Agro/Food Processing] Export, Dumping, FDI, Finance, Taxation, Budget Provisions, CODEX, NWR, BRGF, RKVY

1. Prologue 2. Agriculture Export 1. Tariff Barrier 2. Dumping 3. Non-Tariff Barrier 4. CODEX standards 5. HACCP 3. FDI: Agro, Food Processing, Retail 1. FDI: Agriculture 2. FDI: Food processing 3. FDI: Retail 4. FDI: Multibrand Retail 1. Difference In Single Vs Multibrand Retail? 2. The Diluted Conditions 4. Finance 1. Why cant Farmer get loans easily? 1. Negotiable Warehousing Receipts (NWR) 2. WDRA 3. Benefits of NWR receipts 2. Why cant food entrepreneurs get loans easily? 3. Permission-raj 5. Taxation 1. Budget 2013: Agro and Food processing 2. Budget 2013: Taxation 1. Income tax deduction 2. Custom Duty 3. Excise Duty 4. Service tax: Negative list 6. Misc. 1. Backward Regions Grant Fund (BRGF) 2. Rashtriya Krishi Vikas Yojana (RKVY)

Prologue
In the previous articles we saw 1. Food processing industry: Awesomeness and Obstacles 2. Food processing industry: ruckload of Government Schemes and bodies 3. Marketing of agricultural produce: issues and constrains, Nuisance of APMC Acts and Commission Agents Moving on: New GS-Mains Syllabus of UPSC Topic touched in this article

Effect of policies of developed and developing countries on Indias interests

Agriculture export: Anti-dumping, tariff-non tariff barriers, Codex and HACCP standards.

Devolution of finances up to local levels Backward regions grant fund (BRGF) and challenges therein. Regulatory bodies Warehousing Development and Regulatory Authority.

Government policies in various sectors FDI policy for agriculture, food processing and Effects of liberalization on the economy retail Government Budgeting issues relating to growth, development and employment. Budget 2013 for Agriculture and Food industries The finance/credit problems faced by farmers+ food-entrepreneurs.

By the way, regarding some earlier comments about what happened to my geography location factor article series? Ans. I got bored writing geography hence shifted to agro/food processing topic for a while, but rest assured [Geography] location factors article series will be finished before Mains 2013.

Agriculture Export
World Trade Organization (WTO) aims to improve international-trade by reducing the tariff and nontariff barriers. Lets refresh the concept:

Tariff Barrier
Taxation tools that affect import / export: Examples 1. In the Colonization-era, British had imposed heavy taxes on Indian textile coming to London, in order to protect their local industries from competition. 2. Before the LPG reforms of 1991, India too had imposed heavy taxes on most of the imported items: be it wristwatches, goggles, cars or radios. 3. Aug 2013, Uni on Government i ncreased the i mport duty on gol d to 8 per cent to reduce the gol d consumpti on (andtoprovi desustai nabl el i vel i hoodtodesi -smuggl erswho were notgi ven100daysi nworkunderMNREGA.)

Dumping
When businessmen export goods at a price that is less than the price charged in the domestic market- its called dumping. WTO system=> Agreement on Subsidies and Countervailing Measures (SCM)=if a country finds evidence of dumping, it can extra impose duty (known as countervai l i ng duty, CVD) on such dumped products. (=meaning this type of tariff barrier is permitted in WTO) USA has imposed a countervailing duty (~6%) on Indian frozen shrimps, because Indian shrimp gets plenty of subsidies from Indian government for shrimp farming and export and hence Indians are able to dump shrimps to USA and hurt USAs local shrimp businessmen. (or atleast

thats what America claims). Anyways, Indian shrimps are not the only items subjected to anti-dumping duty in USA. Shrimps from Thai l and Chi na Mal aysi a Why subjected to anti-dumping duty in USA? government buys shrimp from farmers and sells it to processors at low price government gave finance to build the worlds largest shrimp-processing and export plant government gave finance to build shrimp farms.

Dumping by India
List not exhaustive (but in recent news) Country Whi ch Indi an export was sl apped Anti -Dumpi ng duty Recently China also started Anti-dumping investigation on Indian exports such as 1. food preservati ve chemi cal from Indi a (known as TBHQ)- widely used in Chinese food industry. 2. Opti cal fi ber i mports from Indi a after allegations from the local Chinese industry that they were being sold at artificially low prices.

Chi na

Thai l and Indian steel Indonesi a Against two leading Indian steel firms: Jindal and Essar.

