When Varun Chaudhury, government director of Nepal-based CG Corp Global, the makers of Wai Wai noodles, utilized to construct a food park in India, he anticipated the hassle to be an extension of the work his firm already does. A frontrunner within the food processing trade, the Rs 13,000 crore conglomerate’s enterprise in India spans a number of sectors, from FMCG (fast-paced shopper items) to hospitality. Nonetheless, Chaudhury, who’s steering the group’s FMCG arm, says he discovered the expertise unexpectedly difficult, with what he describes as sophisticated and stringent laws.
On the face of it, the federal government appears to be doing all it may to encourage the personal sector to construct and function food parks, for occasion, a Rs 50 crore money subsidy is given as a grant to companies that meet sure circumstances, an incentive that Anand Jha, CEO of Pristine Foods, calls a “one-of-a-kind initiative”. What derails the hassle is a number of nuts-and-bolts points, from undertaking allocations, land acquisitions, overcomplicated guidelines, poor advertising and a scarcity of involvement by state governments.
Source: Ministry of Food Processing Industries; figures embody oblique employment
Though India is a world chief in food manufacturing, it processes solely a small fraction of the output, an RBI (Reserve Bank of India) be aware from March 2020 estimates it at lower than 10 per cent. The Rs 85,000 crore food processing trade employs about 1.77 million individuals in 39,748 registered items, with an mixture output of $158 billion (Rs 11.5 lakh crore). An evaluation by Invest India says the trade may develop to $500 billion (Rs 36.6 lakh crore) by 2025.
To increase funding, the federal government has sanctioned 37 food parks beneath its Mega Food Park (MFP) scheme, with 21 operational and 16 beneath implementation. On February 5, Rameswar Teli, minister of state for food processing industries, knowledgeable the Rajya Sabha that the federal government “has been implementing the MFP scheme to create modern infrastructure for the food processing industry”. However, just one, Patanjali’s MFP in Haridwar, is successful. The authorities had projected that every park would have 25-30 working items, with Rs 250 crore of complete funding, Rs 450-500 crore of annual turnover, producing 5,000 direct and oblique jobs, and benefitting about 25,000 farmers. However, most MFPs are dwelling to between zero and eight items.
India’s food park scheme was first launched in 1992-93. At the time, state governments have been accountable for such tasks, and missing linkages with up- and down-stream services (uncooked supplies, transport, and so forth), they have been designed as industrial estates. In 2007-08, the central authorities introduced its MFP scheme, which seemed to the personal sector to construct and function such services, with plans to develop infrastructure like chilly storage items, ripening chambers, warehouses and packaging services that could possibly be leased out to farmers, small producers and native entrepreneurs. The goal of the scheme was to construct the infrastructure required to develop the worth chain from farms to markets. In September 2020, the scheme grew to become a part of the Centre’s Pradhan Mantri Kisan Sampada Yojana, with the parks additionally anticipated to generate jobs and improve farmers’ incomes.
Under the MFP scheme, particular objective automobiles (SPVs, a monetary/ organisational instrument) registered beneath the Companies Act are required for the execution, administration and monitoring of those parks. Central companies are permitted to carry as much as 26 per cent of the fairness in these SPVs, with the remainder held by personal sector promoters. Some of the circumstances for these SPVs to be arrange embody minimal valuations, the mixed internet price of SPV shareholders shouldn’t be lower than Rs 50 crore, and the anchor investor in an SPV should arrange at the least one processing unit within the park beneath its administration, with a minimal funding of Rs 10 crore. Under the scheme, the Centre gives 50 per cent of the undertaking value, as much as Rs 50 crore.
In the 13 years for the reason that MFP scheme was launched, solely 22 parks have change into operational. Worse, as Ritwik Bahuguna, an agribusiness guide and enterprise director with Wazir Advisors, says, just one park has turned a revenue.
The truth is that the scheme has attracted only a few corporates, and people who did make the leap are actually struggling. One drawback is that the laws governing the scheme, which need to be met for a grant to be obtained, are extraordinarily express on how these parks are to be arrange and run. This has acted as a deterrent for multinationals like PepsiCo, which have arrange profitable operations by following their very own fashions. Experts say that insisting on a selected set-up is counterproductive. In some circumstances, traders have been pushed into chapter 11, with others claiming to have spent over Rs 100 crore in establishing these services however being unable to search out companies prepared to lease items at these parks.
