Big thrust
Ministry push for creating a favourable fiscal environment
Rabo Bank study to serve as guidebook

Vinod Mathew

Mumbai, Feb. 27

The Ministry of Food Processing Industries (MoFPI), in a bid to remove constraints in the way of investments in the sector, is set to push for creating a favourable fiscal environment to induce venture capital and mutual funds to invest in different components of supply chain or in the entire chain.

This follows the recommendations of a Rabo Bank study commissioned by the Ministry to unlock investments to the tune of Rs 1,50,000 crore in this sector over the next 10 years.

Some announcements to attract investments from big business houses are expected in the forthcoming Budget.

However, glitches such as whether investors should be granted exemption from income tax on the interest income and on long-term capital gains on investments in food processing remain to be ironed out.

Segment-specific moves

MoFPI's vision document, it is understood, has identified segment-specific fiscal and other initiatives that the Government ought to take to improve the competitiveness of agriculture in general and food processing in particular to capture export markets.

And it is not without reason, as Rs 2,80,000 crore of the Rs 8,60,000-crore food market in the country comes from the processed food industry.

Of this, the value-added processed food market accounts for Rs 1,80,000 crore.

Given that the dairy industry witnesses 35 per cent value-addition against a measly 2 per cent in the case of fruits and vegetables, it is not difficult to understand the eagerness of cash-rich business houses to enter this sector.

The Rabo Bank document prepared on behalf of MoFPI spread over two volumes is expected to serve as guidebook in the Ministry initiatives in this sector.

The draft document titled `Vision, Strategy and Action Plan' points out that Indian agri-business supply chain is highly fragmented with independent players engaged in various value-addition activities such as input supplies, processing and retailing.

"This is unlike in other agriculture producing countries, where a large number of food companies are integrated across the chain. For example, Archer Daniels Midland Company, Cargill, Tyson Foods are present across the supply chain in agricultural inputs, procurement, transportation and storage of produce, processing and value addition," the document says.

Industry sources point out that though several multinationals such as Cargill have set up subsidiaries in India, they have remained lukewarm or indifferent to the idea of creating economies of scale in the entire value chain, just as big Indian business houses have done.

The slow pace of reforms in agriculture and allied sectors has acted as dampening factor.

Clear-cut policies

Without clear-cut policies, no industrial house would like to sink thousands of crores in creating world-class supply chain that would benefit farmers as well as consumers and create thousands of jobs, industry sources say.

The five-year tax holiday under Section 80-IB of the Income Tax Act is currently available to new fruits and vegetable processing units and to integrated business of handling, storage and transportation of food grain.

This leaves out other components of supply chain such as seed breeding, packaging and retailing. Similarly, tax holiday under Section 80-IC of the Act can be availed of by specified agro-based and food-processing industries located in hilly States. This concession should extend across the country, it is being reasoned.

In a recent presentation, the Ministry listed inefficient supply chain leading to involvement of middlemen and high taxation and packing costs as major hurdles in the sector taking off.

(This article was published in the Business Line print edition dated February 28, 2006)
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