Dumping to India (by foreigners)

List not exhaustive (but in recent news) 1. We ve slapped anti-dumping duty on steel wheel s i mported from Chi na used in commercial vehicles. 2. Under probe: US, China, Malaysia and Taiwan: Because Theyre exporting solar equipment to India at ridiculously low prices and was bleeding the desi industry. Similar issue with glassmakers and electric cable manufacturers from those countries.

Non-Tariff Barrier
Non-tariff barriers affect import/export, without using taxation tools. For example Quanti tati ve restri cti ons Import prohi bi ti ons Under Gold control Acts of 1960s, An Indian Gold Smith was not allowed to possess a stock of more than 300 gms of primary gold at any time. On ivory, fur, tiger skin/bones, narcotics, illegal weapons, explosives etc. When Murthy started Infosys, he had to make 50 trips to Delhi for three Import l i censi ng years just to get a license to import computers. We already saw some duty credit schemes for Agri-exports in the second Export Subsi di es article. clickme Labour/Envi ronment e.g. some developed country banning import from third world country saying child labour was used etc. standards Heal th Standards Codex, HACCP- given below.

CODEX standards

In the 60s, FAO+WHO setup Codex Alimentarius Commission. To develop harmonised international food standards, guidelines and codes. In WTO system => Sanitary and Phytosanitary measures (SPS Agreement) a country can impose ban on imported food products, if they do not meet the Codex standards. (= meaning this type of non-tariff barrier is permitted in WTO). and as you can guess, Indian food products get banned/restricted in developed countries for not meeting those quality standards This is a two-way street though, India also banned import of American Chicken to prevent Avian influenza among Indian poultry. (Although USA has dragged India to WTO saying India has not provided any scientific evidence in line with international standards to justify this ban.) Anyways, here are some of the Indian food export, there were banned in US/EU/China/Japan in past. Indi an food i tem 1. Groundnut 2. Mangos 3. Indian Buffalo Meat 4. Indian Shrimp 5. Fish 6. poultry banned/restri cted abroad thanks to Aflatoxin stone weevil, fungus foot-and-mouth disease Antibiotic residues Heavy metals and antibiotics bird flu/Avian influenza

Adding insult to the injury, once the ban is imposed and IF we want to get the ban revoked, then We ve to invite their food inspectors/specialists to India, let them check our premises We ve to bear all the cost of their accommodation, travel expenses etc. =expensive game, small Indian players/companies cant survive in the international food business.

HACCP
HACCP (Hazard Analysis Critical Control Point) This certification system is adopted by the Codex Alimentarius Commission. For preventing microbiological, chemical and physical contamination along the food supply chain. So, if you want to safely export food products to US/EU, then first you need to get certificate that your plant meets the HACCP standards. (certificate system similar to ISO standards) It doesnt mean we havent anything. Here are some of the steps taken: Export Inspection Council of India (EIC) statutory body under Commerce Ministry

for inspection- certification for marine, milk, meat, poultry, marine and egg products, and honey for export units. EIC EIC approved units have to implement following 1. international standards of CODEX laid down by FAO and WHO, 2. Good Management Practices (GMP) 3. Good Hygiene Practices (GHP) EIC certificate is recognized in European Commission (EC) for marine products and basmati rice and by the US for black pepper. Agricultural and Processed Food Products Export Development Authority (APEDA) Statutory body under commerce ministry Provides financial assistance to food exporters. Bears the cost for doing analysis of peanuts, grapes for meeting HACCP/Codex standards. Bureau of Indian standards has adopted the CODEX, hazard analysis and critical control point (HACCP) and food hygiene standards helps Food processing units to adopt these systems on a voluntary basis We re collaborating with USA, UK, Netherlands, Switzerland and Germany for Agri-technology transfer, financial and marketing tieup and quality control. Ministry of food processing industries Gives financial assistance for fee charged by Certification Agency, plant and machinery, technical civil works, and other expenditure towards implementation of Total Quality Management System, ISO, HACCP, GMP and GHP. General Area: max 15 lakh assistance NE, di ffi cul t area: max. 20 lakh

APEDA

BIS

col l aborati on

MoFPI

Additional Suggestions
Negoti ati on Forei gn Offi ces Government needs to expedite the negotiations with US, EU, China and Japan, to lift restrictions on Indian fruit/food/marine exports into these countries. Encourage importing countries (primarily USA, EU, Japan) to set up offices in India for certification of export consignments

APEDA already supports the cost of quality certification programs such as HACCP Certi fi cati on and Eurepgap for grapes and peanuts. More food-items should be included in this scheme. Food Safety and Standards Authority of India. We already saw its salient features in previous article, click me

Fssai

FSSAI needs to harmonize the differences between Codex standards and Indian food standards.

