India’s food processing sector is one of the largest in the world and its output is estimated to reach US$ 535bn by 2025-26. It contributes 12.8% to India’s GDP. And for the upcoming budget on 1st February, food processing industry has requested to the government to increase its capital allocation.
Also, various reports suggest that by 2030, Indian annual household consumption is expected to triple, making India the fifth-largest consumer in the world. In that context, to capture more market opportunities, it is imperative to increase the processing rate through modernization and technological upgradation.
Industry experts believe that to encourage modernization, any capital investment in existing food processing projects should be extended up to 50% of accelerated depreciation. This will be helpful in bringing the food processing units up to speed with other sectors like energy, environment, textiles, etc., which enjoy accelerated depreciation up to 150%. It would be encouraging to reintroduce the investment development allowance at the same time.
Also, the government can provide the currently underutilised Rs. 2000 crore fund created by NABARD for the modernization of processing units in designated food parks to all food processing units that will help run the units to their full potential.
Extending the benefits of the SAMPADA scheme to the outside of Mega Food Parks will help with more cash flow and a level playing field. For existing food processing projects, any additional capital investment of more than 50% of the existing book value of plant and machinery should be treated as new investments and should also be eligible for a 5-year tax holiday under section 80IB (11A).
Presently, processing, preservation, and packaging of fruits and vegetables, dairy products, meat and meat products, poultry, and marine life are permitted under an income tax deduction. But preparation and value additions are not covered. Therefore, there is a request for the government to amend this to incorporate preparation and value-added of the processed food products to be eligible for an income tax deduction.
One of the key pillars of the government’s vision of promoting “Brand India” is promoting Indian-branded food items. In that context, a 200% deduction on expenditure incurred on promoting Indian-branded food items would be encouraging.