What is Food Processing

Food Processing includes process under which any raw product of agriculture, dairy,
animal husbandry, meat, poultry or fishing is transformed through a process (involving
employees, power, machines or money) in such a way that its original physical properties
undergo a change and the transformed product has commercial value and is suitable for
human and animal consumption.

It also includes the process of value addition to produce products through methods such
as preservation, addition of food additives, drying etc. with a view to preserve food
substances in an effective manner, enhance their shelf life and quality.

Scope of FPI in India:

India is the world's second largest producer of fruits & vegetables after China but hardly 2% of
the produce is processed.
India is among the top 5 countries in the production of coffee, tobacco, spices, seeds etc. With
such a huge raw material base, we can easily become the leading supplier of food items in the
world.
In spite of a large production base, the level of processing is low (less than 10%).
Approximately 2% of fruits and vegetables, 8% marine, 35% milk, 6% poultry are processed.
Lack of adequate processable varieties continues to pose a significant challenge to this sector.
Economic Survey 2020: During the last 6 years ending 2017-18, Food Processing Industries
sector has been growing at an average annual growth rate of around 5.06 per cent.
Employment: According to the Annual Survey of Industries for 2016-17, the total number of
persons engaged in registered food processing sector was 18.54 lakhs. (whereas unregistered
FPOs supports 51.11 lakh workers)
Farmer Beneficiaries: The SAMPADA scheme is estimated to benefit about 46.37 lakh farmers
and generate about 5.6 lakh direct/ indirect employment (ES 2020 data).
Curbing Distress Migration: Provides employment in rural areas, hence reduces migration from
rural to urban.

Significance of the food processing industries:

The Food Processing Industry (FPI) is of enormous significance as it provides vital linkages and
synergies that it promotes between the two pillars of the economy, i.e. agriculture and industry.

● Employment Opportunities: Food processing industries can absorb a major share of

workers from the agriculture sector, who face disguised unemployment. It can lead to
better productivity and GDP growth.
● Prevents Wastage: Nearly one-third of the food that is produced each year goes
uneaten, costing the global economy over $940 billion as per report by World Resources
Institute (WRI) India is biggest producer of numerous fruits and vegetable. Most of these
are perishable and have very low shelf life. This is the major reason for high percentage
of wastage. Their shelf life can be increased through food processing. Value Addition:
Products such as tomato sauce, roasted nuts, de-hydrated fruits are in high demand.
● Reduce malnutrition: Processed foods when fortified with vitamins and minerals can
reduce the nutritional gap in the population.
● Boosts Trade and Earns Foreign exchange: It is an important source of foreign
exchange. For e.g. Indian Basmati rice is in great demand in Middle Eastern countries.
 ● Food processing is one of the six superstar sectors under the GoI’s, Make in India
initiative and has the potential to transform India as a leading food processing
destination of the World.
● Curbing Food Inflation: Processing increases the shelf life of the food thus keeping
supplies in tune with the demand thereby controlling food-inflation. For e.g. Frozen
peas/ corn are available throughout the year. Similarly, canned onions under Operation
Greens can achieve price stability.
● Rural developement :Food processing units/industries promote industrial growth in rural
areas, create livelihood/ employment opportunities, check rural-urban migration and
ultimately improve rural economy for greater socio-economic benefits.
● Doubling of farmers’ income: provides much needed income support to farmers
● Crop-diversification: Food processing will require different types of inputs thus creating
an incentive for the farmer to grow and diversify crops.

Impediments faced by FPI:

Supply chain issues:
high cost of raw material (driven by low productivity and poor agronomic practices)
Presence of intermediaries and APMC acts make it more complicated.
high cost of packaging, finance, transport and distribution lack of organized retail Logistics
cost: Logistics cost is high for transportation, warehousing, material handling etc. In India,
Logistics accounts for about 13% of GDP, which translates to over USD130 billion. This cost is
significantly higher as compared most developed countries.
Economic issues:
In India, the food processing industry is highly fragmented and is dominated by the unorganized
sector
Inadequate infrastructure:
The inadequate support infrastructure which is the biggest bottleneck in expanding the food
processing sector, in terms of both investment and exports includes: long and fragmented
supply chain inadequate cold storage and warehousing facilities
Inadequate road, rail and port infrastructure. lack of modern logistics infrastructure such as
logistics parks, integrated cold chain solutions, last mile connectivity
Political issues: Absence of Comprehensive national level policy on food processing sector:
The food processing sector is governed by statutes rather than a single comprehensive policy
on food processing. India urgently needs a national food processing policy which incorporates
tax breaks for the sector.

