How PLI scheme for food processing is stimulating India’s manufacturing and export capabilities

Companies can qualify for incentive by undertaking a minimum prescribed investment in plant and machinery in initial two years. Investment already made in year 2020-21 will also be counted towards above criteria, a relaxation which is encouraging.

Also, manufacturers of innovative products and organic food products will be incentivized purely on their incremental sales, without any pre-requirement to invest in additional plant and machinery. A step to promote innovation and encourage organic products for consumers, that one hopes will go a long way.

Let’s understand how the scheme works. Say an Indian Company manufacturing ready-to-eat products, invests INR 75 crore in additional machinery to expand its operations. Assuming base year as FY 2020-21 in which sales were INR 300 crore, incremental sales of such Indian Company is delta of sales of its products for the year in which incentive is to be claimed with base year. Upon investing INR75 crore (assuming this to be above the prescribed threshold), the company will be eligible for incentive as depicted below:

In addition to boosting local production and sales, the government also wants to encourage Indian food brands to compete in international markets and will support their branding (in-store branding, shelf space renting and marketing) and marketing abroad. Additional grants will be given under this scheme for branding and marketing activities.

While detailed guidelines for the sector are yet to be released, the broad framework as announced, promises a brighter future for this sector. It would boost optimism if learnings from implementation of the PLI scheme for other sectors (such as pharma, electronics), are taken into consideration whilst finalizing the guidelines for food processing sector.

For example, operational complexities like labor/land acquisition laws, cheap and constant availability of power, skilled manpower also need to be taken care of.

As stated above, food processing sector has witnessed average growth rate of around 10% in recent years. Therefore, expectation of incremental production and sales should ideally be correlated with the growth trends of this sector, in order to make its outreach more effective.

Like the threshold of incremental production, the industry is hopeful that the criteria for incremental investment in plant and machinery is reflective of current market trends, given that pricing for key raw materials for food processing sector has also seen an inflationary trend in this year.