NO THOUGHT FOR FOOD
India’s ambitious attempt to develop large food processing hubs across the country has not yielded the desired results. At the heart of the failure lies a tale of misguided policies, botched implementation and basic infrastructure issues
Misguided policies and botched implementation have sunk the scheme to launch modern food processing hubs
When Varun Chaudhury, executive director of Nepal-based CG Corp Global, the makers of Wai Wai noodles, applied to build a food park in India, he expected the effort to be an extension of the work his company already does. A leader in the food processing industry, the Rs 13,000 crore conglomerate’s business in India spans several sectors, from FMCG (fast moving consumer goods) to hospitality. Nonetheless, Chaudhury, who is steering the group’s FMCG arm, says he found the experience unexpectedly challenging, with what he describes as complicated and stringent regulations.
On the face of it, the government seems to be doing all it can to encourage the private sector to build and operate food parks—for instance, a Rs 50 crore cash subsidy is given as a grant to businesses that meet certain conditions, an incentive that Anand Jha, CEO of Pristine Foods, calls a “one-of-a-kind initiative”. What derails the effort is a host of nutsand-bolts issues, from project allocations, land acquisitions, overcomplicated rules, poor marketing and a lack of involvement by state governments.
Though India is a world leader in food production, it processes only a small fraction of the output—an RBI (Reserve Bank of India) note from March 2020 estimates it at less than 10 per cent. The Rs 85,000 crore food processing industry employs about 1.77 million people in 39,748 registered units, with an aggregate output of $158 billion (Rs 11.5 lakh crore). An assessment by Invest India says the industry could grow to $500 billion (Rs 36.6 lakh crore) by 2025.
To boost investment, the government has sanctioned 37 food parks under its Mega Food Park (MFP) scheme, with 21 operational and 16 under implementation. On February 5, Rameswar Teli, minister of state for food processing industries, informed the Rajya Sabha that the government “has been implementing the MFP scheme to create modern infrastruc
ture for the food processing industry”. However, only one—Patanjali’s MFP in Haridwar—is a success. The government had projected that each park would have 25-30 operating units, with Rs 250 crore of total investment, Rs 450-500 crore of annual turnover, producing 5,000 direct and indirect jobs, and benefitting about 25,000 farmers. However, most MFPs are home to between zero and eight units.
India’s food park scheme was first introduced in 1992-93. At the time, state governments were responsible for such projects, and lacking linkages with upand down-stream facilities (raw materials, transport, etc), they were designed as industrial estates. In 2007-08, the central government announced its MFP scheme, which looked to the private sector to build and operate such facilities, with plans to develop infrastructure like cold storage units, ripening chambers, warehouses and packaging facilities that could be leased out to farmers, small manufacturers and local entrepreneurs. The aim of the scheme was to build the infrastructure required to develop the value chain from farms to markets. In September 2020, the scheme became part of the Centre’s Pradhan Mantri Kisan Sampada Yojana, with the parks also expected to generate jobs and increase farmers’ incomes.
Under the MFP scheme, special purpose vehicles (SPVs, a financial/ organisational instrument) registered under the Companies Act are required for the execution, management and monitoring of these parks. Central agencies are permitted to hold up to 26 per cent of the equity in these SPVs, with the rest held by private sector promoters. Some of the conditions for these SPVs to be set up include minimum valuations—the combined net worth of SPV shareholders should not be less than Rs 50 crore—and the anchor investor in an SPV must set up at least one processing unit in the park under its management, with a minimum investment of Rs 10 crore. Under the scheme, the Centre provides 50 per cent of the project cost, up to Rs 50 crore.
In the 13 years since the MFP scheme was launched, only 22 parks have become operational. Worse, as Ritwik Bahuguna, an agribusiness consultant and business director with Wazir Advisors, says, only one park has turned a profit.
The fact is that the scheme has attracted very few corporates, and those that did take the plunge are now strug
“I HAVE HAD TO TAP INTO MY PERSONAL NETWORK TO GET BUSINESSES TO THE FOOD PARK. MARKETING SUPPORT IS CRUCIAL” VARUN CHAUDHURY Executive Director, CG Corp Global
gling. One problem is that the regulations governing the scheme, which have to be met for a grant to be obtained, are extremely explicit on how these parks are to be set up and run. This has acted as a deterrent for multinationals like PepsiCo, which have set up successful operations by following their own models. Experts say that insisting on a specific set-up is counterproductive. In some cases, investors have been pushed into bankruptcy, with others claiming to have spent over Rs 100 crore in setting up these facilities but being unable to find businesses willing to lease units at these parks.
Another issue is that the MFP scheme initially required lead investors to partner with three or four other major players to set up parks. Corporates are not always keen on such partnerships, citing management difficulties and problems with establishing accountability for different responsibilities. (This requirement has since been modified—single entities are now permitted to set up SPVs.) Another problematic policy is that at least one of the investors in an SPV is required to have a background in the food processing industry, as well as 50 acres of land. The latter requirement brings its own problems, such as land conversion to industrial use, which requires multiple approvals.
Yet another problem is the conditions that have to be met for the subsidies to be granted. While there is justification for this—to prevent the misuse of funds—the complexity of this process also serves as a disincentive. Pranav Doshi, director of the Gujarat Agro Infrastructure Mega Food Park, explains that the grant is issued in several tranches, each of which require targets to be met. For instance, before the second tranche is released, nearly 60 per cent of the facilities in the park must have been leased out. This means investors have to commit large sums in the set-up stage—and many report having to spend as much as 50 per cent of the total investment just to build roads and get electricity for their parks. The fourth and fifth tranches are released only after the project is completed and has begun operation. This requires government departments to issue approvals and no-objection certificates, another potential source of delays.
