Reflections on Budget 2022 – Food and Drink

India announced Union Budget 2022 with a focus on growth and all-inclusive welfare, with fewer specifics for the Food and Drink sector.

The catastrophic impact of COVID-19 has been shadowing the world, including India for the past two years. However, the Indian market is emerging from the appalling impact of the global pandemic remarkably well. The economy is expected to grow at 9.2 percent in FY21-22, followed by 8-8.5 percent growth in FY22-23.

Fast-tracked rates of vaccination and considerably lessened mobility restrictions have mended business and consumer confidence. Nonetheless, the possibility of newer variants of the virus reducing the efficacy of vaccines, supply chain disruptions, a weakened labour market, and inflation continue to cloud the overall trade outlook.

Amidst the celebrations of ‘Azadi ka Amrit Mahotsav,’ on 1 February 2022, Indian Finance Minister Nirmala Sitharaman presented the Government of India’s Union Budget for the Fiscal Year 2022/23, marking the start of ‘Amrit Kaal,’ a 25-year journey leading up to India @100. During her speech, the FM emphasized that the focus will remain on the PM Gati Shakti (the PM’s infrastructure connectivity project), inclusive development, productivity enhancement, sunrise opportunities, energy transition, climate action, and financing of investments.

Although the Finance Minister touched upon most aspects expected, no major review of the structure of import tariffs and changes to India’s Customs and Central Excise Board regulations and duty rates have been made. A few products from the food and drinks sector gained customs duty amendment,  namely cocoa and fresh fish in which will see changes on Basic Customs Duty (BCD) come into force on 1 May 2022. (Reference: Customs Notification No. 02/2022)

India Union Budget: Agriculture, Food, and Drink Sector Applicable Changes

In addition, a concessional rate of duty will be revoked in a phased manner on various products falling under chapter 84, which includes – Marine seawater pumps with fibre impellers and automatic fish/prawn feeders and machinery for the industrial preparation of food or drink. Several notifications have also been amended to provide clarity regarding Agriculture and infrastructure Development Cess and health cess, besides the applicable BCD (Reference: Customs Notification No.08/2022). Furthermore, new tariff entries have been introduced to align the Harmonised System (HS) nomenclature 2022 as published by World’s Customs Organisation. (Reference: Customs Notification No. 03/2022).

Agriculture and Allied Sector

Gross Value Add in agriculture and industry is estimated to grow by 3.9 percent. Here are some of the highlights of the Budget across industry sub-sectors:

• Natural Farming: Chemical free farming to be promoted with a spotlight on farmer’s lands in 5 kilometre corridor along the Ganga river corridor. Additionally, the State universities will be encouraged to include natural farming as a part of the curriculum.
• Fertiliser Sector: The fertiliser industry has received Rs 1.05 lakh crore (approx. GBP 10 billion) as subsidies with Rs 0.63 lakh crore (GBP 600 million) earmarked as the urea subsidy and the remaining Rs 0.42 lakh crore (GBP 400 million) earmarked for the Nutrient Based Subsidy. Enhancing of agriculture credit and direct payment of Minimum Support Price (MSP) value to farmer’s account. High subsidies continue to support the agriculture sector while taking care of the massive spurt in prices of input commodities during the year.
• Ethanol: Roadmap for ethanol blending receives further policy support as blending of fuel is a key Government priority. To encourage the efforts for blending of fuel, unblended fuel shall attract an additional differential excise duty of Rs 2/litre (GBP 0.02/litre) from 1 October 2022. The levy of additional excise duty on unblended fuel would encourage ethanol blending of fuel. It’s a definite boost to the sector and is expected to be positive for sugar companies.
• Oilseed Production: Additional acreage will be brought under oilseeds cultivation through rice fallow, intercropping, high potential districts, and non-traditional states/seasons. This will support the domestic production and aid in reduction in edible and other oil import dependency.
• Technology in Agriculture: Digitalization theme will be backbone for the agricultural sector like promoting the usage of drones for crop assessment, digitalization of land records, offer hi-tech services to farmers, and promote research and development.

Hospitality and Tourism

One of the top contributors to India’s foreign exchange earnings and employment generation, the hospitality industry has been under stress for a prolonged period due to uncertainty around the COVID-19 pandemic and the related restrictions. International tourism declined by 74 percent globally in 2020. The road to this industry’s return to normalcy is still unclear, but a pertinent effort to bring it on track is seen in this Budget. Additional Emergency Credit Line Guarantee Scheme (ECLGS) amount has been earmarked for the hospitality sector, which will be extended by a year to March 2023.

The increase in the scheme’s guarantee cover exclusively for the hospitality industry will ensure adequate availability of credit backed by the government for the sector and the extension in the scheme itself will ensure sustained capital support to the sector. This support will help companies meet their operational liabilities and restart their business, positive for both international and national businesses in the food and drink sector.

Final take

To summarise, on one hand industry sources welcome the Government’s efforts to enhance economic growth, by laying down a strong foundation for the next 25 years. On the other hand, the announcement misses a big consumption boost that many see as would be beneficial. The Union Budget has once again emphasized the importance of Ease of Doing Business and UKIBC on behalf of the UK F&D businesses hope this continues to be incorporated in years ahead.