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BUDGET

Food processing seeks hike in budgetary allocation in forthcoming Budget
Tuesday, 16 February, 2016, 08 : 00 AM [IST]
Ashwani Maindola, New Delhi
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With expectations riding high but credit flow taking a dip in the last one year in the sector, the ministry of food processing industries (MoFPI) is anticipating a budgetary hike by ministry of finance in the coming fiscal.

In this regard, Sadhvi Niranjan Jyoti has stated that her ministry has urged the prime minister to increase the budgetary allocation so that they are able to tap the opportunities in the sector. “We have implemented the skill development in food processing sector programme in 11 states and to further enhance the possibilities of the sector we need more budget,” she explained.

While the ministry is doing its bit, the industry is of the opinion that growth will depend upon how the government secures passing of GST (Goods & Services Tax) bill through Parliament. According to P K Jain, chairman, Assocham Food Processing And Value Addition Council, the key reform depends on the passing of GST and the single bill has the potential to not only drive the sector but lift the whole economy.

Growth-friendly tax
Moreover, industry bodies are expecting growth-friendly tax policies, greater clarity in laws, consistency in implementation and interpretation of tax laws, overhauling of administrative and dispute resolution machinery amongst others. Further the industry chambers urge the government to give impetus to the Make in India campaign.

Meanwhile, GDP, which is expected to go up to 7.6 per cent in 2015-16 as against 7.2 per cent in the corresponding period last year is noteworthy and indicates that the Indian economy is at the threshold of a cyclical upturn, observe industry chambers. Primarily, they say that the government has taken a host of measures to provide a new direction to the economy and therefore economic conditions would improve in the coming quarters and new growth opportunities would emerge once the reform initiatives announced by the government take root.

CII feels that it looks forward to a reform-centric budget which would put in place bold measures to remove supply bottlenecks and in turn spark a virtuous cycle of investment and growth. This essentially depends upon the passing of the GST Act.

Dr A Didar Singh, secretary-general, FICCI, states, “GDP estimates released for the year 2015-16 indicate that economy is firmly holding on to the recovery course. Reform measures taken over the past 18 months have put the economy on the growth trajectory. The improvement expected in the agriculture and manufacturing sectors in the current fiscal is encouraging. Some moderation has been reported in the other key sectors of the economy and we do hope to see a turnaround in near future. However, the monthly IIP data which is an indicator of industrial performance remains volatile, which is a matter of concern.” Further, “going ahead, we hope to see a continued momentum on the reform front. We look forward to the Union Budget giving a positive direction to the economy. The focus should clearly be on introducing measures to further boost domestic investments and demand,”added Dr Singh.

According to FICCI, on the agriculture front, the announcement to create a Unified National Agriculture Market was significant. Move towards a single national market for agri-produce will help rein in the inflationary pressure in case of food commodities.

It says in pre-Budget memorandum submitted to the ministry of finance, agricultural commodities are very large and diverse in nature it would be impossible for a single entity to deal with the complexities and the scale involved e.g. fruits & vegetables, grains, oilseeds and pulses, would each require different marketing channels and infrastructure. Similarly, cotton, spices, edible nuts, copra and rubber would require having different structures. And that need modern and efficient agricultural marketing structures.

On procurement and stock management of food grains by private sector entities, FICCI states that to promote efficiency in procurement operations the Government of India has recently announced a new policy of engaging private sector players for eastern states. The same should be extended to other regions and states. In respect of pulses and oilseeds while FCI / NAFED may continue to be the nodal agency, all procurement operations should be allowed with the participation of the private sector organised entities. Along with procurement under MSP, credible private sector entities should also be outsourced for stock management services to improve efficiencies and ensure improved quality of preservation of food grains.

For food processing industries, FICCI had asked for extension of concessional rate of excise duty on capital goods for food processing industry. Vide Notification No 12/2104 C.E. dated July 11, 2014, concessional rate of excise duty has been provided for process / packing machinery used in the manufacture of agricultural / apiary / horticultural / dairy / poultry / aquatic / marine produce and meat. While the food processing industry welcomes the above initiative which will help reduce the capital cost, a large portion of processed food industry which deals with basic essential packaged foods for common man such as staples, biscuits and so on are deprived of the benefit of concessional rate of excise duty on process / packing machinery.

Organised packaged food processing industry procures substantial process / packaging machinery and this discrimination within the same industry is inequitable. It is recommended that concessional rate of excise duty on process / packing machinery be extended to the entire food processing industry instead of limiting the same to certain sectors within the industry.

Further, FICCI urged the finance ministry for reduction in customs duty on food processing machinery & equipment. It says in its memorandum, India has a high rate of import duty on plant machinery required for food processing industry as compared to other countries in the region. The industry though being large is still in a nascent stage of development. In India, only 2.2% of the total foods and vegetables produced are processed as compared to 65% in US and 23% in China. Penetration of processed food industry is low in India, 5-6% of all food items with sufficient head room to grow. Food processing is essential to avoid wastage of food, currently 40% of food and vegetables perish due to lack of processing facilities. The industry has a huge potential for employment generation. The industry is largely unorganised with relatively low levels of processing and value adds. At present customs duty on food processing machinery and their parts is very high, ranges from 22% to 28%. Therefore it is requested to exempt plant and machinery for food processing sector which will go a long way in promoting growth of the food processing industry.

