The Cabinet on Wednesday cleared a production-linked incentive (PLI) scheme to promote processed food manufacturing, with an estimated cost of Rs 10,900 crore to the exchequer over the next six years.
The scheme would help expand the domestic capacity for food processing and potentially generate additional Rs 33,500 crore worth of processed foods with a potential to create 2.5 lakh employment, according to an official estimate. The eligibility criteria — in terms of investment and turnover — for firms to avail of the incentives will be decided later in consultation with the industry.
In all, 13 PLI schemes are being rolled out, including those for automobiles, pharmaceuticals, IT hardware including laptops, mobile phones & telecom equipment, white goods, chemical cells and textiles.
Prime Minister Narendra Modi said the 13 PLI schemes could lead to an incremental manufacturing output of $520 billion and double the work force in relevant sectors over the next five years.
Announcing the Cabinet decision, minister for commerce, railways and food and public distribution Piyush Goyal said the scheme for food processing would contribute to the government’s efforts to increase farmers’ incomes through better processing of agricultural produce and attract huge foreign investments in the high-potential sector.
The idea behind the PLI schemes is to lure large companies to grow to become ‘global champions’ with the use cutting-edge technology.
The total incentives under the PLI schemes, are seen at Rs 1.97 lakh crore over a 5-6 years. However, the government could be a net gainer as by increased domestic manufacturing and sales could the its tax revenue – not only indirect taxes like GST, but even the corporate tax revenue will be given a boost due to the increased profitability of companies.
“Indian produce, processed through state of the art machinery, maintaining hygiene and meeting international standards, will have immense demand across the world,” Goyal said, adding processed food items from highly nutritious millets will have greater acceptance. Processed fruits and vegetables, mozzarella cheese, marine products and innovative/organic products including free range eggs, poultry meat and egg products have been covered under the scheme. Ready to cook/ready to eat (RTC/RTE) food will also be a major focussed area to increase exports, catering to Indian diaspora and others.
The incentives will be disbursed over six years on manufacturing of items under different categories; there are also sops on sales and support for branding and marketing abroad.
“Expansion of manufacturing in processed food sector will help reduce wastage, which is 20-30% in fruits and vegetables and 4% in foodgrains,” said Vijay Sardana, an expert in food policy. The PLI scheme along with the amendment in the Essential Commodities Act done earlier to create storage are timely moves and would help cut wastage and increase value of the products, Sardana said while noting that post-harvest losses in India are one of the highest in the world.
The design of the PLI schemes are such that big firms with elevated export potential would be the principal beneficiaries. Under the scheme for pharmaceuticals, for example, as much as Rs 11,000 crore (73% of the total incentives of Rs 15,000 crore) will be extended to eligible applicants whose global manufacturing revenue was in excess of Rs 5,000 crore in FY20.
As for the scheme for food processing, no eligibility thresholds have been set for the firms to avail of the scheme as yet. Pushpa Subrahmanyam, secretary in the ministry of food processing industries, said that the government will float the expression of interest (EoI) by end of April to which industry can respond. “The requirement for the industry is to commit to a minimum increase in sales and minimum level of investment in each segment. If they achieve both, for the incremental sales a percentage of that amount will be given (as incentive). It ranges differently for each segment like 7% in one and 10% in another,” Subrahmanyam said.
While India Inc has welcomed the PLI schemes, it called for flexibilities in these schemes to respond meaningfully when needed. Special status to PLI companies and stable tax regime and getting into trade pacts and boosting supply chain are the other demands of the industry.