Lending terms should be eased, tax structure simplified

Food & beverages (F&B), accounting for half the share of the $12-billion fast moving consumer goods industry, is one of the largest sectors in the Indian economy. F&B companies have seen robust volume growth in the past year, fuelled by increasing consumption in rural markets. Having said that, 2012 has its share of challenges for the industry and the government.

The economy is experiencing a sustained inflationary pressure. High interest rates are not only squeezing consumers’ disposable income but also affecting the profitability of businesses.

Since food and beverages come under consumers’ basic needs, most companies are not in a position to pass on rising input prices, even partially, on to the consumer. The government needs to take active measures to boost the consumer and industry confidence in the economy.

Easing the lending terms and creating a climate where companies get adequate funds for fresh investments, can help. Simplification of the taxation structure is another element industry would be looking at in this Budget.

For instance, at present, for the F&B sector, although primary agricultural commodities predominantly enjoy tax exemptions, processed foods are subject to multiple levies. goods and services tax (GST) does provide a hope to rationalise and simplify the tax structure. But the tax rates need to be relooked at. For example, the proposed GST for agro-based products like fruit juices and beverages is as high as 12 per cent.

India is witnessing increasing commodity and input prices. Poor yield, insufficient logistics and storage infrastructure are adding to this pressure.

Along with subsidies, which are mostly short-term measures, the government needs to invest in building infrastructure for the food processing industry. The government should fund technology upgrade projects to train farmers and help them reduce wastage and increase yield.

Initiatives like setting up of mega food parks is a very positive step that would lead to improvement in the overall supply chain, benefiting the entire food industry.

Nadia Chauhan
Joint Managing Director and CMO, Parle Agro