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Food processing: Government initiatives

Nov 23, 2007

Licenses: The Indian government has abolished licensing for almost all food and agro-processing industries except for some items like alcohol, cane sugar, hydrogenated animal fats and oils and items reserved for the exclusive manufacture in the small scale industry (SSI) sector. This has resulted in a boom in the FMCG market through market expansion and greater product opportunities.

Taxes: To further aid the segment, the government has announced a liberal corporate tax policy for export and domestic earnings. Income tax rebate has been allowed (100% of profits for five years and 25% of profits for the next five years) for setting up of new agro-processing industries to process and package fruits and vegetables (F&V). Export earnings are exempted from corporate tax. Various states governments like Himachal Pradesh, Uttaranchal and Jammu & Kashmir have encouraged companies to set up manufacturing facilities in their regions through a package of fiscal incentives. The move towards uniform VAT has also been considered.

Excise and custom duties: Quantity restrictions on all food products have been removed. Peak rate of customs duty has been reduced from 30% to 25% (excluding agricultural and dairy products) and duty structure on designated items has been rationalised. The import of food processing machinery is allowed freely with low levels of duties. Import of capital goods for exports of agricultural products and their value-added variants under the Export Promotion Capital Goods (EPCG) is allowed duty-free and Foreign Technology Agreement within norms has been made automatic. This opens up huge opportunities for large investments in food and food processing industries in different fields including up gradation of technologies, improvement of skills with installation of modern machinery and equipment, especially in areas of canning, dairy plants, specialty processing.

Food laws: Consumer protection against adulterated food has been brought to the fore by the Prevention of Food Adulteration Act (PFA), 1954, which applies to domestic and imported food commodities and encompasses food colour and preservatives, pesticide residues, packaging, labeling and regulation of sales.

Food parks: In a bid to boost the food sector, the Government is planning to set up agri zones and mega food parks. 30 such mega parks are coming up across the country in various cities to attract Foreign Direct Investment (FDI) in the food-processing sector. Each food park will have a cold storage facility, apart from facilities for sorting, grading, food processing, packaging and quality control and R&D laboratories, among other things. The government has already identified five locations in Maharashtra, Andhra Pradesh, Punjab and Jharkhand and one in the North-East region. It is also planning to set up 30 food parks across the country.

To conclude...
The government has acted as a catalyst for developing a vibrant food-processing sector. It aims to create increased job opportunities in rural areas, enable the farmers to reap benefits from modern technology and stimulate demand for processed food. Its active involvement is creating a conducive environment for healthy functioning of the industry. Policies are now promoting the participation of private investors that would promote efficiency in food processing and agriculture marketing systems going forward.

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