Budget 2022 | Three expectations for food processing and agribusiness

Representative image: AP

The agriculture sector is one of the mainstays of the economy, with approximately half of India’s working population involved in the sector. Interestingly, the percentage share of gross value added (GVA) of agriculture and allied sectors to the total economy improved from 17.6 percent (in 2018-19) to 20.2 percent (in 2020-21), as per NSO estimates.

The sector is one of the few ones which recorded growth even during the pandemic. Proactive government support and a string of policy measures with focus on bringing long-term structural changes in the agriculture industry augured well for the sector. However, there is a lot to be done in improving productivity, infrastructure, and quality of the produce.

The government recently announced the Production Linked Incentive (PLI) scheme across various categories (RTE/ RTC foods, fruits and vegetables, marine products, mozzarella cheese) which is expected to benefit the food processing industry in terms of improving the levels of processing and value addition. Technology has disrupted the agribusiness value chain which is testified by the number of startups and growing investor interest in the space. However, given the potential, the current levels of adoption are quite low.

Also, while India has been self-sufficient in major cereals and crops, there will be a stress on production and productivity as the food demand will go up. Sustainable production is a critical area which the government should focus in the upcoming Union Budget.

The top three expectations from Budget 2022 are:

Increase budget towards sustainable production and R&D

Given the focus on improving productivity from limited agricultural resources, the government may look towards creating enhanced allocation for raising awareness levels about sustainable farming practices, enabling access to inputs, farming techniques, and subsequent capacity building. Also, the allocation towards R&D should go up significantly in the upcoming Budget.

The allocation for agriculture R&D is a meagre Rs 8,514 crore in FY 2021-22 which is about 0.3 percent  of the agriculture GDP, and much less than global standards (China ~0.6 percent, United States ~1.2 percent, Brazil ~1.8 percent) . The enhanced allocation towards R&D would help in developing sustainable production methods, inputs, reduce import dependence on essential items such as pulses and oilseeds, and promote food safety and nutrition through focus on fortification.

Increase allocation in the PLI schemes to add other agriculture/horticulture crops

The outlay for the PLI schemes in the food processing sector (which contributes to around 12.8 percent of India’s GDP) has been Rs 10,900 crore. This has been relatively lower compared to sectors such as auto, and pharmaceuticals which contribute significantly lower to the country’s GDP. Also given the presence of significant MSMEs in the sector and lower levels of processing and marketable surplus, an increased outlay will give a boost to the sector, and help in exports and domestic consumption along with economic development. This is expected to have a multiplier effect on sectors such as agri-inputs, agri-equipment manufacturers, logistics, packaging players, and other stakeholders associated with the food and agribusiness value chain.

Enacting a national strategy/ policy on AgriTech

Technology has disrupted the agribusiness value chain, and AgriTech firms are addressing the various need gaps and challenges in the value chain which may help in improvement of production, productivity, quality, and driving the overall efficiency and transparency in the value chain. To make this a success, it is important to ensure adoption of technology and practices by farmers which requires behaviour change, awareness creation, and capacity building.

While there has been increased private investor activity in this space, there needs to be a cohesive policy which needs to be developed in collaboration with various stakeholders to improve penetration of AgriTech in India. Along with a national strategy, increased budgetary allocation may encourage farmers (specially the small and marginal farmers) adopt the new age AgriTech solutions in a risk reduced way.

Anand Ramanathan is Partner, Deloitte India, and Soumyak Biswas is Director, Deloitte Touche Tohmatsu India LLP. Views are personal, and do not represent the stand of this publication.