Indian fiscal budget offers a mixed bag for food processors

By Ankush Chibber

- Last updated on GMT

Food and beverage industry feeling the mixed impacts of Indian fiscal budget...
Food and beverage industry feeling the mixed impacts of Indian fiscal budget...
The Indian fiscal budget for the period 2012-13 is a mixed bag for the country’s growing food and beverage industry, as many of its pre-budget demands from the finance minister were not met.

Announced on March 16, the budget for the new financial year did not heed to any of the sector’s tax relaxation demands made pre-budget from Pranab Mukherjee, the finance minister.

These included the demand from the Federation of Indian Chambers of Commerce and Industry (FICCI), which this February asked for the 10% central value-added tax (VAT) to be reduced to 0% for many food items.

No tax respite

Instead, the body lamented that growth in the sector could be dampened by the 2% increases in excise duty and service tax. “These hikes are expected to add to inflationary pressure and would work against budget expectations of lower inflation,”​ it said it in its reaction to the budget.

The demand for a uniform Good and Services Tax (GST) by the All India Food Processors' Association (AIFPA), which complained of logistical issues caused by VAT differences between states, was also not met though it looks likely next year.

Paving the path for GST, the finance minister did announce a number of alignments including a common simplified registration form and a common return for Central Excise and Service Tax, to be named EST-1.

National scheme for food processing this year

However, the biggest bonanza for the food and processing sector came by the way of the National Mission on Food Processing, a scheme proposed to commence in 2012-13.

Under the plan, the central government has said that it would look to reduce food wastage in the sector.

“The food processing sector has been growing at an average rate of over 8% cent over the past 5 years. In order to have a better outreach and to provide more flexibility to suit local needs, it has been decided this new centrally-sponsored scheme,”​ said the finance minister.

Cold chain gets a bump

Also bringing smiles to the food sector was the announcement that the government would offer investment-linked deduction of capital expenditure incurred in the business of cold chain.

“Cold chain facilities, warehouses for storage of food grains and fertilisers which would be provided at an enhanced rate of 150% as against the current rate of 100%,”​ the finance minister said.

This move was welcomed by the sector, including Amol Seth, chairman and managing director at Anil, a corn wet milling company, who said that the deduction offering “will further lead to shortening the supply chain gap between the farm and the end consumers.”

Excise relief for healthy food

The finance minister did however make clear that his government wanted its population to eat healthier food and that too at reduced costs.

He reduced the basic customs duty on soya protein concentrate and isolated soya protein from 30% or 15% respectively to 10%. “Simultaneously, excise duty on all processed soya food products were reduced to the merit rate of 6%.”

The finance minister also provided a concessional basic customs duty of 2.5% along with reduced excise duty of 6% on iodine to combat iodine related deficiencies in India. 

Further, the customs duty on probiotics, which he mentioned was a cost-effective means of combating bacterial infections, was reduced from 10% to 5%.

Coffee makers received some joy as well when the finance minister reduced the customs duty on coffee plantation and processing machinery from 7.5% to 5%, though tea makers, who have been in trouble, received no such joy.

Related topics Policy Supply chain South Asia

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