In our October 2007 column we reviewed the Indian nutraceutical market. At that time we received several pointed comments suggesting that any review of India is not complete without at least a mention of its favorite obsession—cricket! It’s nearly four years later and we have been busy trying to understand the rules of the game. It has, however, become apparent that the complexity and passion for their national game is a metaphor for the country itself. While this column will be unable to sort through the details of cricket, we will attempt to review the opportunities sprouting in India and assess some of its risks. Meanwhile, congratulations to India, winners of the 2011 ICC Cricket World Cup!
 
India’s Bustling Economy
 
India continues its dominant place as one of the world’s key emerging economies. It is considered a BRIC member country—which is an acronym for Brazil, Russia, India and China. Of the four BRIC countries, India has the lowest per capita GDP and is just behind China in population. What is surprising, though, is that India is expected to surpass China in the next few years as the most populous country on the planet, while being roughly a third of the size. With the growth in overall population, there is also corresponding growth predicted for the affluent working middle class in India.
 
According to data presented in June 2011 by Netherlands-based Innova Market Insights, India will continue to expand its working age population to more than 240 million over the next 20 years, unlike the other three BRIC countries, which will see a sharp decline during the same period. This in turn will result in ever-increasing consumer demand and present a market opportunity for the international nutraceutical and functional food markets.
 
An article published by Ernst and Young (India) in August 2010, pinned the Indian nutraceutical market at $1 billion, with an 18% CAGR. The report also noted the medium term opportunity to increase the market size to $4 billion as a result of the 148 million potential customers in the growing middle class. Another report from Frost & Sullivan suggests the Indian nutraceutical market is worth closer to $2 billion, with projected sales of $5 billion by the year 2015.
 
Key Trends in India
 
The key trends driving the market today remain focused around the treatment and mitigation of disease rather than prevention. Some of these trends include:
 
• Regardless of the fact that India is a strong emerging economy, the concept of “health and wellness” is still a relatively minor issue.
 
• India has a large diabetic population but demand for food intolerance products is low.
 
• The Indian government has allowed “sugar-free” claims on products in response to a growing diabetic population.
 
• Vitamins are the most common nutrients used in food fortification.
 
Key Ingredients in India’s Nutraceutical Market:
 
• Flavored powdered milk drinks fortified with vitamins and minerals.
 
• Xylitol is popular in gum confectionery.
 
India’s Market for Dairy Ingredients:
 
• “Better for you” dominates the liquid milk category.
 
• Fortification is popular in flavored powder, milk beverages.
 
• Liquid milk scarcity drives demand for skimmed milk powder.
 
• Liquid milk scarcity is also driving demand for soymilk.
 
• Sour (fermented) milk drinks compete for shelf space with reduced fat flavored milk.
 
India’s Market for Nutritional Fats and Oils:
 
• The health and wellness trend has yet to catch on in the market for fats and oils.
 
• Fortification presents a marketing strategy for functional lipids—contains vitamins A, D and E.
 
• The “Natural” claim is important and olive oil generates interest with the Indian consumer. Olive oils are the most expensive, with premium positioning for specific blends.
 
Emerging Opportunities
 
According to Innova, the rise of a young and economically aspiring population will lead to a variety of potential new trends:
 
• The median age of the population is at about 24 years. More than 100 million Indians fall in the 17-21 years “coming-of-age” category. This represents a significant opportunity to market to young, upwardly mobile, fairly well educated population.
 
• Active Vegetarianism: 31% of Indians (356 million people) are vegetarians and 22% (253 million people) also do not eat eggs. Supplementing with protein will be an ever-increasing opportunity in India. Alternative sources of protein from soy, rice, hemp or chia, for example, all look prime for development and fit within the lifestyles of many Indians.
 
• The increase in wealth and propensity to emulate westernized diets will contribute greatly to increasing obesity rates and especially to the rate of diabetes. By 2030, it is expected India will have nearly 80 million people with diabetes. This represents an extraordinary opportunity for developing products targeted to this population.
 
• Mass-market retailing is just now emerging in India. This phenomenon represents many opportunities for companies planning on building their brands in India.
 
