In turnaround mode

Food processing industry is taking off thanks to policy changes

The food processing industry, which has been languishing for long despite carrying the sunrise sector tag, seems to be finally taking off. It has seen an infusion of fresh investment of nearly $700 million in the last four months, reversing the earlier bloodbath marked by the closure of about 20 companies. Conditions now seem ripe for agro-processing to grow into at least a billion-dollar sector in the near future. Should this happen, it would bode well for the beleaguered farm sector as it can cut down post-harvest losses, which run into over Rs 92,000 crore a year, and boost farmers’ income. 

Besides, being a labour-intensive activity, it can provide supplementary employment, directly or indirectly, to millions of small and marginal farmers who find it difficult to subsist on tiny land holdings. The trigger for the surge in this sector has come from some recent well-advised policy initiatives. The most significant among these is the permission for full foreign direct investment in multi-brand retail – including e-commerce – of food products, even though with the avoidable rider that these have to be produced and processed in India. The others in this league include bringing food processing units and cold chains under the purview of priority sector lending and setting up a special fund of Rs 2,000 crore under NABARD to make concessional credit available to them.

This apart, the proposed new food policy, a draft of which has already been made public, moots some significant measures to ensure ease of doing business. 
 

For instance, the ceiling on land leased to food processing units is planned to be abolished to facilitate hassle-free access to land. Besides, agro-processing is mooted to be declared as an agricultural activity to obviate the need to change the land-use and circumvent forbidding labour laws. Moreover, some of the government’s avowed commitments, such as single window clearances, self-regulation, and delineation of whole states as single zones for food products, also seem to have gone down well with prospective investors. So has the recent decision to lower the goods and services tax on processed foods to 12 per cent from 18 per cent stipulated earlier even though, in some cases, it should have been reduced further to encourage the much-needed value-addition of farm goods.

Nevertheless, more needs to be done to promote interaction between food producers and processors. The present policy tilt towards mega food parks and large food-based industrial clusters needs to be corrected. Given the predominance of small farms and the seasonal nature of most farm produce, especially vegetables and fruits which need shelf-life enhancement and value-addition the most, the relevance of micro, small and medium processing units should not be underrated. In fact, suitable incentives for preliminary processing at the farm level and emergence of cottage level processing units in villages or clusters of villages can pay better dividends. Such units can serve as a vital link between farmers and food factories. This is necessary because not many states have exempted perishable produce from the compulsion of sale through regulated mandis. Further expansion of the network of cold chains is also vital. Some such schemes have been launched, but their progress needs to be speeded up.