Governance Structure: Food Processing Industry in India
India is a leading producer of food grains in the world. It ranks first in the production of milk, pulses, and mangoes. Further, it ranks second in the world in the production of rice, wheat and other fruits and vegetables. However, India’s share in world export of food products is meagre. Due to supply-side issues India ranks 12th in the export of food products. It is, therefore, important to understand the steps taken by the Government of India to tackle these issues by means of policy interventions. In this article, we shall discuss the government’s industrial policy formulated for the food processing industry and we shall also explore the PLI Scheme for the sector in detail.
Government’s Industrial Policy
Several initiatives have been taken by the government to help boost manufacturing of medical devices in India. These initiatives are discussed below.
- The PM Kisan SAMPADA Yojana (PMKSY) is a comprehensive package which will result in creation of modern infrastructure with efficient supply chain management. The scheme was launched with an allocation of Rs. 6,000 crores for the period 2016-20. The scheme is expected to leverage investment of Rs. 31,400 crore for handling 334 lakh MT agro-produce valued at Rs. 1.04 lakh crore, benefiting over 20 lakh farmers. A total of 41 Mega Food Parks, 348 Cold Chain projects, 68 Agro-Processing Clusters, and 6 Operation Green projects, among others, across the country have been approved. The Government of India has continued the scheme with an allocation of Rs. 4,600 crores till March 2026.
- The PM Formalisation of Micro Food Processing Enterprises Scheme has been designed to address the challenges faced by the micro enterprises and to tap the potential of groups and co-operatives in supporting the upgradation and formalisation of these enterprises. The scheme aims to enhance the competitiveness of existing individual micro-enterprises in the unorganised segment of the industry and promote formalisation of the sector and support Farmer Producer Organizations, Self Help Groups and Cooperatives along their entire value chain. The scheme envisages an outlay of Rs. 10,000 crore over a period of five years from 2020-21 to 2024-25. Under the scheme, 2,00,000 micro food processing units will be directly assisted with credit linked subsidy.
- A National Food Processing Policy is also in the works. The policy aims for the comprehensive development of the food processing sector through interventions to address the gaps hindering growth of the sector with an overarching goal of minimising wastage of agro produce, increasing income for farmers and better choices for consumers.
- Many other initiatives have been implemented by the government, information on which is available here.
PLI Scheme for Food Processing Industries
In March 2021, the central government approved the PLI Scheme for Food Processing Industries (PLISFPI) with a budget outlay of Rs. 10,900 crores. The tenure of the scheme is six years, from FY 2021-22 to FY 2026-27 (Y1 to Y6). The implementation of the scheme would facilitate expansion of processing capacity to generate processed food output of Rs. 33,494 crore and create employment for nearly 2.5 lakh persons by the year 2016-27. The objective of the scheme is to support the creation of global food manufacturing champions, promote Indian brands of food products, increase employment opportunities for off-farm jobs, ensure remunerative prices of farm produce and higher income to farmers. The scheme has three broad components.
The first component is related to incentivising manufacturing of four major food product segments, namely Ready-to-Cook/Eat foods, Processed fruits and vegetables, Marine products and Mozzarella cheese. The second component is for incentivising Innovative / Organic products of MSMEs across all the previously mentioned food product segments including Free Range Eggs, Poultry Meat and Egg products. The third component relates to support for branding and marketing abroad to incentivise the emergence of strong Indian brands.
Products covered under each of these segments are enlisted in Appendix B of the Scheme Guidelines.
Government Organizations Involved
- For monitoring and implementation of the scheme, primarily, there exist two governmental organisations, namely the Ministry of Food Processing Industries and Industrial Finance Corporation of India Limited.
- The Ministry of Food Processing Industries (MoFPI) has been entrusted with the responsibility of overlooking the implementation of the PLISFPI. MoFPI aims to enhance farmer’s income by better utilisation and value addition of agricultural produce, provide policy support and support for creation of infrastructure, capacity expansion, upgradation and other supportive measures for the growth of this sector.
- The Industrial Finance Corporation of India Limited (IFCI Ltd.) is the Project Management Agency for the scheme’s implementation. The IFCI Ltd. is a non-banking finance company in the public sector, which provides financial support for the diversified growth of industries across the spectrum such as telecom, power, real estate, manufacturing, services sector, and other allied industries.
- There exist regulatory bodies as well. These bodies are the Project Management Agency, the Empowered Group of Secretaries (EGoS), a Technical Committee, and another committee constituted by MoFPI.