Desi Labs

Encourage food testing laboratories in India to obtain accreditation from international agencies. Given high cost of international accreditation, Government can incentivize laboratories by part funding these costs. Government should introduce certification zoning systems: e.g. pesticide free zones, organic production zones, disease free zones to facilitate high value exports from India Food exporters to US/EU are first required to their samples to the importing country to get trade-approval. Government should provide financial assistance to small/medium exporters for this.

Zoni ng

Sampl e Cost

FDI: Agro, Food Processing, Retail

Foreign Direct Investment: Agriculture
100% FDI with automatic approval in following sectors: Seeds and planting material, their development and production Conditions Seeds 1. Genetically Modified seeds/plants= have to comply with a. Environment (Protection) Act b. Genetic Engineering Approval Committee (GEAC) 2. If seeds are imported then have to comply with National Seeds Policy 1. 2. 3. 4. Animal rearing + dog breeding Poultry breeding farms Aquariums Pisciculture (breeding, rearing, and transplantation of fish by artificial means aka fish farming) 5. Apiculture (bee keeping) No FDI is not allowed in any other plantation except Tea. In Tea sector: 49% FDI via automati c route 100% FDI with government approval .

Li vestock

Pl antati on

Note: Besides ^above, FDI is not allowed in any other agricultural sector/activity In July 2013, Government changed FDI limits in 12 sectors, here is a fancy graphic courtesy of Indiatoday

FDI: Food processing

India allows 100% FDI in food processing sector. Forei gn fi rms 1. dont need government-approval to start business in India. 2. Are eligible for grants, subsidies, benefits offered by various government schemes. Our food industry got FDI >Rs.6000 crore in last three years (2009 to 12) When talking about FDI in food processing, a doubt comes in mind: if foreign giants are permitted in India, will there be no place for small players, will they be wiped out? In Trivandrum, people use more than 10 different spices in their cuisine, while in New Delhi and Mumbai, barely 4-5 spices. Different communities in each state prefer different blending of spices, color/pungency in chilli-powder. Fragmented Demand vs Economi es of Cottage and small units do well ^in such product segments because of their local traditional knowledge. But Bigger enterprises may find it difficult to enter into such fragmented

Scal e

and price conscious consumer base. Their large scale of economies may not be optimized for it. MNCs economies of scale to be effective, theyve to make something with large demand e.g. cream-biscuits, ice-cream or chocolates because kids from Kashmir to Kanyakumari like it irrespective location, community or religion. Wheat flour has daily and universal demand in India. But most Indians prefer to get wheat grains and get it milled in Local flour mills. MNCs are not likely to enter into such products, as it is difficult to charge premium prices for their brand image, advertisement costs and a narrow consumer base for readymade packaged flour. In IT/BPO cities like Banglore, Pune, Hyderabad =fast pace of life = big demand for processed/ready to eat food among working professionals/couples. But cities like Ahmedabad, Jaipur or Indore but pace of life is not that fast. Hence processed foods has not made as much an entry/demand.

Cheapness

Pace of l i fe

Thus, MNC-food Giant doesnt get automatic success is every region and every product. Small players have their own opportunities in the food processing sector, while big / international players have theirs.

FDI: Retail
100% via automatic route but only in Business to Business (B2B) e-commerce and not in retail trading. 100% via automatic route upto 49% via automatic route upto 100% with government approval

E-commerce

Cash and Carry whol esal e tradi ng Si ngl e Brand Retai l .

List of Single Brand retail who ll setup shops in India: Si ngl e-Brand Retai l IKEA Pavers Engl and Brooks Brothers Dami ani Promod Le Creuset Decathl on What do they sel l ? Furniture British Footwear American Luxury Clothing Italian Jewelry French Fashion Crockery Sporting Goods

FDI: Multibrand Retail

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Maha -clichd topic, you probably have read/heard/seen it dozen times already. Hence not going into all details. Country India China, Thailand, Russia, Indonesia, Brazil, Argentina, Singapore Permitted limit of FDI in Multibrand Retail 51% with government approval 100%

Difference In Single Vs Multibrand Retail?

