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Low credit, compliance cost, regulations – Challenges galore
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Tuesday, 07 January, 2025, 08 : 00 AM [IST]
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Ashwani Maindola, New Delhi
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The food processing sector in India has been identified as a sunrise sector by successive governments but still its full potential is yet to be realised. According to industry insiders, availability of affordable credit is a major roadblock for expansion of the value addition chain.
Though Union Government has introduced the Product Linked Incentive (PLI) scheme under which an investment of ? 8,910 crore has been made across 213 locations in recent times, it is found insufficient. So far only 36 food processing units are operational with 70 MSMEs directly enrolled and 40 others contributing as contract manufacturers for larger companies.
Another area that needed attention was policy intervention by the government in terms of taxation regime, which has been a long-pending demand by the food processing sector.
J P Meena, Former Secretary, Ministry of Food Processing Industries (MoFPI), says that there is a need to have a clear and state aligned National Food Processing Policy to provide a clear direction to the development process of the sector.
Inadequate flow of credit
"The sector suffers from inadequate flow of credit compared to the other lucrative sectors like consumer goods, automobile and electronics manufacturing. Warehousing, cold chain and supply chain logistics development are the other areas which need not only huge investment but also innovative technology intervention to support food processing," stated Meena.
Even in raw material availability there are challenges with regards to the scale of quality and quantity.
And, the absence of a strong and viable ecosystem of backward and forward linkages from farm to fork is another challenge before the sector. An expert feels that there is a need to infuse disruptive technologies in the value chain and marketing.
Arpita Mukherjee, Professor, ICRIER, explains that while over the years, the FDI regime has been liberalised and schemes like PLI have been implemented to help companies scale up, food processing sector continues to be dominated by MSMEs, who lack access to technology and do not have enough finance for innovation.
"The tax rates on food products are one of the highest in India. The schemes and policies are not aligned with global requirements. For example, there are no subsidies for third-party organic certification, which is costly, while there is a subsidy for self-certification," said Prof Mukherjee.
The compliance cost
Moreover, too many government agencies, with different laboratories and testing requirements and fragmented governance structure increases the compliance cost.
"Our survey of 69 companies in the turmeric value chain shows that they have to abide by FSSAI, Spices Board, APEDA and state government agencies requirements to name a few. High import duties on intermediaries make it difficult to have more value addition in India.
Besides, lack of knowledge on export market requirements increases the chances of product rejections. For some products there is a lot of confusion with respect to the claims regulation vis-a-vis the food fortification regulation.
For example, while we see Vitamin D fortified juices in the market, food fortification regulation of FSSAI only allows fortification of milk and oil," said Prof Mukherjee.
What industry needs?
The food processing sector needs a handholding and the government decision making needs to be more transparent and participative to be successful in implementation.
Meena says lack of adequate stakeholders consultation may lead to poor results or some time resistance in accepting the interventions, however, well intentioned they are.
The farm laws are a glaring example of this.
He opined, "The food processing policies and programmes need to give more weightage to States in their conceptualisation, design and implementation because State Governments are the real implementing agencies in the ground. The flexibility to states in implementation of the plans and programmes need to be an essential ingredient of the policy for state-specific interventions given the raw material production diversity in the country."
Regulatory structure
Further, experts feel that regulatory structure needs to be simplified.
Prof Mukherjee suggests that the governance structure should be made more simple, with a single regulatory agency for food export, import and domestic market.
She said, "The role of FSSAI should be strengthened and ideally the food safety authority should be the nodal agency for exports and imports. And if this is not possible, there should be one nodal agency for exports. Some good measures like the traceability system set up by APEDA should be replicated to other food products."
Besides, experts say that the Government need to reduce import duties on raw material and intermediate products. The ban on import of organic products should be removed as it makes it difficult to have more value-added products manufactured in the country.
Incentives and taxes should be linked to changes in global customer demand for healthier products and with rising micronutrient deficiencies, it is important to have policies to address deficiencies like Vitamin D deficiency and link it to food fortification and how it reaches the poorest of the poor.
One of the suggestions to the Government was while milk fortification is allowed, milk is not given through the safety net programmes. With rising incidence of diseases like rickets, there should be more food options through government programmes, which address the micronutrient deficiencies like Vitamin D deficiency.
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