Government Initiatives to boost the FPI:

The Ministry of Food Processing Industries (MoFPI) is implementing PMKSY (Pradhan Mantri
Kisan SAMPADA Yojana). The objective of PMKSY is to supplement agriculture, modernize
processing and decrease agri-waste.
Mega Food Parks.
Integrated Cold Chain, Value Addition and Preservation Infrastructure.
Creation/Expansion of Food Processing/Preservation Capacities.
Infrastructure for Agro Processing Clusters.
Scheme for Creation of Backward and Forward Linkages.
Foreign Direct Investment (FDI) policy: FDI up to 100%, under the automatic route is allowed in
food processing industries.
Agri Export Zones: To give thrust to export of agro products, new concept of Agri Export Zones
was brought in 2001.
APEDA(The Agricultural and Processed Food Products Export Development Authority) has
been nominated as the Nodal Agency to coordinate the efforts cluster approach of identifying
the potential products; the geographical region in which these products are grown; Adopting an
end-to-end approach of integrating the entire process right from the stage of production till it
reaches the market (farm to market).

Conclusion: Food processing has a promising future, provided adequate government support
is there. Food is the biggest expense for an urban Indian household. About 35 % of the total
consumption expenditure of households is generally spent on food. As mentioned, food
processing has numerous advantages which are specific to Indian context. It has the capacity to
lift millions out of undernutrition. Government has its work cut out to develop industry in a way
which takes care of small scale industry along with attracting big ticket domestic and foreign
investments

Different types of Budgeting

The word ‘budget’ has not been used in the Constitution of India. Rather Article 112 of the Constitution
of India mentions the term “Annual Financial statement”. The budget is a statement of the estimated
receipts and expenditure of the Government of India among other things. There are different types of
budgeting based on different technicalities and procedural frameworks. Some of the types of budgeting
are zero-base budgeting, performance budgeting, programme budgeting, gender budgeting and
outcome-based budgeting.

Zero-base Budgeting

In this budgeting method, every budgeting cycle is initiated from zero base. In the traditional budgeting
system incremental changes were made in the allocation. Traditional budgeting takes the previous
year’s budget as a template and then tries to build on this platform. Contrastingly, under the framework
of zero-base budgeting the fresh evaluation of each activity is done every time the budget is made.
Then funds are allocated only when the activity can justify its relevance.

Example: Suppose a government department spent 10 crores last year. So in current year it can either
increase or decrease the requirement to say 11 crores or 9 crores respectively. But under the
zero-base budgeting framework, the department will calculate all the expenses and justify each of
them. This will reflect the actual requirement which may be 10.2 crores.

The primary purpose of zero-base budgeting is termination of activities which have become irrelevant.
The strenuous efforts are involved in the preparation of zero-base budget and so there is lot of
resistance at the institutional level. Hence, there has never been a full implementation of zero-base
budgeting by different governments.

Steps in Zero-base Budgeting:

● Identification of a task;
● Finding ways and means of accomplishing the task;
● Evaluating these solutions and also evaluating alternatives of sources of funds;
 ● Setting the budgeted numbers and priorities.

Advantages of Zero-Base Budgeting

● Leads to Efficiency: It works on rational principles leading to efficient allocation of resources

(department-wise). It does not look at the previous numbers but looks at the actual numbers
justified in prudential norms.
● Leads to Accuracy: In traditional budgeting some arbitrary changes are made to the previous
year’s budget. But in the ZBB framework every department relooks at each and every item of
the clash flow and accordingly compute its operating costs. It gives a clear idea of the costs
involved against the desired performance. It also assists in cost reduction to a limited extent.

Disadvantages of Zero-base Budgeting

Time-consuming: Zero-base budgeting is a very time-intensive exercise to do every year as against
incremental budgeting which is a far easier method.