Si ngl e Brand Retai l Mul ti -Brand Retai l Multi-brand retail store like Walmart sell products from more than one brand e.g. mouse-keyboard from Dell, HP, Logitech and Microsoft. While Printer from HP, Cannon, Epson and so on FDI upto 51% with government approval Similar condition on 30% procurement +additional conditions on location and backend infra. can be setup only the states that agreed. (list given below)

they sell only their own products. Example in IKEA store you can buy sofa, bed, chair, table, cupboard etc- but they all belong to IKEA brand only.

FDI upto 100% with government approval

Need to procure of 30% of the goods from Indian MSMEs, village and cottage industries, artisans and craftsmen, in all sectors.

can be setup in any city, any state.

States/UT that permitted Multibrand Retail

As per the official FDI circular, State Governments/Union Territories would be free to take their own decisions in regard to implementation of FDI in Multibrand Retail. As of June 2013, Following states/UT permitted foreign giants to open multi-brand retail outlets in their area. 1. 2. 3. 4. 5. 6. 7. Andhra Assam Delhi Haryana HP JK Karnataka

8. 9. 10. 11. 12.

Maharashtra Manipur Rajsthan Uttarakhand Diu-Daman-Nagar Haveli (UT)

(As of June 2013)

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But How / Why i s Mul ti brand-FDI rel evant/i mportant from food processi ng/agro poi nt of vi ew? desi food players are mostly small scale = poor economies of scale = they dont have the money to invest in backend infrastructure. Government made FDI condition that Retail giant needs to invest part of his FDI investment into backend infrastructure (=processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc.) These retail giants have deep pockets = large economies of scale = they use direct purchase / contract farming to get the fruits-veggies. Thus middleman eliminated=farmer gets more price. Government made FDI condition that Retail giants need to buy part of their goods from small scale industries. Increases direct/indirect employment opportunities in the supply chain, logistics, retail and wholesale. The Foreign giants bring their own IT technology, best management practices for running the business at extreme efficiency. Foreign giants will tie up with a local player (e.g. Bharti, Tata etc)=Indian managers/workers in those desi companies also learn new things Later some of thm might setup their own firms utilizing the workexperience=Thus foreign business knowledge, technology trickles down and benefits Indian economy.

l ess Wastage

Better Income

Smal l Scal e

empl oyment

Techknowl edge upgrades

The Diluted Conditions

No investors came forward, even after Government permitted 51 per cent foreign direct investment in multi-brand retail (henceforth referred as Walmarts to save the typing headache). so recently government decided to relax the conditions to attract them (+to bring more dollars to calm down the rupee fall) Ti ght Condi ti ons before Di l uted After Jul y 2013 Reform Matter left to the discretion of the state governments. Meaning Walmart can open retail stores even in cities with less than 10 lakh population (e.g. Gurgaon and Aurangabad), with the permission of the States or Union Territories. Walmart still needs to buy 30%
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CITIES

Walmarts can be opened only in cities with more than 10 lakh population (as per 2011 census)

MSME

Walmarts will need to buy 30% of its goods from small vendors. *Small vendor= an Indian micro medium small enterprises (MSMEs) with total investment of $1 million.

of its goods from small vendors but Definition of small vendor relaxed. Small vendor now includes even a medium scale industry upto $2 million. And, during the course of this relationship, if that small supplier outgrows the investment of $2 million, even then such dealing/procurement is allowed.

BACKEND

Walmarts needs to invest 50% of its FDI investment into backend infrastructure. example of backend infrastructure=processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, will not be counted as backend infrastructure.

The 50% only for the first tranche of $100 million. In other words, if WalMart is bringing $100 million FDI in first go, then, 50%=$50 million will have to be spend in backend infrastructure. But after that, If WalMart brings another $50-100-200 million FDI, they dont need to invest any part of that money in backend infrastructure in India.

Finance
To run any type of business: be It farming or food processing= you arrange for finance. What are the Sources of Finance? Banks NABARD regional rural banks, cooperative banks, commercial banks offers refinance facilities for food processing, agri infrastructure, development Small Industries Development Bank of India gives loan to Micro Small and Medium Enterprises (MSMEs) in the country although Food processing sector forms very small part of its loan portfolio Export Import Bank Helps in financing and facilitating foreign trade/export, including for food processing companies. National Cooperative Development Corporation helps in promoting, planning and financing the agricultural supply chain from production, processing, storage and trade also helps in marketing fertilizers, pesticides and agricultural
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SIDBI

EXIM

NCDC

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machinery etc. Agricultural and Processed Foods Products Export Development Authority (APEDA): helps to form market linkages between desi producers vs international market financial assistance for market development, infrastructure etc. Agricultural ministry runs many schemes for specific crops, seeds, irrigation, farm implements, inputs, infrastructure and training National Horticultural Board gives financial assistance for post-harvest management infrastructure, R&D, soft loans etc. with most of the schemes directed to specific horticulture subsector of the food processing industry. financial assistance for HRD, Quality testing, food parks, slaughter houses, cold storage etc.

