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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