Implementing GST to benefit food processing industry: Pawar

Agriculture Minister Sharad Pawar today said the processed food industry is facing problems due to the existing tax regime and hoped the implementation of the proposed GST would benefit the sector.

On growth potential of non-alcoholic beverages sector, he said major players are planning to invest around USD 10 billion by 2020 in this segment and advocated reforms at state level to make the sector globally competitive.

"The processed food industry has some issues with existing tax structure. 

I am hopeful that the implementation of the proposed single goods and services tax (GST) will be beneficial for this sector," Pawar said at an event here.

Pawar also released an ICRIER report that suggested major reforms including GST for improving global competitiveness of Indian non-alcoholic beverages sector.

On the GST issue, think-tank ICRIER countered some of the popular beliefs and said: "For instance, all survey participants pointed out that allowing foreign direct investment (FDI) in multi-brand retail alone cannot bring down inflation or help to streamline the supply chain, as has been envisaged by the government."

"It will depend on whether a GST is implemented and how the food processing sector in general and the non-alcoholic beverage sector in particular is treated under the GST. The treatment of the sector has to be such that it faces uniform low tax and other fiscal and regulatory barriers to the inter-state movement of goods are addressed," it said.

The report also suggested that India should learn from the experiences of countries such as the UK, Canada and Australia that have used low taxes to streamline the agro-supply chain.

ICRIER strongly recommended that bottled water should be taxed at par with juices to increase affordability as access to safe and hygienic potable water is limited in India.

"There should be uniform low taxes for all non-alcoholic beverages across different states for consumer health and safety reasons," the report said.

last week, Food Processing Secretary Siraj Hussain had said there was still not much clarity on how food products would be treated under the proposed indirect tax regime GST.

"The industry may wish to have all food products exempted from GST, but that is unlikely. In my sense, it is better (that) food products are covered under GST and let the prices of mass consuming goods be kept lower or else the purpose of GST will be defeated," he had said.

Goods and Services Tax (GST), touted as India's most far-reaching indirect tax reform, aims to remove barriers to movement of goods and services across states.

The Empowered Committee of State Finance Ministers is deliberating on the revised draft of the Constitutional Amendment Bill for introduction of the Bill.

Emphasising that there was need to further develop the non-alcoholic beverages sector in the country, Pawar said many reforms suggested by the ICRIER in the report "can only be implemented in the states."

The performance of this industry is better than other manufacturing sectors and it is projected to grow at record double-digit level for the next 10 years, he said.

"I am happy to note that major players in this sector are planning incremental investments to the extent of USD 10 billion by the year 2020," Pawar said.

For streamlining the clearance process for setting up of manufacturing facilities, the report said there is an urgent need to have uniform classification for the non-alcoholic beverages sector by the state pollution control boards.

The report also said India's ability to emerge as a manufacturing hub for non-alcoholic beverages is inhibited by poor infrastructure like power shortages and inconsistent supply of raw materials and high duties on intermediate products, especially packaging material.

The report further suggested that investment in the sector will automatically flow if the government, instead of giving subsidies, streamlines taxes, enhances transparency in governance and provides the necessary infrastructure.

Subsidies given to the industry for cold chains or setting up of manufacturing facilities do not meet the industry requirements, the report said.

"In fact, the high cost of doing business and high and multi-layered taxes erode the benefits of subsidies and therefore, the country is not receiving the desired investment from the corporate sector in areas such as cold chains and food processing," ICRIER said.

It also said a number of complex regulations that have affected the entire supply chain hindered the sector from reaching its full potential.

Unless reforms are initiated at a rapid pace, Indian companies will relocate to other countries and use the free trade agreement route to cater to the domestic market, the report added.

The current size of the Indian non-alcoholic beverages sector is estimated to be in excess of Rs 30,000 crore and accounts for over one per cent of country's GDP.