APEDA

Sharad Pawar

NHB

MFPI venture funds/angel i nvestors

Non-existent for food processing sector.

But both farmers + food processing entrepreneur have trouble getting loans/financing. Why?

Why cant Farmer get loans easily?

Bank manager hates NPA in their branch. Because it affects his reputation and further career growth/promotions. On the other hand. shrewd Im not going to repay the loan because I know that government will launch another debtfarmer waiver scheme just before election and my loan will be forgiven! good Why the hell should I pay the loan diligently while ^others can get away scot-free? farmer Hence bank reluctant due to lack of credit-discipline among farmers. Even when banks give loan, agriculture is a risky business because of pests, vagaries of monsoon=crop failure Government doesnt immediately disburse insurance money to farmers=loan default=NPA. Rural bank branches have shortage of manpower to process loan papers quickly Farmers need small loans e.g. 10-20-50,000 rupees. =>banks need to employ a
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NPA

Manpower

cost of credi t

large staff to look after all the documents and processing work=>additional salary burden= cost of giving loan increases. Banks find it more lucrative to use the manpower in urban branches where individuals need loan in larger amount (e.g 12-15 lakhs or more in each homeloan) If farmer mortgages his land to get loan, he has to pay stamp duty =additional burden on the farmer. Some states (Andhra, UP, TN, Gujarat, HP) have relaxed rules in this regard, other state governments need to take similar steps. many small-marginal farmers dont have documentary proofs for their land/cattle ownership= problem while filling up the loans-application forms.

Stamp duty

documents

Thus for banks, Agro-loans=risky, high-cost, low-return game.

Regional imbalance
Loan/Credit distribution among farmers High Medium Low States Southern Northern and Western Eastern (Bihar, Jharkhand, odisha and West Bengal) and NE

Nearly three quarters of the farmer households still do not have access to the formal credit or insurance system= have to rely on informal borrowing/credit from evil moneylender @very high interest=always in debt. Talking of insurance: three main agro-insurance schemes run by Agriculture Insurance Company (AIC): 1. National Agricultural Insurance Scheme (NAIS)

available to all farmers, irrespective of their farm size. Practically all risks covered (drought, excess rainfall, flood, hail, pest infestation, etc.)

2. Weather Based Crop Insurance Scheme (WBCIS)

Agro-insurance from incidence of adverse conditions of weather parameters like rainfall, temperature, frost, humidity etc. Challenge: Need lot of automatic weather stations for successful implementation/assessment . (Right now barely ~3000, while we need atleast 10000)

3. Coconut Palm Insurance Scheme (CPIS)

To provide insurance to coconut growers against natural calamities.

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Negotiable Warehousing Receipts (NWR)

WE know that prices of potatoes, onions vary significantly between peak harvesting season and lean season. The middlemen @APMC control this storage and supply and make a killing business. Then why dont farmers themselves store their produce for the lean season? Because a farmer cannot afford to wait selling his potatoes for such long time in hope of getting better money. He needs quick cash so he can buy seeds, fertilizer, pesticides for the next round of cropping cycle. (and to settle the loans he took for the previous cycle) The negotiable warehousing receipts can help him here. How? To put this without getting into all technical details: Farmer bring his produce to a certified warehouse/cold storage of WDRA. He Deposits his produce, gets a piece of paper called Warehouse receipt. He deposits this Warehouse receipt to bank, as a collateral and gets short-term loan for next cropping. The farmer can decide to sell his warehouse-produce when prices are favorable (during lean season) and use it to settle the loan.

WDRA
Warehousing Development and Regulatory Authority. Statutory body under Ministry of Consumer Affairs, Food & Public Distribution (2010). Main functions: 1. Regulate, certify, and develop warehouses in the country. 2. dispute resolution between warehouses and warehouse receipt holders;
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3. HRD, training warehouse personnel.