Another difficulty is that the MFP scheme initially required lead traders to associate with three or 4 different main gamers to arrange parks. Corporates aren’t at all times eager on such partnerships, citing administration difficulties and issues with establishing accountability for totally different duties. (This requirement has since been modified, single entities are actually permitted to arrange SPVs.) Another problematic coverage is that at the least one of many traders in an SPV is required to have a background within the food processing trade, in addition to 50 acres of land. The latter requirement brings its personal issues, similar to land conversion to industrial use, which requires a number of approvals.
Yet one other drawback is the circumstances that need to be met for the subsidies to be granted. While there’s justification for this, to stop the misuse of funds, the complexity of this course of additionally serves as a disincentive. Pranav Doshi, director of the Gujarat Agro Infrastructure Mega Food Park, explains that the grant is issued in a number of tranches, every of which require targets to be met. For occasion, earlier than the second tranche is launched, almost 60 per cent of the services within the park should have been leased out. This means traders need to commit giant sums within the set-up stage, and plenty of report having to spend as a lot as 50 per cent of the full funding simply to construct roads and get electrical energy for their parks. The fourth and fifth tranches are launched solely after the undertaking is accomplished and has begun operation. This requires authorities departments to difficulty approvals and no-objection certificates, one other potential supply of delays.
For occasion, in December 2019, Sukhjit Mega Food Park and Infra Ltd appealed to the food processing ministry to loosen up the requirement of 40 per cent development completion for the third tranche of the grant to be launched. One motive cited for the delay was a pending no-objection certificates from the Central Ground Water Authority resulting from an order from the National Green Tribunal. Industry gamers say that the timelines for completion, 4 to 5 years, are unrealistic given what number of approvals are required from totally different authorities departments. “I got my land in 2013,” says Doshi. “I am still trying to get approvals. I am waiting for permissions from the Central Ground Water Authority. We asked for permission to draw 1.4 million litres per day. Today, my requirement is 200,000 litres per day. I am asking for approval [assuming] all my units are leased out, but [even before that] I have to deposit money for the entire use. Who can afford to pay six years in advance?”
Another hurdle is the dearth of transparency in undertaking allotments. Industry members and analysts say that the primary spherical of approvals for MFPs have been granted primarily based on political issues, highlighting Shaktiman Park in Amethi (which was later cancelled), and one other in Jahangirpuri, former president Pranab Mukherjee’s constituency. “The first phase of allotments was all wrong, and most of those projects are in a big mess,” says Bahuguna. “Some have been cancelled; others have nothing to show even after 10 years.” Yet one other drawback is taxes, beneath GST, unit leases are taxed at 15-18 per cent, which hurts enterprise competitiveness.
In a big improvement, in January, the ministry of food processing permitted items in food parks to be bought, relatively than leased. This could possibly be a recreation-changer, Pristine Foods’ Jha says that almost all companies in India wish to personal their factories, relatively than leasing items. He says that he has just one manufacturing facility working out of his park in Bihar’s Khagaria district, and this, almost 5 years after starting work.
Three of the most important issues for builders are entry to land, labour and capital. Land is an particularly troublesome difficulty. While Chaudhury owned the land for his park in Roopangarh, Jha had to purchase his from the Bihar Industrial Development Authority (BIDA). This was not a one-cease resolution, nonetheless, whereas BIDA owned the land, it had not taken possession of it. When Pristine Foods arrived to start out work, it discovered that the land was being tilled by farmers. Jha says that taking possession was a painful, arduous course of.
Funding is one other main drawback. Several gamers say that tasks are caught due to a scarcity of capital. To keep away from such delays, the federal government has now made it obligatory for SPVs to safe a time period mortgage earlier than being granted approval to start work. However, this poses a distinct set of challenges, since proving enterprise viability is essential to acquiring a mortgage, entry to funding stays troublesome.
