2018 Budget offers support to food processing

While India has focussed on generating crop yields for the first fifty years of independence, the next phase of expansion has to come from the processing, storage and distribution of crops and grains, which in turn will be the key to sustainability

February 2, 2018

Finance Minister Shri Arun Jaitley has made special provisions in Budget 2018 for a variety of schemes designed to support downstream agricultural activities

India has announced an outlay of US$218 million for the food processing industry to support and set up related institutions and fund agro–processing capacity

The Budget has allocated an additional US$78 million for “Operation Greens” to support the setting up and management of farmer-producer organisations (FPOs)

The Government has also announced a plan to raise the minimum support price (MSP) of crops by 1.5 times that of the cost of production to help farmers

As part of an ongoing reform and overhaul of the agriculture sector in India, Union Finance Minister Shri Arun Jaitley has made special provisions for a variety of schemes designed to support downstream agricultural activities and provide better returns on their produce for the farmers. Given the nature of dependency on agriculture that most Indians share, and the size and scale of the interventions that are often required, the role of the Indian Government must be appreciated for the complexity it faces when making decisions around agriculture.

Agriculture supports more than 50 per cent of India’s workforce, directly or indirectly. So any policies that are framed and govern them have a significant political economic sensitivity factor built into them. It is the stated objective of the Indian Government to focus on ensuring better returns for farmers post-harvest so as to ensure more cash is available to those who depend solely on agriculture for their livelihood. While all Governments have focussed on generating crop yields for the first fifty years since independence, the next phase of expansion has to come from the processing, storage and distribution of crops and grains which in turn will be the key to sustainability. And it is here that the Finance minister has focussed on the 2018 budget.

Food processing gains in Budget 2018

As part of the Union Budget 2018, the Central Government has announced three major initiatives targeting the downstream food sector:

    • Under the first one, the Government has announced an outlay of US$218 million for the food processing ministry to support and set up institutions and fund agro–processing capacity. Furthermore, to enable crop rationalisation and to promote cluster-based farming, the Government has proposed to reorient schemes to achieve better returns. In his speech, the finance minister highlighted that the food processing industry is growing at an annual rate of 8 per cent every year and that it was the stated intention of the Government to ensure budgetary support to set up mega food parks, develop infrastructure to cater to cluster farm processing, integrate cold chain facilities and set up forward–backward linkages.
    • Out of the total committed figure of US$218 million, a sum of US$205 million will be allocated to the Pradhan Mantri Kisan Sampada Yojna (PMKSY) scheme. The monetary support will be in the form of a grant. The balance will be provided to the Indian Institute of Food Processing (IIFPT) and National Institute of Food Technology and Entrepreneurship Management (NIFTEM) for research and managerial support.
    • Apart from the above budgetary support, the second big initiative that Mr Jaitley announced was the allocation of an additional US$78 million for “Operation Greens”. This is designed to provide monetary support in the setting up and management of  farmer-producer organisations (FPOs). There platforms will encourage efficiency and modern distribution management to keep a check on food price volatility. As a step further, he announced that any FPO with an annual turnover of US$16 million will be fully exempt from taxes incurred for a period of five years starting from the 2018–19 financial year.
  • The third major initiative that the Government has focussed on is in direct benefit of the farmers. A plan has been announced to raise the minimum support price (MSP) of crops by 1.5 times that of the cost of production. This proposal will be spearheaded by the NITI Aayog, a policy think tank of the Government of India, in consultation with the State and Central Governments. The idea is to create a foolproof mechanism to ensure that farmers get a just and effective rate for selling their produce. To that end, the Government will put in place systems and policies that will use modern management techniques and encourage FPO’s and other logistical methodology to benefit the farmers. This dovetails in with the earlier two initiatives that have received planned allocation of funds in the 2018 budget.

Apart from these three major outlays and initiates, the Government has also helped the farming sector by tweaking and rationalizing customs and import duties on a variety of processed food products so as to enable a level playing field for the farm-to-food sector. The initiatives will boost capacity and encourage entrepreneurial and investment activities in the food processing industry, which is expected to be a major income and job generator in the years to come.