Micro food processing units get new policy support

The Government of India is looking to further opportunities in the agri and food processing space with a new centrally-sponsored scheme - the Scheme for Formalisation of Micro food processing Enterprises (FME) for the unorganised sector

June 25, 2020

The Indian processed food industry, valued at around US$543 billion in 2020, is expected to grow to US$958 billion by 2025.

The FME scheme, with an outlay of Rs.100 billion, will be funded by the Central Government and States at a share of 60:40.

800,000 micro-enterprises will benefit under FME scheme through access to information, better exposure, and formalization.

There are 2.5 million unregistered food processing enterprises, or 98 per cent of the sector, that are unorganized and informal.

Micro food processing units get new policy support

India, one of the world’s leading suppliers of agricultural and food products, has consistently expanded its offerings and global market on the back of rising capacity and abilities as well as improving policies and regulations. As a result, the Indian processed food industry, valued at around US$543 billion in 2020, is expected to grow to US$958 billion by 2025. This growth is also supported by increasing investment in farming, allied infrastructure, skill development, and other resources. These activities have led to India emerging as an indispensable part of the global food value chain – a key advantage. Apart from the rising number of local food companies, foreign brands are increasingly competing for a stake in the domestic consumer base, while also raising export from India owing to high-margin and high-quality capabilities. Now, the Government is looking to further such opportunities with a new centrally-sponsored scheme – the Scheme for Formalisation of Micro food processing Enterprises (FME) for the unorganised sector.

Objectives of the FME Scheme:

  • Improvement in access to finance by micro food processing units.
  • Increase in revenues of target micro food processing enterprises.
  • Enhanced compliance with food quality and food safety standards.
  • Strengthening capacities of support systems within the food sector.
  • The transition from the unorganized food sector to the formal sector.
  • Special focus on women entrepreneurs and Aspirational districts.
  • Encourage Waste to Wealth activities as allied to food processing.
  • Focus on the processing of minor forest produce in Tribal Districts.

Features of the FME Scheme:

  • Expenditure to be shared by the Government of India and States at 60:40.
  • 200,000 micro-enterprises are to be assisted with credit-linked subsidies.
  • The scheme will be implemented over the period of 2020-21 to 2024-25.
  • The scheme will employ a cluster approach in developing capabilities.
  • The scheme will focus on perishables to support the agricultural sector.
  • Applicants to the scheme can apply on a dedicated national level portal.
  • Support from existing schemes could be availed under the FME scheme.
  • The Scheme will fill in the gaps in funding, mentoring, resources support.

There are about 2.5 million unregistered food processing enterprises that constitute around 98 per cent of the sector and are unorganized and informal.

To drive growth, the Ministry of Food Processing Industries (MoFPI) has been implementing several new schemes under the gamut of the Pradhan Mantri Kisan Sampada Yojana (PMKSY). These schemes, with an allocation of Rs.60 billion for the period 2016 to 2020, are expected to leverage investments of over Rs.310 billion for the development of infrastructure in the food processing sector. Now the scheme for micro food processing enterprises (FME)” for the Unorganized Sector on All India basis with an outlay of Rs.100 billion. The scheme cost will be shared by the Central Government and States at 60:40. Beyond empowering the food preceding sector, which has an overwhelming presence of MSMEs, the scheme will help produce grassroots entrepreneurs and jobs while aiding the farming and the allied sectors. This is core to the Government’s broader initiative of strengthening the economy following the COVID-19 pandemic and create future-ready employment, already launched with an Rs.21 trillion stimulus package. 

Support for individual units:

  • Micro enterprises will get-credit linked subsidy at 35 per cent of an eligible project cost with a ceiling of Rs.1 million.
  • Beneficiary contribution to be a minimum of 10 per cent and balance from the loan. 
  • On-site skill training and handholding for DPR and technical upgradation.
  • Seed capital to SHGs for loans to members for working capital and small tools.
  • Grant for backward/ forward linkages, common infrastructure, packaging, marketing/branding.
  • Skill training and Handholding support to FPOs, SHGs, and Cooperatives.
  • Credit-linked capital subsidy provision to FPOs, SHGs, and Cooperatives.
  • Seed capital of Rs.400,000 to be given to SHGs for working capital and small tools.

It is estimated that nearly 800,000 micro-enterprises will benefit under the FME scheme through access to information, better exposure, and formalization. Meanwhile, credit-linked subsidy support and hand-holding will be extended to 200,000 micro-enterprises for expansion and upgradation. This will enable them to formalise, grow, and become competitive while integrating into organised markets. The scheme envisages increased access to credit by existing micro food processing entrepreneurs, women entrepreneurs, and entrepreneurs in the aspirational districts. The scheme is expected to create around 900,000 skilled and semi-skilled jobs and considerably augment operations related to sorting, grading, processing, packaging, storage, among others. The FME scheme, which comes on the heels of several policy amendments to empower farmers and relax regulations related to the trading of agricultural commodities, will strengthen an entire ecosystem of stakeholders engaged in agriculture and food processing. 

There are about 2.5 million unregistered food processing enterprises that constitute around 98 per cent of the sector and are unorganized and informal. Nearly 66 per cent of these units are located in rural areas, and about 80 per cent of them are family-based enterprises. The FME scheme will be a major force in bringing them into the formal economy and helping them with the support they need to reach their potential. The sector also faces several challenges, including the inability to access credit, high cost of institutional credit, lack of access to modern technology, inability to integrate with the food supply chain and compliance with the health and safety standards. Strengthening this segment with adequate policy, financial, skilling, and infrastructure support will lead to a reduction in wastage, creation of off-farm opportunities while contributing to the Central Government’s objective of doubling farmers’ income. The mega food parks and agri-processing clusters coming up across India speak volumes of this effort.