- The Project Management Agency (PMA) is responsible for providing secretarial, managerial and implementation support. The PMA is also responsible for receipt of applications, their examination and processing for issuance of acknowledgements. The EGoS will monitor the implementation of the scheme and undertake periodic review of the outgo to ensure that the expenditure is within the prescribed outlay. It will also carry out changes in the modalities of the scheme to address issues arising during the course of its implementation. A Technical Committee will be constituted by the MoFPI to render advice on issues related to product classification, manufacturing processes, Innovative / Organic Products, Branding & Marketing, etc. Another Committee will be constituted by the Ministry for taking necessary decisions within the mandate of the Ministry viz approval of scheme guidelines and their amendments.
Under the scheme, there are three categories of applicants. These are:
- Category I – Applicants that are large entities who apply for incentives based on sales and investment criteria. Applicants under this category could undertake Branding and Marketing activities abroad also and apply for Incentives under the scheme.
- Category II – MSMEs applicants manufacturing innovative / organic products who apply for PLI Incentive based on sales.
- Category III – Applicants applying solely for Incentives undertaking Branding & Marketing activities abroad.
According to the Scheme Guidelines, an applicant shall be:
(i) a Proprietary Firm or Partnership Firm or Limited Liability Partnership or a company registered in India,
(iii) Micro, Small and Medium Enterprises (MSMEs),
(iv) A company applying on its own behalf and its subsidiary provided the applicant company holds more than 50% of the stock of its subsidiary and that none of such subsidiary company is included in any other applicant company under the scheme, and
(v) Marketing Federation or Apex-level Co-operatives applying on behalf of Member Unions or Member co-operatives.
The following figure summarises the eligibility criteria for different categories of applicants:
Selection of applicants on sales and investment criteria is subject to the combined scores they receive during application evaluation. The Evaluation Criteria is mentioned in Appendix-E of the guidelines. Incentives will be granted on incremental sales and committed investment. The investment shall be a greenfield investment, meaning it should be made in a new production facility.
For claiming incentives under the Scheme, the following steps are to be followed:
- Applicants shall submit claims for disbursement of incentive to the PMA. Claims for disbursement of Incentive shall be filed by the Applicants within 9 months from the end of the financial year to which the claim pertains to.
- On receipt of Claim for disbursement, the PMA should share relevant information with the Technical Committee for their advice. The recommendations of the Committee should be taken into account by the PMA in scrutinising the claims of the Applicants. The PMA would examine the disbursement claims as submitted by an Applicant. The PMA will verify eligibility and assess incentive payable to an applicant based on the method laid down in the guidelines and the approval letter issued to the applicant.
- The Applicant is required to submit the calculation of Sales with every claim, along with a certificate from Statutory Auditor in the case of a company and Independent Chartered Accountant in the case of Proprietorship, Partnership firm & LLP.
- After due diligence and approval, the PMA would process a claim for disbursement of incentive within 60 days from the date of receipt of such claim and all the supporting documents and make appropriate recommendations to MoFPI. MoFPI would consider and approve claims for disbursement of Incentive. It would disburse funds after completion of all pre-disbursal formalities by PMA.
- In case an applicant does not meet threshold growth criteria for any given year, the applicant shall not be eligible for incentive in that particular year. However, the applicant will not be restricted from claiming incentive in subsequent years during the tenure of the scheme, provided eligibility criteria are met for such subsequent years.
Incentives under the Scheme
An Incentive is the financial benefit to be provided to each selected applicant based on the increase in Sales of the eligible products in the selected segment.
The following figure gives an insight into the rates of incentives on incremental sales:
The incentive payable for a selected applicant for a particular year shall be computed as follows:
Incentive is payable from the year of selection up to the end of the Scheme period. Selected Applicants are required to achieve minimum CAGR in sales over the base year, as shown in the figure below, to claim Incentive.
Applicants shall complete the Committed Investment, year-wise, as proposed in the application. 10% of the Incentive due for Y1 and Y2 will be deducted, if they fail to complete the investment as Committed. However, if at the end of Y2, the Committed Investment is completed, then the amount deducted for Y1 would be paid to the company.
By the end of Y3, if the Committed Investment is not completed, the selected Applicant will be taken out from PLIS for Sales-based Incentive by MoFPI. Incentives under the scheme for a particular year will be disbursed in the following year. Eligibility under the Scheme shall not affect eligibility for Incentive or any other benefits under any other scheme and vice versa.
The PLISFPI works in consonance with the other schemes meant for the sector. Several schemes exists that aid in bridging the gaps in the sector’s supply-chain. The PLISFPI goes a step further in promotion of the sector globally. When all these schemes work together, the sector portrays immense potential to emerge as a manufacturing hub for the world.
Ms. Purvi Patil is a Research Assistant at Tatvita. She has pursued her graduation from the Liberal Arts Department of Savitribai Phule Pune University. Her areas of interest include International Relations, Data Protection and Privacy, and Sustainability.