Reforms needed to support Food and Drink following Union Budget 2020

By Shubhi Mishra

Ahead of Union Budget 2020, the food and drink industry had expected a lot of measures to boost the private consumption.

With quite a few issues on Finance Minister Nirmala Sitharaman’s table already, ranging from slowing demand, low industrial output and the overall GDP growth pegged at an 11-year low of 5%, Budget 2020 gives the food and drink sector a prima facia push. Industry stalwarts believe that, India need to phase out the old schemes and introduce a clear and transparent regime, which in turn can benefit the businesses.

A series of far-reaching reforms have been announced by the FM, showcasing steadfastness towards the Make in India campaign. The budget concentrates on infrastructure and agriculture development, which can directly increase the purchasing power and boost low consumer demand. The increased allocation of INR 1.6 trillion (GBP 17.2 billion) towards agriculture, reflects the intent to transform the agriculture sector and bring the necessary alterations.

The Government of India has made additional announcements to boost the exports, such as Export Credit Insurance Scheme, and Remission of Duties or Taxes on Export Product, which will digitally refund local taxes to exporters and will replace the current Merchandise Exports from India Scheme (MEIS).

The Budget also announced a host of incentives to benefit the dairy industry, doubling milk processing from the current 53.5 million metric tonnes to 108 million metric tonnes by 2025. The approach not only looks at developing the allied sectors but also engages in skilling and employment generation amongst the rural youth.

While there are efforts to improve the business investment climate and support Indian exports, the GOI continues to raise tariffs on imported food and drinks. The GOI has further increased Basic Custom Duty (BCD) on several food and drink products, including dairy products, cashew nuts, walnuts (shelled), fruit juices, crude edible vegetable oils, refined edible vegetable oils, soft drink concentrates, and few others. The changed BCD entered into force from 2 February, 2020, with the budget announcement, Government of India’s Ministry of Finance, issued a notification, directing various BCD changes as a part of the Finance Bill 2020.

India’s high import tariffs continue to hinder trade from various international suppliers including those from the UK. Also, limiting purchase of value-added imported foods to the higher income consumers.  In the current era of globalisation companies are willing to create reliable business partners and Indian high import tariffs act as a major limiting factor in this gambit.

Overall, the Union Budget 2020 gives mixed signals for the F&D sector, clearly showcasing the Government’s commitment towards the Make in India campaign as well as restrictive indication towards imports into Indian commerce. Needless to say, a budget announcement alone cannot bring in reforms and needs to be accompanied by bespoke implementation of schemes, campaigns, and allocated resources. India is aiming to become a USD 5 trillion economy in the near future, and we believe the food and drink sector is going to play an important role in achieving this ambitious goal. The detailed strategy and action plan, including schemes to be rolled out by the government to achieve these targets, remain to be seen.

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