PHD Chambers in its budgetary proposal states, the food processing industry contributes almost 7% of the country’s GDP and 10% of the manufacturing sector. A developed food processing industry would, increasingly fetch remunerative income to farmers. The multiplier effect of investment in this industry on employment generation – at 2.5 times - is higher than any other sector. The sector employs about 13 million people directly and about 35 million people indirectly and serves as a vital link between the agriculture and industrial segments of the economy. Strengthening this link is of critical importance to reduce waste of agricultural raw materials, improve the value of agricultural produce by increasing shelf-life as well as by fortifying the nutritive capacity of the food products, ensure remunerative prices to farmers and enable affordable prices to consumers.

The processed food market in India is, therefore, at a fairly nascent stage of development with low penetration and high potential. As much as 70% of the current food spending by the Indian consumer is on agri-products. Additionally, two-thirds of this spending is on primary and secondary processed products. However, the processed foods industry in the country is heavily taxed by way of VAT, entry tax, octroi, etc. even though the Central government has either exempted these goods from excise duty or subjected them to a nominal excise duty of 2%. The cumulative incidence of taxes along with increased transportation and distribution costs makes these processed food items, which form the daily food consumption basket of the consumer, more expensive. It is also noteworthy that over 74% of the food processing industry is in the micro, small and medium industries category and any increase in cost of manufacture cannot be borne by these industries and is, normally, passed on to the end consumer. Input costs of packaging materials have increased tremendously in the recent years. This coupled with the high incidence of excise duty on packing materials such as Printed Laminates and pet jars which currently attract 12.5% excise duty, is posing an additional burden on the food processing industry. The food processing industry is not growing at the same pace as was witnessed in the previous years. In fact, the industry growth has been only at 9% in 2014-15 as compared to 12% in 2013-14.

Suggestions
In view of the above, it is suggested that the existing exemptions extended to food processing industry (either in the form of Nil rate of duty / 2% rate of duty) may be continued. Further, the government may find it appropriate to provide some relief by reducing excise duty on packaging materials used in the food industry - printed laminates (Chapter Heading 3920 / 3921 / 3922 / 3923), Pet Jars (Chapter Heading 3923), from 12.5% to 6%.

It also suggested increase in Excise Exemption Limit for biscuits from Rs 100/kg (MRP) to Rs 125/kg (MRP). At present lower priced-biscuits (i.e. biscuits sold at a MRP equal to or less than Rs 100/kg) enjoy an exemption from Central excise duty. The exemption was granted in the Year 2007 taking into consideration that lower priced biscuits are a healthy, hygienic, safe and nutritious staple intended for mass consumption by the lower income strata of the society.

PHD further says in its recommendations that there should be extension of concessional rate of Excise Duty on Capital Goods for food processing industry. It was suggested that concessional rate of excise duty on process / packing machinery be extended to the entire food processing industry instead of limiting the same to certain sectors within the industry.

It explains that vide Notification No 12/2104 C.E. dated July 11, 2014 concessional rate of excise duty has been provided for certain sub-sector and while the food processing industry welcomes the above initiative which will help reduce the capital cost, a large portion of processed food industry which deals with basic essential packaged foods for common man such as staples, biscuits and so on are deprived of the benefit of concessional rate of excise duty on process / packing machinery. Organised packaged food processing industry procures substantial process / packaging machinery and this discrimination within the same industry is inequitable.

Further, it suggested that in case of hotels, all bakery and confectionery items may be exempted from excise duty. Alternately, an exemption from excise duty for a turnover limit of Rs 3 crore – computed on the basis of the turnover of the excisable products of each unit having separate registration number, instead of the total turnover of the hotel or the company – may be prescribed.

Assocham in its recommendations say that the existing exemptions extended to food processing industry (either in the form of Nil rate of duty / 2% rate of duty) should be continued. Government should appropriately reduce excise duty on packaging materials used in the food industry- printed laminates (Chapter Heading3920 / 3921 / 3922 / 3923), Pet Jars (Chapter Heading 3923), from 12.5% to 6%. Further, It is recommended that concessional rate of excise duty on process / packing machinery be extended to the entire food processing industry instead of limiting it to only certain sectors within the industry.

It urges the ministry of finance to increase time limit for excise exemption from 10 years to 15 years in the states of Himachal Pradesh / Uttarakhand. It explains that It is recommended that the existing exemption period of 10 years from the date of Commercial Production be extended to a period of 15 years from the date of Commercial Production. This will encourage further investments, sustain improvement of the local economy and employment prospects and also provide an opportunity to optimise the investments that have already been made in these industrially backward regions.
 
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