On 31st March 2021, central government approved Rs 10,900 crore Production-linked Incentive scheme for food processing sector
. Through the scheme, the government intends to help farmers earn better prices and bring down the wastage of crops. According to the government, the scheme which is proposed for a period of six years will create 2.5 lakh jobs while attracting new investment in the sector. It said that as a result of the scheme, the food processing capacity of the country will increase to a level where India’s processed food
output will become worth Rs 33,494 crore by 2027.
There are four segments that have been covered under the scheme: ready-to-cook and ready-to-eat, processed fruits and vegetables, marine products, and mozzarella cheese. The announcement was followed by a spike in the share prices of the food processing companies. The industry also reacted to it in an upbeat demeanor. “The PLI scheme will be a game changer in boosting food processing investments, agri-exports, farmer incomes and in building Indian brands for the global market,” said ITC Chairman and MD, Sanjiv Puri in a statement.
For a sector that has been lagging behind in the global arena, the PLI is going be a great stimulant. This is important not only for positioning the Indian food processing companies in the global market but also for bringing about the much needed efficiency in the sector in terms of preventing wastage and enhancing storage capability. It would be interesting to see how the PLI scheme ameliorates the status of the industry in the key areas of infrastructure, food quality and safety standards and research and development. The task ahead is a herculean one given the fact that increasing the production is not the cure-all unless the quality and infrastructure is improved.
Investment in Plant & Machinery
One of the revolutionary initiatives in the direction of improving the infrastructure has been PM Kisan SAMPADA Yojana (PMKSY) which is a comprehensive package allocated to create modern infrastructure with efficient supply chain management from farm gate to retail outlet. The PLI scheme is going to boost it further as according to the requirements laid out, the selected applicant will have to undertake investment, as quoted in their application (subject to the prescribed minimum) in Plant & Machinery in the first two years i.e. in 2021-22 & 2022-23. This is an important mandate as otherwise a race could have started wherein the players would vie to get more output without improving the infrastructure. That could lead to rigorous and labor-intensive operation while turning a blind eye to operational enhancement options.
The machinery and equipment being used in the food processing industry in India is still very conventional and bold steps need to be taken in that area to transform it. Currently, in the industry, the few players that have adopted state-of-the-art machinery have mostly procured it from global companies that are based out of India. However, there are some players that have started making high quality equipment indigenously either on their own or in partnership with a global company.
The convergence of PLI scheme with other already running schemes for the sector is going to multiply the force. As per the release, the applicants covered under the proposed scheme will be allowed to avail services, wherever feasible, under other schemes and their coverage under the PLI Scheme will not impinge on the eligibility under any other scheme. Thus, the applicants will be able to benefit from the complete policy support cluster that has taken shape for the sector including those like PMKSY which are already running.
“We hope that the PLI dramatically increases value addition in the food sector, generates employment in agriculture, and boosts India's exports. HUL, as one of the largest food processing companies in India, is very thankful to the Govt. for making PLI a reality and will readily assist in making the scheme a success,” said Sudhir Sitapati from HUL ED Foods & Refreshment.
Strengthening Storage Infrastructure
According to an estimate, close to 67 million tonnes of food is wasted in India every year. The wastage amounts to around Rs 92,000 crores. Under PMKSY, the creation of infrastructure facility throughout the entire supply chain is covered. It entails pre-cooling, weighing, sorting, grading, waxing facilities at farm level, multi product/multi temperature cold storage, CA storage, packing facility, IQF, blast freezing in the distribution hub and reefer vans, mobile cooling units for facilitating distribution of horticulture, organic produce, marine, dairy, meat and poultry etc.
For a sector that has been lagging behind in the global arena, the PLI is going be a great stimulant.
Apart from the equipment, there are infrastructure concerns related to storage which demand an efficient cold chain infrastructure. It is not sufficient to have just cold storage capability, rather there is an equal need for several things along the chain like refrigerated transport, pack houses, collection centers, and cold storage. Only then can one be assured that the perishable or non-perishable food item will not be wasted. This applies for both active and passive cold storage that are for perishable and non-perishable items respectively. The PLI enabling this field will go a long way in changing the face of food processing industry. It will also create a market for cold storage solution providers which will be helpful especially for those who cannot build the capability upfront.
Lack of availability of raw material
Agriculture being devoid of proper mechanization results in perishing of the food item by the time it reaches the processing center. The delay in supply causes the produce to be left high and dry. For a sector that relies on adding value to the raw material and keeping it storable, it is unaffordable. This brings in the farmers and their ecosystem into the picture. The reverberation of the PLI scheme is bound to reach the farmer’s end as it would percolate through the chain.
Some of the other challenges inflicting the sector are lack of skilled manpower and streamlined regulatory model. We will have to wait and see how it changes through such schemes.
“While the initiative paves the way for many Indian brands to go global, it will also generate sizeable employment opportunities in the sector. Overall, a step forward in building an Atmanirbhar Bharat, said Britannia Industries Managing Director Varun Berry.
Beyond PLI: Boosting R&D
The PLI scheme has been launched under the umbrella initiative of Aatmanirbhar Bharat. While the steps taken are aiming at making India a hub of food processing in India, it is important to understand that it can be done only by reinforcing the R&D capability. The focus on quantity of production will only take us on the path of temporary dominance in terms of export but lack of quality enhancing initiatives will render it impossible for the food processing sector to build on its strengths and rise in prominence.
Production-linked focus without an eye on quality will take us in the direction where we might hold a decade of ascent but will gradually fade out as other destinations emerge with better offering. This is exactly what is happening in the case of China where its production-led focus made it a manufacturing hub, and it may enjoy the status for a decade or so but will gradually lose its tag of manufacturing hub to India or some other country.