The statements were made in the context of a presentation on "The Indian food processing industry -- opportunities and avenues".

During the presentation, Sanjay Grover, partner, Arthur Andersen also said that in spite of substantial post-liberalisation encouragement to foreign investment, hard decisions need to be taken in the areas of labour reforms and subsidies, as well as in streamlining business procedures.

Government's role must also necessarily be reduced, he said.

The presentation points out that while urban markets are usually the starting points for any MNC as they represent the class of consumers who are willing to experiment and pay a premium for value added products,rural markets, representing 70 per cent of India's population, potentially present a big opportunity.

Arthur Andersen points out that rural affluents are increasing at a much faster rate than urban affluents, and so are higher disposable incomes as agricultural income has become tax free.

The rural markets, it was pointed out, is extremely price conscious, has low brand loyalty, and prefers simple "value for money" products. Also, the market is seeing increasing exposure to media and urban lifestyles, and there has been a narrowing of differences in consumption patterns between urban and rural India.

India has approximately 3.5 million outlets, over 70 per cent of which are in rural areas. A majority of the retail outlets are of the small "mom-and-pop" types, says the report, with areas between 200 and 500 square feet.

The shops serving small regions constitute the highest percentage of all retail outlets, says the report, and notes a trend towards a few larger retail outlets, supermarkets anddepartmental stores concentrated in metros.

There are very few large food stores in metropolises, and there are no national and international food store chains.The presentation notes that being mainly an agrarian country, the food industry is central to the Indian economy, and that the Indian food processing industry ranks fifth in size and accounts for 14 per cent of total industrial output, with a total turnover of US$36 billion. It points out that as much as 75 per cent of the industry is accounted for by the unorganised sector, and it has attracted US$2 billion worth of foreign investment since 1991.

The untapped potential of the sector is indicated in low mechanisation, yields and high wastage, says the paper, and that changing per capita expenditure patterns in urban and rural markets will drive growth.The paper notes that the food processing and agro industries have been accorded high priority status, and automatic approval up to 51 per cent is available for items not reserved for SSIs.

Use offoreign brand names is freely permitted and industrial licensing has been done away with. FIPB approval for foreign equity in SSI's upto 24 per cent is available, and EOUs are exempt from SSI reservation. Import and export regimes have been liberalised, says the Arthur Andersen paper, and rationalisation of tax and duty structures has been undertaken.