For instance, in December 2019, Sukhjit
Mega Food Park and Infra Ltd appealed to the food processing ministry to relax the requirement of 40 per cent construction completion for the third tranche of the grant to be released. One reason cited for the delay was a pending no-objection certificate from the Central Ground Water Authority due to an order from the National Green Tribunal. Industry players say that the timelines for completion—four to five years—are unrealistic given how many approvals are required from different government 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 lack of transparency in project allotments. Industry members and analysts say that the first round of approvals for MFPs were granted based on political considerations, highlighting
Shaktiman Park in Amethi (which was later cancelled), and another 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 another problem is taxes—under GST, unit leases are taxed at 15-18 per cent, which hurts business competitiveness.
In a significant development, in January, the ministry of food processing permitted units in food parks to be sold, rather than leased. This could be a game changer—Pristine Foods’ Jha says that most businesses in India want to own their factories, rather than leasing units. He says that he has only one factory operating out of his park in Bihar’s Khagaria district, and this, nearly five years after beginning work.
Three of the biggest problems for developers are access to land, labour and capital. Land is an especially difficult issue. While Chaudhury owned the land for his park in Roopangarh, Jha had to buy his from the Bihar Industrial Development
Authority (BIDA). This was not a one-stop solution, however—while BIDA owned the land, it had not taken possession of it. When Pristine Foods arrived to start work, it found that the land was being tilled by farmers. Jha says that taking possession was a painful, arduous process.
Funding is another major problem. Several players say that projects are stuck because of a lack of capital. To avoid such delays, the government has now made it mandatory for SPVs to secure a term loan before being granted approval to begin work. However, this poses a different set of challenges—since proving business viability is crucial to obtaining a loan, access to funding remains difficult.
Location is also crucial. For instance, Doshi’s park is about 50 km outside of Surat, and therefore has good access to cooperatives and local businesses. (This is no guarantee of success, however—while his project is proving able to repay loans, it hasn’t yet turned a profit.) Parks located in rural areas have it much worse. Poor infrastructure and difficulty in accessing materials and labour compound the cost of production and hurt competitiveness.
“THE GOVT IS IMPLEMENTING THE MFP SCHEME TO CREATE MODERN INFRASTRUCTURE FOR THE FOOD PROCESSING INDUSTRY” RAMESWAR TELI Minister of State, Food Processing Industries
One park in Ranchi has become an NPA (non-performing asset) as a result of such issues, with another in Punjab being taken to the NCLT (National Company Law Tribunal) for winding up proceedings, despite being completed.
Akey reason that Patanjali Herbal Food Park is the only success story is that all the infrastructure units developed within it have been leased out to Patanjali’s FMCG business itself. Few other businesses can make use of such a vast array of infrastructure for their own operations. Most food parks work in isolation, from the setting up of basic infrastructure to accessing raw materials and labour and developing linkages with up- and downstream industries. Developers say the effort does not produce commensurate returns. Other problems come from the fact that the food processing industry is dominated by small manufacturers who prefer cheaper production facilities— units at food parks are typically more expensive, reflecting the developer’s investment in setting up infrastructure.
Many developers who built parks under the MFP scheme without the necessary experience or understanding of what the industry required now find themselves with underutilised infrastructure, struggling to attract hugely cost-sensitive small manufacturers who can find cheaper options elsewhere. Marketing these facilities is another problem—even seasoned FMCG players like Chaudhury have had to tap into personal networks to find businesses willing to lease units.
Bahuguna suggests that food park developers invest in digital marketing to maximise their reach, and that the 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 challenge is more complicated when one considers that different kinds of food parks—those specialising in facilities for seafood or
poultry, foodgrains or fruits—will have very different infrastructural set-ups, and therefore need to be promoted to very different prospective clients.
Some say that state governments should play a bigger role. “The states have to play an active role in supporting the parks,” says Jha. Potential solutions include tax incentives, like the waiving of stamp duty or state GST for a limited period. Marketing support would also help in getting businesses to lease units. The ministry of food processing industries has been tweaking its policies in this regard, and is working on ensuring greater government involvement in all stages of projects, from sanctioning to implementation. One solution is for SPVs to have a state representative on the board to help steer these units through procedural bottlenecks—this has been implemented.
At the moment, the future of many MFPs looks shaky. Many could land up before the NCLT. Those that survive will require a lot of help. With the scheme now being coopted into the Pradhan Mantri Kisan Sampada Yojana, the government will have to move beyond simple financial incentives to ensure success. This includes greater diligence in the granting of licences, marketing support to completed projects, better monitoring of projects in development, reducing red tape, and the like.
On a positive note, to address funding issues, 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) also highlights that the needs of different investors vary, and that the ministry of food processing should tailor its schemes accordingly, steering away from the ‘one size fits all’ principle to one that is more cognisant of specific requirements.
The success of such an initiative is essential for any number of reasons— from meeting political promises like growing the Indian economy to $5 trillion and doubling farm incomes, to boosting export earnings and catching up with other countries in terms of the percentage of food that is processed.
The MFP scheme is a classic example of a well intentioned scheme stymied by bureaucracy and overregulation. Excessive specifications around how MFPs should be set up and operated have stifled the spirit of entrepreneurship, though bureaucrats say that such stringent regulations were necessary to prevent fly-by-night operators. But the government has lessons to learn from its own successive schemes, the most recent one being the Production Linked Incentive scheme that gives companies incentives on incremental sales without forcing them to fit into a model. While the grant might have made the MFP scheme look attractive, it has to work in tandem with the enabling ecosystem of a business-friendly environment. ■