Benefits of NWR receipts

1. Bank faces lower risks because collateral for the loan is a liquid asset (agro-produce recipient, backed by a central act). 2. Previously, Small/marginal farmers couldnt easily get loans because they didnt have conventional loan collateral (land, gold, cattle etc.) But now they can get it easily using Kisan Credit Card +Negotiable warehouse receipt. 3. Protects farmers against distress sale of their produce and exploitation by middlemen. 4. Minimizes Wastage perishable produce. (Because theyre stored in certified warehouses/cold chains). 5. Reduces hoarding and food inflation (because farmers less cartelized than APMC Middlemen.) 6. Provides alternate employment opportunity for those APMC middlemen- they can form a group, setup warehouse and get certificate from WDRA. 7. Warehouse receipts are a proven tool for financing, already successful in Brazil, Indonesia, Singapore and Argentina Enough of Farmers finance, time to move on:

Why cant food entrepreneurs get loans easily?

From a Bank managers point of view: again the fear of NPA Most of the Mango processing units in Andra run for barely 70 days per year. This type of seasonal-businessmen are considered risky from bankers point of view. Most of the food processing units hide actual sales in the account books (to evade taxes Banker never gets true picture of a firms financial strength. He is not sure whether the given entrepreneur is loan worthy or not? If an urban middle class man wants to take Car/Home loan, then bank can always check his credit-history from the Credit Information Bureau of India Ltd. (CIBIL). But CIBIL doesnt maintain such data/record for the food processing sector=> difficult for bank to find out whether given food entrepreneur has diligently paid his previous loans in from other banks or is he a scamster doing iski topi uske sir pe ? In many food processing sectors, Government gives grants/tax exemption for first few years. As a result plenty of new small players emerge=>There is not enough raw material to run each plant @full capacity (e.g. Groundnut oil refining) Sooner or later ^these small players fall sick because of heavy competition=> loan defaults.
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1. Seasonal i ty

2. Strength

3. Credi t Rati ng

4. Excess Capaci ty

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5. New Tech=Ri sky

To improve yields: farmer/entrepreneur will need money for starting high density farming, greenhouse floriculture, controlled environment livestock farming, bio-technology, tissue culture, embryo transfer technology, bio-pesticides and bio-fertilizer, etc. But from Bankers point of view, the success of new technology = not been tested in actual situations / widely popular in India. So he fears high chances of business failure= loan defaults=NPA.

Therefore, 1. Bank manager will either refuse to give loan OR 2. He will give loan but charge higher interest rate for the additional risk. 3. He might give loan for the initial capital for buying plant, machinery, vehicle (for which government provides grants/subsidies) but not for the working capital requirements. By the way what is working capital requirement? 1. 2. 3. 4. 5. 6. Raw Materials, Consumables & Packing Materials Electricity, phone, internet, utility bills Administrative and Selling Exposes Repairs and maintenance salaries of workers monthlybribestofoodinspector

For Small sized food processing unit, the working capital requirement is quite high because high cost of raw material, many middlemen= low profits. Result? 1. Poor Economies of scale that we already saw in first article. (click me) 2. Cant do any timely up gradation of technology, cant improve quality of products / advertisement / marketing. 3. Dont have spare money for backward linkages with farmers. (e.g. contract farming, supplying farmer with seeds/fertilizer to get quality agro produce.)

Permission-raj
As an entrepreneur, even if you manage to get loan/finance, you still need following permissions before setting up a cold storage / food processing unit: 1. 2. 3. 4. 5. 6. 7. 8. Approval from district collector for change of land usage and land conversion. NOC from Gram Panchayat, if the land falls under Gram Panchayat. Approval of building plan Fire safety approval, If the building is taller than 15 metres. Approval under Factories Act. (has to be renewed periodically) NOC from Pollution Control Board. (has to renewed from time to time) SSI registration in case of Small Scale enterprises. Approval from local Excise Department for getting CENVAT exemption for Cold Storage equipment 9. Truckload of forms/formalities if you want to get grants/subsidies under government schemes.

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Thus, it takes lot of time (and bribes) to get so many permissions=> food-entrepreneur gets demotivated. Not just Food entrepreneur- any small entrepreneur has to go through same ragging by banks and government departments and as a result: l ow IIP + l ow GDP + l ow export + Hi gh CAD + Hi gh inflation and so many other problems to Indian economy.

License Raj
Today, Industrial license is not required for most food processing enterprises, except for alcohol and beer and those food items reserved for small scale sector (=Pickles, chutney, bread, mustard oil, ground nut oil.) But for long, food items were reserved for SSI=hampered the growth of this industry.