Outcome-based Budgeting
It is the practice of developing budgets based on the relationship between funding and expected results. It
enhances visibility into how government policies translate into spending and focuses on the outcomes of
a funded activity i.e. the quality or effectiveness of services provided. It aims to align programmes and
services with prioritized government outcomes.

Under the framework of outcome-based budgeting, each ministry presents a preliminary outcome budget
to the Finance Ministry, which is responsible for compiling them. The outcome budget becomes a
progress card on what various ministries and departments have done with the outlays in the previous
annual budget. Outcome budgeting makes government programmes more result -oriented, instead of
outlay- oriented. Under outcome budgeting, the document shows physical dimensions of the financial
budget indicating the actual physical performance in the previous year, current year and targeted
performance during the projected next year.

Advantages of outcome-based budgeting

● It helps to reduce costs by identifying budgets that do not contribute enough to outcomes and
redirecting focus to priority areas. It helps in driving better outcomes by highlighting areas where
investment can be more effective.
● Transparency and participation: One benefit of outcome-based budgets is increased
transparency and participation in the budget process. It enables stakeholders to identify linkages
between funds allocated and proposed outcomes. In this way, stakeholders can recognise
whether the stated outcomes have been achieved.
● Accountability: Another benefit of outcomes-based budgeting is improved accountability of the
government to the legislature and the public. Clear linkages between funding and outcomes help
to measure the effectiveness of intervention programmes. It also assists in clarifying the roles and
responsibilities of politicians and civil servants in achieving identified priorities.

Budget management plays a very crucial role in the public finance management system. Experts say “the
transformation from the comforts of outlay budgeting to an environment of accountability with
outcome-based budgeting is difficult but not impossible. This re-engineering is essential as in the absence
of outcome budgeting, budget management may be ineffective and ineffective budget management would
weaken the Public Financial Management (PFM) system. A weakened PFM could even threaten
established economic, social and political equilibriums”.

Disadvantage of outcome-based budgeting

● Additional costs: The mapping of targets to funding may not be a ‘practical or even efficient use of
resources’. The additional analysis to assign funding to outcomes may result in additional costs
and add confusion to the entire budgeting process.
● Getting accurate and relevant outcome-based data is quite difficult as it involves a lot of
technicalities.
● The outcomes are driven by multiple internal and external factors. So for single budgets to drive
multiple outcomes it can be tricky to find a direct correlation between resources deployed and
outcomes achieved.

Outcome-based Budgeting in India

The then Finance minister, Mr. P. Chidambaram, presented the country’s first-ever outcome
budget in 2005-06. However, this budget was more in the nature of a pre-expenditure statement to the
Parliament. Now in India the outcome-based budgeting is practised by most of the ministries while
preparing their budget details and submitting it to the Ministry of Finance for preparation of the annual
budget.

The traditional budgeting has lot of drawbacks in India and hence efficiency needs to improve with the
true adoption of outcome budgeting. The outcome budget is expected to sharpen the budgetary
projections by listing the projected outcomes under various schemes programmes. It will lead to efficient
service delivery, transparency and accountability. Experts say that “the true potential of an outcome
budget as an effective tool for management and accountability and for improving the outcomes of
government programmes, remains untapped”.

Roadblocks in the path of efficient implementation of the outcome-based budgeting

● Firstly, much of the developmental interventions in India are routed through the state
governments. Other than a few progressive states, the key line departments and other
organizations in most states are yet to adopt planning and service delivery processes which are
oriented towards outcomes.
● Secondly, there also exists limited knowledge and understanding on the linkage between specific
government interventions and the outcomes they are likely to impact. With multiple programmes
operating in the same sector, additional statistical analysis based on past data would need to be
conducted to understand cause-effect relationships better. Data on key outcomes in individual
sectors for all states is available. But there is a need to check the consistency of this data set and
also the underlying processes used for collection and collation of this data.
● Thirdly, there is also the inhibiting factor of institutional resistance in the substantive
implementation of outcome-based budgeting.

