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Unlocking India’s food processing potential

  • Category
    Polity & Governance
  • Published
    31st Jan, 2022

Context

The Growing population size of the globe is expected to touch 10 billion by the mid of this century and comes along it is a challenge to feed them by efficient means which are economically and ecologically sustainable.

Background

  • India is one of the largest producers of fruit and vegetables in the world and it has the potential to cater for the growing needs of the population sustainably.
  • In recent times India has taken initiatives to bolster processed food production by incentivising incremental sales.

Analysis

India’s Food processing sector is a sunrise sector, offering huge opportunities for investments with growth aspects. Necessary steps like favourable economic policies and attractive fiscal incentives can boost investments in the food processing industry in India.

Industry Scenario:

The Indian food industry has a definite role to play in linking its farmers to consumers across the globe. The Ministry of Food Processing Industries (MoFPI) is making efforts to encourage investments across the value chain.

  • The food processing industry in India is primarily comprised of grains, sugar, edible oils, beverages, and dairy products.
  • The key sub-segments of the Food Processing industry in India are Fruits & Vegetables, Poultry & Meat processing, Fisheries, Food retail, dairy industry, etc.
  • The industry engages about 1.93 million people and has a cumulative output of around $ 159 billion.

Some facts about the Indian Food Processing Industry:

  • By 2025, India’s food processing industry is expected to be worth over half a trillion dollars.
  • By 2030, Indian annual household consumption to treble, making India the 5th largest consumer.
  • 100% FDI is permitted under the automatic route in food processing industries in India.
  • 100% FDI is allowed through the government approval route for trading, including through e-commerce in respect of food products manufactured or produced in India.

Factors of Growth Drivers in India:

  • Strong economy: India is one of the fastest-growing economies in the world.
  • Agri-commodity Hub: India is the largest producer of several agri-commodities like crops, livestock, fruits, cereals, etc.
  • Huge consumer base: We have a huge market of 1.3 billion consumers with increasing demand for processed food. Changing the dietary habit of its people is adding to the rise in demand.
  • Conducive Policies: Government policies are proactive and is aimed at providing attractive fiscal incentives.
  • One District, One Product (ODOP): Under the ODOP scheme, 135 district-specific unique products for 728 districts have been identified across the country.
  • Atmanirbhar Bharat: PLI schemes worth INR 10,900 crores were introduced under Atmanirbhar Bharat. The PLI is aimed at incentivising domestic players, and making the industry globally competitive with the production of high-value, export-oriented items.

STEPS TAKEN BY THE GOVERNMENT

PM Formalization of Micro Food Processing Enterprises (PM-FME) Scheme:

  • With initiatives like Make in India and the Atmanirbhar Bharat Abhiyan, the government has decided to further give a boost to the micro food processing units in the country. Taking inspiration from the “Vocal for Local” campaign the PM Formalization of Micro Food Processing Enterprises (PM FME) Scheme was launched.

Mega Food Parks:

  • To provide a mechanism to link agricultural production to the market by bringing together farmers, processors and retailers to ensure maximizing value addition, minimizing wastage. So far 22 Mega Food Parks are operational. Now the target is to take their number to more than 40.

GIS One District One Product (ODOP) Digital Map of India:

  • It is a capacity-building component of the Pradhan Mantri Formalisation of Micro Food Processing Enterprises Scheme (PM-FME Scheme) and GIS One District One Product (ODOP) Digital Map of India, which provides detailed information on ODOP products to all stakeholders.

Cold Chain Projects to Reduce Food Waste and Boost Exports:

  • The policymakers in the agriculture, energy, education and food sectors must work together to promote the use of cold chain technology, improve logistics, maintenance, services, infrastructure, education and management skills, and create sustainable markets for the design, use and funding of cold chains for reducing perishable food losses.
  • Introducing cold chain/cold storage in a developing country context requires the integration of a great many different elements and the continuing management of those elements. These projects will fall under the Pradhan Mantri Kisan SAMPADA Yojana (PMKSY)’ scheme, with aid from the central government.

Production Linked Incentive (PLI) Scheme:

  • The Union Cabinet has given its approval to introduce the Production-Linked Incentive (PLI) Scheme in Food Products for Enhancing India’s Manufacturing capabilities and enhancing exports – Atmanirbhar Bharat. The scheme has an outlay of INR 10,900 crore. The scheme will be implemented over six years from 2021-22 to 2026-27.
  • The scheme shall be implemented through a Project Management Agency (PMA). The PMA would, inter-alia, be responsible for the appraisal of applications/ proposals, verification of eligibility for support, scrutiny of claims eligible for disbursement of incentive

Role of Good-Governance

Impact on Food output:

  • It is often observed, that increased spending in public infrastructure positively affects food manufacturing output. This correlation holds good in India too as higher investments are being concentrated in states such as Gujrat, Maharashtra, Tamil Nadu, Uttar Pradesh and Andhra Pradesh. These states have done fairly well and have been ranked amongst the highest by the Good Governance Index 2020-21, in the ‘Public Infrastructure and Utilities’ parameter with ‘Connectivity to Rural Habitations’ showing the highest improvement.
  • The logistics challenge of the supply chain is being taken care of by leveraging the existing PM-Gram Sadak yojana, BHARATMALA, and SAGARMALA schemes.
  • The long-run positive impact of public infrastructure on food output suggests its importance to the food manufacturing sector of continuous public infrastructure investment.

Impact of sales promotion on profitability:

  • For the exports market, it is an established phenomenon that sales promotion is positively related to increased sales volume, but inversely related to profitability. By balancing value-increasing activities with direct investment in advertising and sales promotions, businesses can prosper. To bridge this gap, of the 13 key sectors announced under the PLI scheme, the ‘Food Processing PLIS’ earmarks a dedicated Category 3 for supporting branding and marketing activities in foreign markets.
  • This ensures that India’s share of value-added products in the export’s basket is improved, and it may also help to increase its proximity to the untapped markets of Europe, the Middle East/West Asia, Africa, Oceania and Japan.

Easy access to working capital:

  • Pandemic has bolstered the market of functional foods and it is expected to provide a launch-pad for health-oriented start-ups and micro food-processing units. But access to capital, to MSMEs, has always been a problem in the country
  • Smart and easy financing through initiatives like MUDRA Bank, or Micro Units Development and Refinance Agency Banks hold the potential to overcome the problem of financing.
  • The sector also faces problems in terms of its ability to convert its trade receivables into liquid funds. To address this pan-India issue, setting up of and operating Trade Receivables e-Discounting System (TReDS) has been conceptualised. But this platform still requires considerable up-scaling and integration with the GST network e-invoicing portal.

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Challenges and opportunities of the food processing sector:

  • Bottlenecks in supply chain infrastructure
  • Insufficient connection between production and processing
  • Seasonality of operation
  • Low-capacity utilisation
  • Institutional gaps in supply chain
  • Lack of focus on quality and safety standards
  • Lack of efforts in product development and innovation.

Conclusion:

Processed food has immense export potential together with growing domestic demand, encouragement to it with proper marketing, latest technology and steady flow of raw materials from the farmers meeting specific quality standards at stable prices leads to greater development of the agriculture sector. Linking agricultural production to the market by bringing together the farmers, processors and retailers would substantially increase farmers’ income.

The policy should aim to create an environment that enables the uptake of technology, good practices, and improve access to infrastructure, services, and markets that minimize food loss and waste.

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