BUDGET EXPECTATIONS-INDUSTRY SPEAKS

Like a ritual every year the Finance Ministry consults various stakeholders in Indian economy for getting new ideas while formulating the annual budget though very few suggestions find they way in the eventual budget when it is presented. Besides many individuals and organizations express their unsolicited views, pleas and ideas, probably with good intention. This years budget, scheduled for placing before the Parliament in the first week of March, is also going through the same routine and what is going to come out remains to be seen. FICCI, the apex body that represents the entire manufacturing sector has sought several fiscal measures to strengthen the food processing industry, most of which seems to be reasonable and justified. Here is a take on the demands being made by this industry body to the government on the eve of budget presentation this year.   

"With regard to the food processing sector, on top of the FICCI agenda is reduction in the current 10 per cent rate of central value-added tax (CENVAT) on a number of categories of items produced by the sector. Further, FICCI wants the finance minister to put packaged drinking water, a common man's product, in the nil category, and exempt biscuits from VAT, or at least lower the rate of VAT on them. It opines that a total macro view is necessary instead of focusing on the revenue-generating potential of levying excise duty on products. But if the government is unable to do away with the excise duty completely even after taking the revenue aspect into account, it must reduce the excise duty in a calibrated manner. This, it says, should be done in two phases: it should be brought down to four per cent in the first phase and reduced to zero in the second. FICCI believes that biscuits should be treated as merit goods and therefore be secured in a more rational manner, as is done in the case of bread. After all, biscuits are a product of mass consumption across India and cut across all economic groups and geographical boundaries. They are eaten in larger quantities in the rural areas of the country and the brands that are sold at lower price points find more takers in the lower-income group". 

One of the perennial demands of food processing sector has bee to make this industry zero tax sector with the sole intention of making processed foods cheaper, affordable and acceptable to larger segment of the population. But such sensible pleas have met with stubborn refusal by the government which is more concerned with revenue generation than the welfare of the industry as well as the consuming public. Imagine the potential for the food industry to grow fast and on an exponential pace, if the price of the products is reduced dramatically through removal of all taxes! Think about the benefits the country can derive in the agri-horticulture sector and employment creating opportunities through such a fiscal measure! To some extent the government deserves applause for its progressive tax abating policies on packaging materials which contributed to dramatic expansion of small packs market in the country with thousands of foods available to low income consumers at prices as low as Re 1 to Rs 5 per pack. Same enlightened policy is necessary for bringing out the full potential of the food industry by expanding their reach into small income groups of population through reduction in prices through zero taxation.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

A DEDICATED "SPV" FOR FOOD SECTOR?-INDUSTRY BODY'S SUGGESTION

India is a country where there are hundreds of government institutions vested with different functions and responsibilities. Of course after the economic liberalization initiatives in early nineteen nineties, government role in industry development diminished some what though it still had the critical role of policy orchestration to facilitate the growth of various activities that contribute to the national GDP. The birth of Ministry of Food Processing Industry also owes its existence to the new initiatives at that time and is based on the premise that value addition to agricultural crops is the surest way to generate employment in the country. Now that, in spite of the high voltage proclamations of this ministry from time to time, the food industry does not seem to have emerged as a major economic player in the country's developmental trajectory. The industry body FICCI has now come out with a new proposal to create another Special Purpose Vehicle (SPV) to facilitate flow of credits to food processing sector which is claimed to be starved of funds from nationalized banks due to conservative credit policies pursued by them.

"Identifying food processing as a sunrise sector, industry body Ficci has recommended setting up a bank on the lines of the agriculture cooperative, Nabard, and promoting contract farming to boost growth. "The government should establish a national bank on the lines of Nabard to lend credit to food processing industries whose tremendous potential remains untapped," a Ficci report said. The bank will ensure speedy disbursals of the funds to the sector grappling with the issue of lack of access to credit from banks, Ficci said on the basis of a comprehensive survey. Survey-2010 on bottlenecks in Indian Food Processing Industry was conducted on 250 companies. To overcome the long and fragmented supply chain, contract farming can emerge as a significant opportunity for companies, whereby they can create direct farm linkages to source appropriate quality, quantity and varieties of inputs, the report said. It also recommended opening up multi-brand retail to bring in more global investments in the infrastructure and logistics domain. "Multi-brand retail is an easier way of creating ideal environment for the use of modern logistics infrastructure like transportation, hubs, IT, cold chain," it commented. Ficci, which works closely with the government on policy issues, observed that despite food and food products forming the largest consumption category in India involving 21 per cent of the country's gross domestic product, its growth potential remains untapped. Notwithstanding government undertaking several steps, including rationalisation of food laws, setting up mega food parks and allowing 100 per cent FDI in the food processing & cold chain infrastructure, the sector continues to be at a nascent stage, the report said".

