Making Realistic Food Processing Policies

It would be pertinent to review the progress of food processing industries in 2017, evaluate the challenges and take realistic corrective measures to witness sustainable growth of the processing sector in 2018, says Dr Subodh Jindal, President, All India Food Processors’ Association (AIFPA) in a chat with SMART AGRIPOST.

How was the performance of Food Processing Sector in 2017?

Ans: Truthfully, the Food Processing Sector, like many other sectors, passed through a turbulent time owing to various regulatory interruptions and global challenges.  First of all, on the economic front, the demonetization Scheme disturbed the industry for about six months and brought considerable uncertainties. While the industry was recovering out of it, the government introduced the Goods & Service Tax as the new indirect tax platform.  There were various anomalies in the new tax system at the conceptual, procedural and tariff levels which were found to be unrealistic and held up production and exports for quite some time.

Besides GST, there have also been a few issues related to food regulations and influx of food products from abroad which adversely affected the sector.

On the overall, it would not be wrong to say that food processing sector was overtaken by uncertainties and hurdles throughout the year disturbing operations and reducing output.

What were the major challenges before the industry?

Ans: To do justice to the subject we will have to look at the specific issues with the purpose of understanding the difficulties involved and finding solutions for the same. Major difficulties struck food processing industry in 2017 in the realm of GST with main anomalies being as follows.

1. Food processing industry lies mostly in the MSME Sector with over 90% of food production and employment coming from the Micro, Small and Medium Enterprises. In the past a ‘Manufacturing Threshold’ of Rs.1.5 crore was provided to the MSME Sector to protect their viability and to minimize distraction from regulatory procedures. It needs to be appreciated that this support is very essential considering their limited resources and manpower. The GST system withdrew this provision thereby destabilizing this sector and sending a wrong signal in the field. The move was viewed by many experts as theoretically inspired lacking a ground reality approach.
2. Introduction of the ‘three-step monthly returns’ system imposed under GST by undoing the prevalent well established ‘one quarterly return’ procedure was found to be unmanageable and totally misfired.
3. The proposed requirements of payment of tax on advance receipts, reverse charge mechanism and e-way bill procedure were found to be impractical for the MSME Food Processing Industry. These provisions were kept in abeyance and should be evaluated very carefully for their practicality before being really adopted.
4. The existing procedure of applicability/refund of Input Taxes on export production was substantially altered under GST resulting in heavy blockage of funds making exports unviable. Naturally, as a cascading effect, stocks accumulated in factories causing a severe financial crunch bringing them to the verge of closure.
5. Tax rates fixed under GST for most food products showed huge escalation from the existing 0% – 8% levels on most food products to 12%, 18%, 28%. This was an unrealistic approach to revenue collection and could not be absorbed by the industry. Simple products of everyday use like pickles, chutneys, namkeens, noodles, instant food mixes, custard powder, sauces, juices, milk products, curd, cooking oil, corn flakes, sharbats, biscuits, ready-to-eat food, were levied high taxes. This happened in spite of the recommendations of the Ministry of Food Processing Industries to keep food products only at 0%, 5%, 12% levels.
6. High GST rates on packaged foods including atta, besan, maida, dalia, poha, pulses, tea, spices, honey and exemption to unpackaged food was seen as a retrograde step incentivizing loose product sale which is unhygienic and unsafe for consumption. This also contradicts the requirements laid under Food Safety & Standards Regulations and needs to be reviewed.
7. Another big anomaly found in the GST Tariff System was that products of primary processing such as fruit and vegetable pulps/purees/pastes and those put in salt solutions or frozen in any form in order to extend the shelf life of perishable agri produce saving them from the glut season loss were charged tax at 5% or 12% or 18% instead of being kept at 0%. This omission carries a huge significance considering the enormous wastage of fruits and vegetables in the country.

There have also been a few stressing issues related to regulations imposed by the Food
Safety & Standards Authority of India, the Ministry of Food & Consumer Affairs and the Ministry of Environment. Certain provisions of labeling requirements, restrictions on the use of plastic packaging, stipulations on drawing ground water, issues of waste disposal etc. are difficult for the food industry to find solutions by themselves.

Various matters of harassment of the industry on the ground by the field regulatory machinery have also been observed in different States.

There is also severe pressure on the industry owing to global competition. Government initiatives to permit import of food products and encouraging 100% FDI in manufacturing and marketing of food products are posing great challenge to the sector.

What is your view on government policy?

Ans: India is home to immense natural resources in the farm sector.  We hold the first or second or third position globally in most agri commodities like milk, fruits, vegetables, spices, tea, herbs, sugar cane, cereals, soya, honey, marine and aqua produce. With 127 agro-climatic zones and a hard working agricultural sector, it is disappointing that our processing levels are low and farmers are perennially in distress. It is important that we utilize all natural resources to their full potential in the interest of farmers, consumers and the economy at large.

We are all aware that for whatever reasons, some of our regulations have not been practical causing set back to growth and development. The first and foremost requirement is to move towards realistic regulations.

What is your wish list for 2018?

Ans: Experiencing the above ground realities, it is imperative to find solutions to the issues at hand. Some points worth considering in this context are as follows.

1. GST should classify food products at the maximum of three tax levels 0%, 5% and 12%, except for any particular product which may merit to be discouraged.
2. While the Govt. is adopting various schemes to save perishable crops, it is advisable that GST Rates for Fruit and Vegetable Pulps/Purees/Pastes and their storage in salt solutions or frozen in any form should be placed at 0% GST. The long term dividend obtained from this would be many times more in terms of sustenance of farmers, employment generation, competitive exports, and availability of food products to consumers at reasonable prices all round the year, rather than the meager revenue collection from the same.
3. Government should set up research projects to develop alternate packaging to replace plastic packaging.
4. Food Laws should be so organized as to support innovation and variety.
5. Initiatives like Krishi Sampada Yojna, Skill Development, Mandi Infrastructure, Ease of Doing Business, Good Agricultural Practices, Cold Chain need to be given stronger impetus.
6. It is important to strengthen the system of Meteorological Forecasting/Assessment of Crops so that growers, processors and exporters can plan their activities accordingly.
7. To Develop Technologies for Utilization/Conversion of Agri-Waste from Farm and Processing into utilizable products, extraction of nutrients, energy production and manure.
8. Urgently required to set up facilities for making water available to food processing units otherwise they will be starved to death.
9. To incentivize setting up Centers of Food Testing and Analysis.
10. To strengthen Research Institutions in the Field of Food Technology.
11. While Govt. is encouraging 100% FDI in Manufacturing and Marketing in the Food Processing Sector, it also calls for an equivalent sustenance/development support to existing industry and domestic investments. The government has to be more sensitive to this aspect and take proactive steps to strengthen the existing units which will be far more result oriented in terms of quantum of production, employment and exports. Creating a sentiment of boosting domestic investment will have far reaching effect in ground level involvement at a larger scale.
12. It would be most heartening to see in the new year unification of objectivity at all levels of policy formation and implementation over the entire food chain, from growing to post harvest handling, storage, cold chain, processing, packaging, distribution etc., so that agriculture can be sustained and the consumers are served well.