Investing in India’s Food Processing Sector: Production-Linked Incentive Scheme
- Foreign investors keen to tap into value addition opportunities in India’s food processing industry should note that the government has approved a production-linked incentive scheme targeting the industry.
- The goal of this PLI scheme is to increase the capacity of India’s domestic food processing ecosystem, boost Indian exports, and build-up the brand image of Indian food products in foreign markets.
- The Ministry of Food Processing Industries will provide greater details and seek an Expression of Interest from entity applicants by end of April 2021.
On March 31, the central government approved a new PLI scheme for the food processing sector, with a budget outlay of INR 109 billion (US$1.46 billion).
Incentives under the scheme will be disbursed for six years to 2026-27.
The government hopes that PLI beneficiaries will create 250,000 jobs, expand existing industrial capacity to generate output of processed food worth INR 334 million (US$4.4 billion), and boost exports.
Ultimately, the scheme intends to attract greater sectoral investment, accelerate agri-exports, push for rise in farmer incomes and remuneration for farm produce, and culminate in the growth of globally competitive Indian food brands.
The government plans to achieve this by supporting food manufacturing entities that meet minimum criteria as laid out in the Production-Linked Incentive Scheme for the Food Processing Industry (PLISFPI).
What are the eligibility criteria for PLI beneficiaries in India’s food processing industry?
The PLISFPI scheme is made up of two components:
- Incentivize the manufacture of four major food product segments: ready-to-cook/ready-to-eat foods, marine products, processed fruits and vegetables, and mozzarella cheese. Innovative and organic products from small and medium-sized enterprises (SMEs), such as eggs, egg products, and poultry meat, are covered under this component.
- Support the branding and marketing of select Indian food products abroad to enable their entry into international food markets and increase their visibility. For example, the scheme is considering providing grants for applicant entities to establish in-store branding, shelf space renting, and marketing.
How will the PLI scheme be implemented?
The PLISFPI will be implemented through a Project Management Agency (PMA). The PMA will appraise the applications and investment proposals, verify eligibility to claim support, and scrutinize eligibility of claims for disbursement of incentive.
Investors who want to avail the PLI scheme must commit to a minimum amount of sales and a minimum level of investment to each segment. If both are achieved, then under the scheme, eligible applicants will receive a percentage of the amount for incremental sales as subsidy in the following year.
How are the incentives disbursed?
The scheme is “fund-limited”. Thus, the cost shall be restricted to the approved amount, which be paid the following year. The maximum incentive payable to each beneficiary shall be fixed in advance at the time of approval of that beneficiary. Regardless of the entity’s achievement/ performance, this maximum incentive paid shall not be exceeded.
Selected beneficiaries will have to invest in plant and machinery (subject to the prescribed minimum) in the first two years, 2021-22 and 2022-23. Investments made in 2020-21 will be counted towards meeting the mandated investment.
The conditions of stipulated minimum sales and mandated investment will not be applicable for entities selected for making innovative/ organic products.
How to apply?
The Ministry of Food Processing Industries is expected to publish detailed scheme guidelines and roll-out the Expression of Interest (EoI) application by the end of April.
Investment outlook of the sector
From April 2000 to December 2020, India’s food processing sector received FDI worth US$10.24 billion. By 2030, the sector is expected to be worth over half a trillion dollars, making India the world’s fifth largest consumer market.
Multinational companies ITC Limited, Nestle, Parle, Britannia, and Hindustan Unilever Limited (HUL), are the sector’s top FMCG (fast-moving consumer goods) companies in India.
So far, they have welcomed the PLI scheme, which could fuel investment and vertical growth in the food processing sector. HUL commented that less than 10 percent of the food grown in India is processed, which reveals the untapped potential for value addition in the food sector besides increase in employment opportunities in agriculture.
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