The government’s Production Linked Incentive (PLI) scheme involving a total expenditure of Rs. 10,900 crores for the food processing sector would benefit the domestic dairy sector, mainly the value-added products (VADP)s like mozzarella cheese and ready to consume product categories.
The scheme offers incentives based on sales growth based on investment incurred by companies between FY22 and FY27 with the base year being FY20 for the eligibility criteria for the first four years. For 5th and 6th year, the base year would shift to FY2022 and FY2023 respectively.
ICRA expects the scheme to fuel incremental investments of approximately Rs. 500-600 crores by organised players in the designated products over the said time period.
The scheme is a welcome step towards encouraging investments by dairy sectors in VADPs and help in integrating the entire dairy supply chain. Companies with significant presence in product categories like mozzarella cheese and ready to consume milk-based processed beverages would benefit from PLI incentives. In the first phase, four large dairy players have been shortlisted in category I of the scheme.
Introduction of dairy VADPs under the PLI scheme for food processing demonstrates the Centre’s focus on strengthening competences in this segment and extending the market.
Within the dairy sector, VADP segment has been growing at a healthy pace aided by rising disposable incomes, changing dietary preference and healthy demand from institutional and QSR segments.
The GoI has also been supporting the dairy processing and value addition through Dairy Processing & Infra Development fund (DPIDF) and Animal Husbandry Infrastructure Development (AHIDF) funds. The National Dairy Plan (NDP) Phase II, with outlay of Rs. 8,000 crores will carry forward the Mission Milk initiatives for the next period of five years.
Incremental sales CAGR linked incentives would push the dairy players to augment their dairy processing capacities. Healthy growth prospects post-Covid impact; will enable them help achieve incentive targets. The industry is expected to continue with moderate capex plans to aid the growth in organised dairy segments with portfolio expansion.