Food Processing Industry: Issues and Developments

Unlock India’s food processing potential

Note4Students

From UPSC perspective, the following things are important :

Prelims level : PLIS

Mains level : Paper 3- Food processing industry in India

Context

One of the largest producers of fruits and vegetables in the world to boost processed food in large quantities, India has formulated a unique Production-Linked Incentive Scheme (PLIS) which aims to incentivise incremental sales.

Progress made so far

  • A sum of ₹10,900 crore has been earmarked for the scheme.
  • Beneficiaries have been obliged to commit a minimum investment while applying for the scheme.
  • Under Category 1, firms are incentivised for incremental sales and branding/marketing initiatives taken abroad.
  • Assuming the committed investment as a fixed ratio of their sales and undertaking execution of at least 75% of the projects, the sector is likely to witness at least ₹6,500 crore worth of investment over the next two years.
  • New alternatives are being explored which have immense potential in replacing the staples of rice and wheat in the form of Nutri-cereals, plant-based proteins, fermented foods, health bars and even fresh fortified foods for pets.
  • By welcoming the new brands in the category, PLIS aims to create an enabling ecosystem for innovation in both food products and processes.

Way forward

1] Improve infrastructure

  • A study in the United States concluded that a 1% increase in public infrastructure increased the food manufacturing output by 0.06% in the longer run (https://bit.ly/3rOeE0l).
  • This correlation holds good for India too as a higher investment is being concentrated in States such as Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu and Uttar Pradesh.
  • These States as reported by the Good Governance Index 2020-21, ranked among the highest in the ‘Public Infrastructure and Utilities’ parameter with ‘Connectivity to Rural Habitations’ showing the highest improvement.

2] Improve profitability in export

  • For the exports market, it is now established that sales promotion is positively related to increased sales volume, but inversely related to profitability.
  • To bridge this gap, of the 13 key sectors announced under the PLIS, the ‘Food Processing PLIS’ earmarks a dedicated Category 3 for supporting branding and marketing activities in foreign markets. 
  •  This ensures that India’s share of value-added products in the exports basket is improved, and it may leverage on its unique geographical proximity to the untapped markets of Europe, the Middle East/West Asia, Africa, Oceania and Japan.

3] Access to credit

  •  The access of micro, small, and medium enterprises (MSMEs) to finance is a perennial problem in the country, predominating due to a lack of proper credit history mechanism for MSMEs.
  • Smart financing alternatives such as peer-to-peer (P2P) lending hold potential for micro-food processors.
  • Access to working capital has in theory been addressed by the Trade Receivables Discounting System (TReDS), a platform for facilitating the financing/discounting of trade receivables of MSMEs through multiple financiers.

Conclusion

With growing populations, changing food habits and unrestricted use of natural resources, nations must come together and lay out a road map for a common efficient food value chain.

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