NABARD, an institution created for funding agricultural activities has been functioning for decades but does not seem to have improved the lot of farmers dramatically as reflected by rash of suicides of farmers in different parts of the country. Its much touted Kisan Credit Cards provided to over 71 million farmers and over 28000 farmers Clubs in 555 districts are supposed to be a safety net for the rural families but how far these programs have been able to fulfill the original objectives of NABARD is debatable. If this system had worked properly what was the necessity for GOI to write off billions of rupees of loans given to the farmers during its last budget? Before creating another institution like NABARD for exclusive credit flow to food processing sector, GOI must make a review of the functioning of this agency. NABARD is also supposed to be offering credit to small scale food industries in rural areas, though it does not seem to have made any impact.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com

"REDISCOVERING" OF OLD BOTTLENECKS! -INDIAN FOOD INDUSTRY "WOES"

What ails Indian food industry is a fascinating topic and umpteen number of seminars, conferences, workshops and symposia have taken place during the last 6 decades touching on every conceivable issues that deserves attention. It not that those who are at the helm of affairs do not know the constraining factors coming in the way of fuller development of the food sector but it is just an administrative gridlock that does not allow any focused, time-bound and sustained action to be taken to address these problems. Food industry development has become a game of "charade" between the industry captains and the government and some time it appears like a dialog between two deaf persons each not wanting to understand the other! An entirely new ministry was set up at Delhi for promoting and protecting the industry, billions of rupees have been doled out as subsidy and stimulus for new entrepreneurs, food parks have been set up and a brand new food institute is taking shape to help the industry. Still FICCI is saying that all constraints that plagued the food industry growth five decades ago, are still challenges to day!

"The pan-India FICCI Survey, which was conducted across the entire value chain, reaching 250 companies with 125 responses received, has identified 15 "key challenges". The top five challenges identified by the the survey through a weighted response approach are: inadequate infrastructural facilities, lack of comprehensive national level policy on food processing sector, food safety Laws, inconsistency in central and state policies and lack of availability of trained manpower. Apart from the aforementioned major challenges hampering the growth of the sector, the respondents also identified constraints in raw material production, taxation, access to credit, processing plants with obsolete technologies, lack of applied research etc as other major challenges for the growth of food processing sector".

If one listens to the minister looking after the food industry portfolio, India has already become the "Food Bowl" of the world. Of course 17 million tons of the wheat under government custody are still rotting forcing the Supreme Court to "direct" the GOI to distribute the same free to poor people. What prevented the GOI to involve the food industry in saving the precious grains from rotting? Where was FICCI when it was known last year itself that the country did not have adequate storage capacity to take care of surplus grains? If GOI can think of large scale storage of petroleum products as a part of national security, what prevented it from creating a food security driven large grain storage complexes in the country? Technologies for long term safe storage of food grains are already available in the country. One can only hope that FICCI is more forceful this time in convincing the GOI for taking up its suggestions on an urgent priority and create a more favorable climate for investment in food processing.

V.H.POTTY

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http://foodtechupdates.blogspot.com

RETAIL BUSINESS-NEW THOUGHTS ON CHANGING THE POLICY

Retail business in India is dominated by millions of small grocery shops, mostly owned by families, trying to earn a livelihood and many of them are inherited business entities with vast experience in material sourcing and friendly consumer oriented approach. Not being exposed to modern management technology, they are often blamed for "not keeping with time", opening up opportunities for large investors to set up retail chains with regional and national foot prints. During the last two decades since the opening up of the economy several national retail chains had sprung up co-existing with the small bit players. GOI policy so far has restricted foreign investments in retailing for multi brands, supposed to be for protecting the unorganized sector from annihilation. There is a rethink on this score is reflected by the recent consultation meetings on the subject at Delhi.

"Apart from representatives from Icrier, Ficci and CII and Confederation of All India Traders, among others, the meeting was attended by an under secretary-level from the Department Of Industrial Policy and Promotion (DIPP) that released a discussion paper on opening up multi-brand retail to foreign investors. A person present at the meeting said a major issue on the agenda was discussion on ways to reduce the difference between farm-gate and consumer prices. The ministry has the industry's views on this. Economists believe opening foreign direct investment (FDI) in multi-brand retail is likely to help lower the prices of food products by reducing wastage and direct sourcing from farmers. The consumer affairs ministry sought industry and DIPP views on what are the issues in traditional retail and what can be done to address these issues. It said the govt would have a nationwide discussion on this soon. Covertly, the discussion relates to FDI in multi-brand retail. The govt is keen to allow foreign players in food grain retail also, as the leakage in PDS has become a pain in its neck. The ministry asked attendees' views on how to modernise the existing (traditional) retailers and bring them under the organised bracket so that leakages in PDS can be reduced. The industry said the suggested retail promotional board should be formed, which can train small retailers and make them understand the benefits of modern retail and also make them technology-friendly and thus transparent. "It is very positive that the government has started discussion of opening up FDI in multi-brand retail".

It is true that very little has been done to upgrade the skills and capabilities of small traders besides raising awareness amongst them about their social responsibility. The National Small Traders' Association is supposed to have a training program for these traders precisely to train them to face the competition from the retail giants expected to be a standard fixture in Indian retail landscape sooner or later. How far the program is effective, practical or successful is not known. Probably GOI must direct its attention to small traders for enabling them to modernize their operations and make them more viable and stable.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com