandated this water testing report to be obtained by the manufacturers.

Bureau of Indian Standards (“BIS”)

It is imperative to note that the BIS have, through the quality control orders, enforced the mandatory certification of certain food items including additives. As a result, the items enlisted in the BIS notifications have to obtain mandatory certifications from the concerned authority.

Essential Commodities Act, 1955 (“ECA, 1955”)

The Government of India has enlisted certain food products under the Essential Commodities as per the ECA, 1955, as a result of which the manufacturers will have to additionally comply with the subsequent guidelines introduced under the ECA, 1955 on pricing and storage of the enlisted items.

Key Considerations for Food Manufacturers and Investors

Since, the food industry is not yet big enough to fulfil the growing needs of already outmatched demands of the Indian food market, the Government of India has launched several schemes to provide monetary as well as strategic benefits to manufactures to encourage investors in food manufacturing industries. The primary incentives and schemes offered by the Government of India, including, but not limited, are as follows:

Product linked incentive scheme for food processing industry

The scheme is aimed at increasing the global recognition of food products manufactured by Indian brands. It shall provide support only to those manufacturers who are engaged in manufacturing of food products in India & sales of such products that are covered under the target segments of this scheme. The scheme also outlays various eligibility criteria for manufacturers and the scope of disbursal of benefits. The scheme further envisages grant to the eligible manufacturing entities for in-store branding, shelf space renting and marketing for promotion of Indian brands abroad. The scheme also facilitates expansion of capacity of processed food products and creation of employment.

Atmanirbhar Bharat (Vocal for Local)

The Ministry under the Atmanirbhar Bharat Abhiyaan - Vocal for Local Initiative in food processing sector, has implemented "PM Formalisation of Micro food processing Enterprises (PM-FME) Scheme" for providing financial and technical support to enhance the competitiveness of existing individual micro-enterprises in the unorganized segment of the food processing industry. The scheme also supports the small groups engaged in the domain of Agri-food processing such as Farmer Producer Organizations (“FPOs”), Self Help Groups (“SHGs”) and producers cooperatives along their entire value chain. 

When it comes to benefits of schemes at ground level for the manufacturers of already established units, it promises support in terms of monetary benefits to the manufacturers with credit-linked capital subsidy of 35% of the eligible project cost with a maximum ceiling of INR 10 lakh per unit along with credit linked grant of 35% for capital investment to FPOs, SHGs or producer cooperatives. The scheme also supports the manufactures for marketing & branding to micro-units.

Food and Safety Compliance System (FoSCoS)

FoSCoS is a comprehensive FSSAI application introduced in 2011 to provide a centralized platform for the food manufacturers. The Government of India introduced this digital platform to ease the compliance list for the food manufacturers. Herein, the manufacturers can register themselves with the Government of India and obtain the licenses from the FSSAI.

The Government of India has also undertaken to provide direct monetary incentives such as allowing 100% FDI in trading including through e-commerce, in respect of food products manufactured in India to encourage investment in the food manufacturing sector.

Role of Legal Experts

The process of establishing a food processing unit is quite complex and requires professional expertise at every phase. From incorporation of an entity to identifying the product liability issues, professional advice shall be sought at every stage which may reduce the risk of any future risks or litigations. Numerous licenses and registrations along with legal compliances render it beneficial for the manufacturers to hire legal experts for ensuring compliance with regulatory requirements, protecting intellectual property, managing contracts and employment issues, and mitigating legal risks prior to, during or post establishing the food manufacturing unit. Their expertise can help streamline the process and reduce the likelihood of costly legal issues in future.

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