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Call For Lowering Of Tax On Food Processing In India

by Mary Swire, Tax-News.com, Hong Kong

19 April 2011


Goods and Services Tax (GST) on the food processing industry should be at minimum level to ensure its future growth, said Harish Rawat, Indian Minister for Agriculture and Food Processing Industries, at a conference organized by the PHD Chamber of Commerce and Industry in New Delhi.

He said that a reduction of wastage of agricultural produce and value addition are the pre-requisites to agricultural viability, and that a properly developed agro-processing sector could make India a major player in the global market for the supply of processed foods.

“India can dictate the world market directly or indirectly by adopting the latest farming technology. There is a huge scope for private sector investment in food processing. The private sector can actively engage itself in the whole process of value chain, from setting up agro-processing infrastructure to the marketing of finished products. The food processing industry promotes vital linkage and synergy between industry and agriculture,” said Mr Rawat.

He believes that there are too many layers of middlemen, a weak supply chain and a lack of proper information to farmers, and that these are some of the factors leading to wastage and inefficiency in the supply chain. He said that there are opportunities to improve this by using information technology and better collaboration.

Mr Rawat said that farmers aren’t getting good prices despite the efforts of the Government and an increase in the minimum support price for various farm products, and so food processing is the key to the viability of the agriculture sector.

Also speaking at the conference, Asit Tripathy, Chairman of the Agricultural and Processed Food Products Export Development Authority, said: “India will remain a major agri-exporter even in the long-term despite its huge population and domestic requirement. Immature supply chain, poor infrastructure – rail, road and port – are hindering the growth of the Indian food processing sector.”

Back in 2009 the Prime Minister, Manmohan Singh, called for tax reform of the Indian food processing industry in order to encourage investment and the expansion of Indian world food trade. He said at the time that despite being a major food producer, India’s share in world food trade was less than 2%, and that the level of processing in India was extremely low at around 6% compared to 60-80% in developed countries. He identified the need for private investment, and hinted at a review of tax rates within the industry.

In the 2010-11 budget, a four-pronged strategy was introduced by the Finance Minister covering agricultural production, reduction in wastage of produce, credit support to farmers and a thrust to the food processing sector, and in this year’s budget Pranab Mukherjee said that these initiatives had started showing results.

The processed food market in India is estimated at USD30bn and is the fifth-largest in the country in terms of production.

TAGS: tax | India | goods and services tax (GST) | tax reform | services

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