Taxation
1. Agriculture produces have long been subject to numerous taxes, charges: market fees, market cess, commission charges, Octroi entry tax, sales tax, weighing charges, labour charges for handling, loading and unloading, purchase tax, Rural Development cess etc. 2. For example, In Punjab, the total market charges on transactions of foodgrains are more than 15% of the final value (2011 data) Punjab market fee Purchase Tax VAT rural development fund (RDF) cess Punjab infrastructure development fund (PIDF) tax% 2% 4% 4% 3% 3%

^These are just the legit taxes, the commission by middleman is additional burden on the final consumer. 3. Tea/coffee/rubber plantation incomes are subjected to Income tax. Tea plantations also subjected to land tax in Assam. 4. Previously plastic packaging, aluminum packaging had been subjected to high excise duty (~16%)= high input cost for food industry.

Budget 2013: Agro and Food processing

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Lets look@how Budget 2013 will directly/indirectly help agriculture/food processing sector

$pending
Numbers not important, the point is truckload of cash allotted to help farmers (or atleast to pretend) Agro Ministry 25000 cr Agro Research 3000 cr Green Revolution To Eastern India 1000 cr Crop Diversification Program 500 cr Ago-Credit Target 7 lakh crores Rashtriya Krishi Vikas Yojana 9000 cr Integrated Watershed Program 5000 cr Small FarmersAgri Business Corporation 100 crores for Credit Guarantee Fund Farmer Producer Organization (FPO) lakhs per FPO RuralInfrastructureDevelopmentFund(RIDF) 20000 cr. NABARD 5000 cr. to construct warehouse

Budget 2013: Schemes/initiatives

That will directly/indirectly help agriculture/food processing sector Green Revol uti on Interest Subventi on Assam, Bihar, Chhattisgarh and West Bengal have increased their contribution to rice production. Interest subvention scheme for short-term crop loans Borrowers from private sector scheduled commercial banks also eligible. Nutri-Farms will cultivate newcropvari eti es rich in micro-nutrients such as iron-rich bajra, protein-rich maize and zinc-rich wheat. Pilot projects in districts most affected by mal nutri ti on. National Institute of Biotic Stress Management @Raipur to addressing plant protection issues. setup Indian Institute of Agricultural Bio-technology@ Ranchi Scheme to replant and rejuvenate coconut gardens in Kerala + Andaman & Nicobar. To support poultry, dairy farming and fisheries. Itll have sub-missions for increasing availability of feed + fodder Improving ani mal breeds to raise milk yields. (Dont you think this overlaps with the nationaldairymissionthatwesawinlast article!)

Nutri Farms

Insti tutes

Coconut

Nati onal Li vestock Mi ssi on

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Storage

NABARD to finance construction of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in the public and the private sectors. Infrastructure Debt Funds (IDF) already discussed earlier. Goto Mrunal.org/economy Target of skilling 50 million people in the 12th Plan period, including 9 million in 2013-14. (^food processing sector will benefit) Backward Regions Grant Fund New criteria for determining backwardness to be evolved. more details on BRGF at bottom of the article.

IDF

Ski l l

BRGF

Budget 2013: Taxation

That will directly/indirectly help agriculture/food processing sector Agricultural commodities will be exempted from the proposed Commodity Transaction Tax (CTT). Chindu introduced 1% TDS on transfer of immovable property but exempted agricultural land TDS from this. GST Work in progress. CTT

Income tax deduction

If you setup business in following category, youll be given tax-deduction (how to calculate income tax and deduction? already explained clickme) category cold chain facility warehousing facility for storage of agricultural produce warehousing facility for storage of sugar Bee-keeping and production of honey and beeswax income tax deduction 150% 150% 100% 100%

Custom Duty
reduced the duty on 1. Hazelnuts 2. De-hulled oat grain 1. raw sugar, white or refined sugar will not attract any export duty. But, in future, exemption may be withdrawn to regulate its export in case of shortage within India. 2. De-oiled rice bran oil cake

Exempted from duty

Excise Duty

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item milk, milk products nuts-fruits (Fresh and dried) veggies Sabudana (Tapioca Sago) processed fruits and vegetables, Soya Milk, Flavored milk

excise duty (2013) 0 0 0 0 2% (classified under merit goods) else 6%

Service tax: Negative list

Chindu put following services in negative-list (meaning theyre exempted from service tax). Area What is exempted from Service tax? Agro operations: cultivation, harvesting, threshing, seed testing etc. supply of farm labor Agro-machinery: renting/leasing processing @Farm: drying, fumigation, curing, packaging etc. which do not alter essential characteristics of agricultural produce but make it only marketable for the primary market; loading, unloading, packing, storage or warehousing of agro produce; Services of Agro-commission agent transport of chemical fertilizer and oilcakes; transport of various agro products, tea, coffee, sugar, milk, salt and edible oil etc. (except liquor.) Testing activities for agriculture and agricultural produce. (this is new serviced added in the negative list) agricultural extension services

