7.5 crore families to enter Rs 6 lakh club

New Delhi: The entry of 7.25 crore households in the $5,000-10,000 (Rs 3-6 lakh) income bracket over next five years will drive the expansion of food and drink industry in India, but regulatory hurdles may hold back foreign 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.

“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. Between 2015 and 2019, an additional 7.25 crore households will enter the $5,000-10,000 (Rs 3 to 6 lakh) 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 would not have any impact on staple products as households  typically postpone major purchases in such as scenario.