Location can also be essential. For occasion, Doshi’s park is about 50 km outdoors of Surat, and subsequently has good entry to cooperatives and native companies. (This is not any assure of success, nonetheless, whereas his undertaking is proving capable of repay loans, it hasn’t but turned a revenue.) Parks situated in rural areas have it a lot worse. Poor infrastructure and issue in accessing supplies and labour compound the price of manufacturing and harm competitiveness. One park in Ranchi has change into an NPA (non-performing asset) on account of such points, with one other in Punjab being taken to the NCLT (National Company Law Tribunal) for winding up proceedings, regardless of being accomplished.
A key motive that Patanjali Herbal Food Park is the one success story is that every one the infrastructure items developed inside it have been leased out to Patanjali’s FMCG enterprise itself. Few different companies could make use of such an enormous array of infrastructure for their very own operations. Most food parks work in isolation, from the establishing of fundamental infrastructure to accessing uncooked supplies and labour and growing linkages with up- and down-stream industries. Developers say the hassle doesn’t produce commensurate returns. Other issues come from the truth that the food processing trade is dominated by small producers preferring cheaper manufacturing services, items at food parks are usually costlier, reflecting the developer’s funding in establishing infrastructure.
Many builders who constructed parks beneath the MFP scheme with out the required expertise or understanding of what the trade required now discover themselves with underutilised infrastructure, struggling to draw massively value-delicate small producers who can discover cheaper choices elsewhere. Marketing these services is one other drawback, even seasoned FMCG gamers like Chaudhury have needed to faucet into private networks to search out companies prepared to lease items.
Bahuguna means that food park builders spend money on digital advertising to maximise their attain, and that the federal government promote these parks. “The ministry needs to ensure [support],” he says. “For most food parks, marketing initiatives are restricted to a few hundred kilometres, the ministry has the bandwidth to promote the parks to a global audience.” The problem is extra sophisticated when one considers that totally different sorts of food parks, these specialising in services for seafood or poultry, foodgrains or fruits, can have very totally different infrastructural set-ups, and subsequently should be promoted to very totally different potential shoppers.
Some say that state governments ought to play an even bigger function. “The states have to play an active role in supporting the parks,” says Jha. Potential options embody tax incentives, just like the waiving of stamp obligation or state GST for a restricted interval. Marketing help would additionally assist in getting companies to lease items. The ministry of food processing industries has been tweaking its insurance policies on this regard, and is engaged on guaranteeing higher authorities involvement in all levels of tasks, from sanctioning to implementation. One resolution is for SPVs to have a state consultant on the board to assist steer these items by means of procedural bottlenecks, this has been carried out.
At the second, the way forward for many MFPs seems shaky. Many may wind up earlier than the NCLT. Those that survive would require loads of assist. With the scheme now being co-opted into the Pradhan Mantri Kisan Sampada Yojana, the federal government must transfer past easy monetary incentives to make sure success. This contains higher diligence within the granting of licences, advertising help to accomplished tasks, higher monitoring of tasks in improvement, lowering crimson tape, and the like.
On a optimistic be aware, to deal with funding points, a seed fund has been created with NABARD (the National Bank for Agriculture and Rural Development). Doshi, who has made use of this facility, says, “NABARD is focused on ensuring that loans don’t go bad. It has a quarterly payment plan and ballooning, not equated monthly instalments. That is a big respite.”
A report from ICRIER (the Indian Council for Research on International Economic Relations) additionally highlights that the wants of various traders differ, and that the ministry of food processing ought to tailor its schemes accordingly, steering away from the ‘one size fits all’ precept to 1 that’s extra cognisant of particular necessities.
The success of such an initiative is crucial for any variety of causes, from assembly political guarantees like rising the Indian economic system to $5 trillion and doubling farm incomes, to boosting export earnings and catching up with different international locations by way of the share of food that’s processed.
The MFP scheme is a traditional instance of a effectively-intentioned scheme stymied by paperwork and over-regulation. Excessive specs round how MFPs needs to be arrange and operated have stifled the spirit of entrepreneurship, although bureaucrats say that such stringent laws have been crucial to stop fly-by-night time operators. But the federal government has classes to study from its personal successive schemes, the latest one being the Production Linked Incentive scheme that offers corporations incentives on incremental gross sales with out forcing them to suit right into a mannequin. While the grant might need made the MFP scheme look engaging, it has to work in tandem with the enabling ecosystem of a enterprise-pleasant atmosphere.