The food processing industry in India is segmented into foodgrain, fruit/vegetable processing, milk and milk products, beverages, fish, poultry products, meat and meat products, aerated soft drinks, alcoholic beverages, breakfast cereals, bread, biscuits, confectioneries, malt protein and edible oils.
India is the second largest producer of fruits and vegetables in the world. However, the potential of the sector has been largely untapped with only 1.8-2% of fruit and vegetable output being processed.
The food-processing segment is highly fragmented with a large number of units operating in cottage industry/ small-scale sector.
The segment has tremendous potential for employment generation and exports. However, it suffers from poor transportation and storage facilities.
The aerated soft drink segment has great potential for expansion as can be made out from the low per capita consumption of 6 bottles p.a. in India as compared to 17 in Pakistan and 21 in China and Sri Lanka. The segment is highly price sensitive. According to NCAER, a 10% increase in price in this segment directly results in lowering demand by over 17%.
The alcoholic beverages segment attracts high duties both at the Central and State Government levels. The levy of state excise duty varies widely across the country. For example excise duty on some premium products of rum varies from as low as 11.5% in Haryana to 144% in Uttar Pradesh.
The tea industry is increasingly facing competition from aerated drinks. In order to combat the threat from aerated drinks, the industry needs re-positioning, by changing forms (like ice-tea), packaging, delivery systems and promotional policies. Production of tea during the year 2001 increased to 853.7 mn kgs from 846.5 mn kgs in 2000. However, tea exports dipped by 13% to 179.8 mn kgs from 206.8 mn kgs in 2000. Increased production in absence of export orders is leading to an adverse scenario for the domestic industry as prices have eased significantly.
Key Inputs
Malt, wheat, Oil Cake, Crude Palm Oil
Products
Abatement
on MRP
Excise
Customs
(Basic)
2000-01
2001-02
2000-01
2001-02
Butter, Cheese &
Ghee
NA
Nil
Nil
35%
35%
Concentrated (Condensed)
Milk in unit containers
35%
16%
16%
35%
35%
Sugar Boiled Confectionery
NA
16%
16%
35%
35%
Cocoa, Butter, Fat
and Oil
NA
16%
16%
35%
35%
Cocoa Powder
35%
16%
16%
35%
35%
Chocolate (including
drinking chocolate)
35%
16%
16%
35%
35%
Malted foods for
infants use
NA
Nil
Nil
15%
15%
Malted foods for
other than infants use
35%
16%
16%
35%
35%
Noodles in unit containers
35%
16%
16%
35%
35%
Biscuits in retail
packs upto 100gms and price upto Rs.5
40%
8%
16%
35%
35%
Biscuits manufactured
with the aid of power
40
16%
16%
35%
35%
Waffles & Wafers
having chocolate
35%
16%
16%
35%
35%
Branded & packed
jams, jellies & fruit juices
NA
16%
16%
35%
35%
Instant Coffee
35%
16%
16%
35%
35%
Ice Cream
45%
16%
16%
35%
35%
Branded Mineral Water
50%
16%
16%
35%
35%
Aerated Soft Drinks
/Water
50%
40%
32%
35%
35%
Major announcements in previous year's budget
Processed fruits and vegetables were exempted from excise duty.
Excise duty on aerated soft drinks and soft drink concentrate supplied to vending outlets was reduced from 24% to 16%.
Ice Creams and non-alcoholic beverages dispensed through vending machines were exempted from excise duty.
Customs duty on tea and coffee was raised from 35% to 70%.
CVD at suitable rate was levied on imported liquor depending upon the State excise rates.
Concessional rate of duty of 8% on biscuits in retail pack of 100 gms and price below Rs 5 was withdrawn and charged at the rate of 16% CENVAT.
Industry's demands from Union Budget 2002-03
Major demands by industry associations like Confederation of Indian Industry and United Planters Association of Southern India are as follows.
Excise duty difference between 'Branded' and 'Unbranded' foods should be removed.
Excise duty on sugar boiled confectionery up to a retail price of Rs 2 should be reduced from 16% to 8%.
Abatement should be increased to 40% of the retail price after necessary review, in case of products where abatement is currently at 35%.
Special Excise duty (SED) on aerated soft drinks/waters should be reduced from 16% to 8% and subsequently reduced to NIL in the subsequent budget.
To meet WTO commitment, basic customs duty on wines and spirits can be reduced to 190% in 2002, 170% in 2003 and 150% in 2004. The working of the CVD rate should be reviewed after considering the prevalent excise duty rates on similar types of indigenous liquor.
Excise duty on tea should be fully abolished for South India.
Machines required by the plantation industry for pulping, curing, pruning etc should be exempted from custom duty.
Key Players
Hindustan Lever, Nestle India, Britannia Industries, Cadbury India, Tata Tea, United Breweries, Shaw Wallace, Coco Cola, PepsiCo.
