The food processing industry in India is increasingly seen as a potential source for driving the rural economy as it brings about synergy between the consumer, industry and the farmer.

A well-developed food processing industry can increase farm gate prices, reduce wastage, ensure value addition, promote crop diversification and increase export earnings.

However, food processing activity is still at a nascent stage in India with low penetration. The challenges for the food processing sectors are diverse and demanding, and need to be addressed on several fronts to derive market benefits.

Some of these challenges are: Inadequate infrastructural facilities; GST implementation; access to credit; lack of applied research; constraints on quality of inputs; and food safety laws.

Inadequate infrastructure

While the Indian national highways account for less than 3 per cent of the total network, they carry 40 per cent of all cargo, which puts a lot of pressure on the highways due to high traffic volumes, leading to delays in transit.

The normal distance covered by truck/trailers in India is 250-300 km/day, while the international norm is 600-800 km/day. Most roads in India are designed to carry a maximum gross weight of 16 tonnes, against 36 tonnes in the US.

Rail haulage network suffers due to lack of last mile connectivity from rail transporters, inefficiency due to monopoly in rail haulage, lack of availability of wagons, etc. The dependence on manual labour and low technology usage affects turnaround times at ports, including cost.

We need to:

Develop dedicated freight corridors in rail, supplemented by concretised dual carriageways for the State and national highways, which will directly reduce the cost of goods supplied.

Support private rail operators by providing access to infrastructure of Indian Railways at concessional rates, tax holidays for purchase of wagons and creation of rail terminals for cargo consolidation and aggregation.

Support development of organised strategic logistics hubs by helping in land acquisition and by providing tax incentives/tax holidays

Incentivise operators in setting up end-to-end logistics and warehousing.

Implementation of GST

The government should ensure timely implementation of GST to provide incentives to the food processing sector, while removing subjectivity in treatment and classification of various food products.

Some packaged foods, which are of daily necessities, should be classified at nil/lower rate of taxation.

The positive impact foreseen in GST is as follows:

Location of manufacturing plants would be determined on the basis of demand rather than tax implications.

This means total landed costs and infrastructure considerations would govern the location of manufacturing plants. This would thereby spur growth for infrastructure as well as transportation and logistics.

Distribution networks may undergo significant change, as with the onset of GST, companies would not require setting up warehouses in each State. Tax dynamics will no longer shape supply-chain networks.

Economies of scale and larger operations would be possible, and it would also enable the development of a hub-and-spoke system of delivery for outbound movements.

Disparities in taxes across States are expected to be removed and hence make India as one market, helping free movement of goods with minimum logistics resources spend.

Access to Credit

The Government should establish a national bank, on the lines of Nabard, or extend the scope of Nabard, to lend credit to food processing industries. This will ensure speedy disbursal of funds to the food processing sector, which is always grappling with the issue of lack of access to credit from banks.

State governments should play a catalytic role in partnership with banks, financial institutions, technical and management institutions and farmers’ groups, so that small and unorganised players become globally competitive.

Lack of applied research

Though several Central Institutes and State Agricultural Universities offer specialised courses on food technology and undertake applied research, most R&D institutions have not been able to develop innovative products, processes and machinery of a global stature, as reflected in India’s share in global trade.

The key reasons for this are segregation of academics from applied research, inadequate industry interface, low commercial orientation and lack of collaborative efforts with global peers.

Technology is still being imported for the establishment of large-scale, exported-oriented units for production of items such as even banana paste, concentrates of various fruit juices, sorting, cleaning, washing, waxing and packaging of raw fruits and vegetables.

India should move towards self-sufficiency in the above technologies.

Raw material production

We still have the issue of availability of the right quality of produce at the right time, including fruits, vegetable and rice.

The root causes of this include inadequate extension efforts, lack of precision farming practices, unclean harvesting methods, among other factors. We need to address all these issues in a holistic manner.

Food Safety Laws: The Government should ensure enforcement of the Food Safety and Standards Act (FSSA) in spirit, including increasing radically the number of trained inspectors and state-of-the-art lab facilities.

Given the objective of the FSSA and the mandated transparency, it is important that:

food authorities, scientific panels and scientific committees must be given defined tasks with specified objective of rule-making;

public and industry participation at an early date.

To fully leverage the growth potential of this vast untapped sector, the challenges being faced by the stakeholders in this sector need to be properly addressed, as there is a huge opportunity to increase prosperity from farm to fork.


Food processing needs a fillip in the form of better logistics, access to credit, technology indigenisation and implementation of food safety laws.


(This article was published in the Business Line print edition dated August 18, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.