4 minute read 12 Apr 2021
PLI scheme for food processing

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

By Achal Chawla

EY India Indirect Tax Partner

Partner with the Indirect Tax practice, Achal focuses on consumer and retail, FMCG, agriculture, defence and oil and gas sectors. Loves to travel and play cricket.

4 minute read 12 Apr 2021

The production-linked incentive (PLI) scheme for the food processing sector was announced by the government on 31 March 2021 with an outlay of INR 10,900 crore.

The scheme incentive is linked to local production and sale of products, in the below sub sectors:

  • Ready-to-eat/ready-to-cook food items
  • Marine products
  • Processed fruits and vegetables
  • Mozzarella cheese
  • Innovative/organic products of SMEs including free range such as eggs, poultry meat and egg products.

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:

PLI  for Indian Company manufacturing ready-to-eat products

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.

Summary

Given the government’s intention to tap the growth opportunity in the sector, it will not be amiss for the industry to be optimistic about the detailed guidelines and the win-win situation that PLI can potentially offer.

About this article

By Achal Chawla

EY India Indirect Tax Partner

Partner with the Indirect Tax practice, Achal focuses on consumer and retail, FMCG, agriculture, defence and oil and gas sectors. Loves to travel and play cricket.