Cul ti vati on

Food Processi ng

Suppl y Chai n

Transport

R&D/Support

Misc.
Although unrelated to the main title of this article, but lets get overview of following, since they found mention in the Budget 2013:

Backward Regions Grant Fund (BRGF)

Who? When? Why? What? Ministry of Panchayati Raj Institutions + Planning commission 2007 To reduce regional imbalance in development. gives additional Ca$h to backward regions

Has two components:

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More than 270 backward districts in 27 states 1. Di stri ctComponent Note: At least prepare overview of backward districts in your home-state for the profile based Interview questions @UPSC + for State PSC class 1-2 exams. Gives special funding to 2. StateComponent 1. 2. 3. 4. Bihar Odisha: the Kalahandi-Bolangir-Koraput (KBK) districts West Bengal UP: Bundelkhand Package

How does it work?

Ca$h Movement 1. from Union to State Consolidated Funds 2. from state to Panchayats. 3. Each district given min.1 crore. System of electronic tagging and tracking to ensure funds go to each Panchayat without delay or diversion. (jholachhap) NGOs to help in account-keeping and social audit. Panchayats will prepare plans for Pl anni ng improving infrastructure: water, sanitation, schools, street lights agrarian reforms can use money to fill gap/add value to other programs

Transparency

Impl ementati on Through people s participation.

Rashtriya Krishi Vikas Yojana (RKVY)

When Why? 2007, under 11th Five year plan (FYP) to achieve 4% annual growth in the agriculture sector to encourage States government to allocate more cash to agro and allied sectors

How much? More than 60,000 crores allotted in 12 th FYP. Sub-Schemes 1. Green In Eastern India: Assam, West Bengal, Orissa, Bihar, Jharkhand, eastern Uttar Revol uti on Pradesh and Chhattisgarh to improve in their rice cultivation 2. Pul ses 3. Edi bl e Oi l Promote Pulses Villages in Rainfed Areas. Oil Palms=increase area under cultivation Initiative on Vegetable Clusters to increase in the productivity and market
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4. Veggi es 5. Nutri Cereal s 6. Protei n 7. Fodder 8. Rai nfed 9. Saffron 10. Vi darbha 11. PPP

linkage of vegetables. bajra, jowar, ragi and other millets: create awareness regarding their health benefits. National Mission for Protein Supplements: to promote animal based protein production: milk, pigs, goats, fisheries. Accelerated Fodder Development Programme Rainfed Area Development Programme to improving productivity of crops in rainfed areas. Mission In Jammu & Kashmir. Intensified Irrigation project in Vidarbha, Maharashtra. PPP for Integrated Agriculture Development

Rashtriya Krishi Vikas Yojna (RKVY) has greater acceptance among states as it provides flexibility to formulate state-specific strategies States projects undertaken 1. 2. 3. 4. projects on piggery, wayside market sheds, area expansion through land terracing promotion of off-season vegetable cultivation,

Sikkim, Arunachal Pradesh and other North East States

Maharashtra Tamil Nadu, West Bengal, Bihar, Jharkhand and tripura Andhra Pradesh

5. low cost onion storage structures 6. farm ponds to tackle water stress 7. System of Rice Intensification (SRI) 8. vegetable cultivation through pandals and trellises. 9. underground pipe lines for irrigation 10. Promoting elite breed of murrah buffaloes 11. Community animal housing 12. check salinity ingress in coastal areas 13. Custom hiring centers providing farm machinery (to solve labour shortage problem.)
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Haryana and Punjab

Gujarat

Kerala

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RKVY chal l enges: 1. More than 80% of farmers have small/marginal landholdings= poor economies of scale. RKVY hasnt not effectively addressed the issue of land consolidation / land reforms. 2. Less than 10% of the plan outlet spent on Marketing / Post Harvest Management. 3. Often the projects proposed under RKVY are not in tune with priorities and developmental gaps identified in State Agricultural Plan (SAP). Next Ti me: we ll see with the supply chain management, upstream-downstream for food processing industries dealing with F&V (fruit and vegetables)

URL to article: http://mrunal .org/2013/08/agrofood-processi ng-export-dumpi ng-fdi -fi nancetaxati on-budget-provi si ons-codex-nwr-brgf-rkvy.html Posted By Mrunal On 24/08/2013 @ 13:36 In the category Economy

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