India’s Regulatory Environment
 
Regulatory agencies in India do not encourage manufacturers to promote dietary supplements as natural products, but rather generally as drugs. It is very difficult, therefore, for manufacturers from the dietary supplement industry to compete with manufacturers within the (regulated) pharmaceutical market. Consequently, dietary supplement manufacturers must market their products within pharmaceutical industry regulations, under a drug or Ayurvedic manufacturing license.
 
The two Acts governing the Indian nutraceutical industry are classified under the following:
 
1. Foods are covered under the Prevention of Food Adulteration Act (PFA).
 
2. Drugs are covered under both the Drug and Cosmetic Act, 1940 and the Drugs and Magic Remedies Act, 1955.
 
Classification of a product as either food or a drug is based on manufacturers’ marketing claims. When a product is marketed as a food, the advantage to the manufacturer is a less complicated process. However, some states still require product registration of these products as drugs.
 
Under the PFA, functional foods are defined by Rule 32A as a “nutritional food,” which is:  “Food claimed to be enriched with nutrients such as minerals, proteins or vitamins.” To be compliant with the act manufacturers must include the quantities of such added nutrients on the label.
 
If, however, a product is to be marketed as a drug, the drug category includes the following:
 
• Allopathic drugs
 
• Traditional medicines (e.g., Ayurveda, Siddha, Unani-ASU and homeopathy)
 
• And can include vitamins, minerals, herbs
 
The advantage to a manufacturer under drug regulations is that if approved as a drug, appropriate disease claims are permitted. Like other drug/pharmaceutical regulations around the world, pre-market approval is a requirement. It is also important to note that no fortified/functional foods are allowed under the drug regulations; these are covered under the food act.
 
Currently in India there is no good definition for dietary supplements. There have been attempts to define a third category (i.e., creating a Draft Bill on Health Food Supplements), but nothing concrete has ever materialized. An attempt to bring focus to the category did occur recently with the establishment of the Food Safety and Standards Authority of India, (FSSAI), which was created under the Food Safety and Standards Act, 2006. Also supporting Indian dietary supplement manufacturers is an industry group called Health Foods and Dietary Supplements Association (HADSA). Originally established in 2002, HADSA provides support and advocacy for Indian dietary supplement and functional food manufacturers.
 
Strategies for Successful Business in India
 
India’s natural products industry is actively seeking partnerships to establish global export beachheads in key markets. The country is seeing much of its export growth coming from markets in the Middle East as well as the more traditional markets of Southeast Asia, the U.S. and Europe. India represents an excellent staging market for companies interested in exploring non-traditional markets such as the Middle East. Part of the rationale for India exploiting joint ventures and partnerships is that it has traditionally been “trader” based and consequently unable to exploit any added value from this approach. By partnering with international organizations, Indian companies improve the bi-directional flow of intellectual property and increase the added value to the industry.
 
The other major opportunity is to leverage India’s knowledge based economy. While China was building manufacturing infrastructure, India was educating its people. India is best known as a least cost service provider for offshore call centers; however it also has a major strength in life-science research and development. By some estimates, there are more engineers and scientists per capita in India than any other country.
 
Some nutraceutical companies have already discovered India as an incredible research and development resource, stemming from the large and mature generic pharmaceuticals industry that exists there. Indian research and technology in areas of fermentation processes, plant extraction and even chemical synthesis are generally much more developed than their Chinese counterparts, and still have the labor cost savings that make outsourcing so attractive.
 
As an industry, the Indian health food market still remains in a nascent stage as we reported back in 2007, with around 75% of Indian retail health food brands still being imported. However, the industry shows strong growth potential and much of the early stage commercial/regulatory risk has been reduced as international nutraceutical companies establish a record of doing business in the market.
 
But challenges remain, as poor infrastructure, lack of adequate facilities for storage, transportation and cold storage facilities continue to hinder growth. And while the Indian regulators have worked to improve the regulatory framework, there is still plenty of confusion around rules, regulations and licensing for a variety of different commodities.
 
India remains a difficult place to start a business, and running the business is not always easy either, but for those who can navigate the regulatory and infrastructural issues, opportunities await. Whether one views the country as a developer and manufacturer of nutraceutical ingredients and products, or as a strong emerging market for nutraceuticals, India is prime for development and early entrants are likely to be prized. The time is right to pounce on the opportunities India has to offer!