Gender Budgeting
The gender-budgeting is defined as “gender-based assessment of budgets incorporating a gender
perspective at all levels of the budgetary process and restructuring revenues and expenditures in order to
promote gender equality”. It is actually budgeting for gender equity. It is a powerful tool for achieving
gender mainstreaming so as to ensure that benefits of development reach women as much as men. It is
not an accounting exercise but an ongoing process of keeping a gender perspective in policy/programme
formulation, its implementation and review. It entails dissection of the government budgets to establish its
gender-differential impacts and to ensure that gender commitments are translated into budgetary
commitments.
 ● GB is concerned with gender sensitive formulation of legislation, programmes and
schemes; allocation of resources; implementation and execution; audit and impact
assessment of programmes and schemes; and follow-up corrective action to address
gender disparities.
● A powerful tool for achieving gender mainstreaming so as to ensure that benefits of
development reach women as much as men.
● Does not seek to create a separate budget but seeks affirmative action to address specific
needs of women.
● Monitors expenditure and public service delivery from a gender perspective.
● Entails dissection of the Government budgets to establish its gender differential impacts
and to ensure that gender commitments are translated in to budgetary commitments.

The Five-Step Framework for Gender Budgeting

● Step 1: An analysis of the situation for women and men and girls and boys (and the
different sub-groups) in a given sector.
● Step 2: An assessment of the extent to which the sector’s policy addresses the gender
issues and gaps described in the first step.
● Step 3: An assessment of the adequacy of budget allocations to implement the
gender-sensitive policies and programmes identified in step 2.
● Step 4: Monitoring whether the money was spent as planned, what was delivered and to
whom.
● Step 5: An assessment of the impact of the policy/ programme/scheme and the extent to
which the situation described in step 1 has changed.

Rationale Behind Gender Budgeting

● According to the 2011 census, women account for 48 per cent of the total population of the
country.
● Women face disparities in access to and control over services and resources.
● Bulk of the public expenditure and policy concerns are in ‘‘gender neutral sectors”.
● Implications on women in the above sectors are not recognised or identified.
● Gender responsive budgets policies can contribute to achieving the objectives of gender
equality, human development and economic efficiency.

Gender Budgeting in India

● Gender Budget Statement (GBS) was first introduced in the Indian Budget in 2005-06. This
GB Statement comprises two parts–
○ Part A reflects Women Specific Schemes, i.e. those which have 100%
allocation for women.
○ Part B reflects Pro Women Schemes, i.e. those where at least 30% of the
allocation is for women.
 ● India’s gender budgeting efforts stand out globally because they have not only influenced
expenditure but also revenue policies (like differential rates for men and women in property
tax rates and reconsideration of income tax structure) and have extended to state
government levels.
● Gender budgeting efforts in India have encompassed four sequential phases: (i) knowledge
building and networking, (ii) institutionalizing the process, (iii) capacity building, and (iv)
enhancing accountability.
● Gender budgeting in India is not confined to an accounting exercise. The gender budgeting
framework has helped the gender-neutral ministries to design new programs for women.
● Gender Budgeting Cells (GBC) as an institutional mechanism have been mandated to be
set up in all Ministries/Departments.
● GBCs conduct gender based impact analysis, beneficiary needs assessment and
beneficiary incidence analysis to identify scope for re-prioritization of public expenditure
and improve implementation etc.

Shortcomings

● Availability of gender disaggregated data is another critical challenge: An important

development along the path of gender-responsive policy making is the collection of gender
disaggregated data. Data and evidence supporting decision making are pivotal to enable
governments to develop effective gender sensitive and evidence based policies and gender
equality strategies for inclusive growth. For example, in countries like Norway and Sweden
gender disaggregated data is routinely available in required depth. This helps in formulation of
better gender-responsive budgets. This logically gets reflected in better rankings of Norway and
Sweden in human development index (HDI).
● Not only has the magnitude of the gender budget as a proportion of the total expenditure of the
Union Budget decreased, the budgetary allocations for promoting gender equality and women’s
empowerment have also shown a decline.
● There are only a few “big budget” women exclusive schemes of the Ministry of Women and
Child Development (MWCD) like the Nirbhaya Fund and the Beti Bachao Beti Padhao
campaign.
● Lack of dedicated human resources to implement the interventions identified by the GBCs.
● Monitoring remains one of the weakest links in the GRB work with no designated
mechanism for monitoring it at the national level.
● Assumptions behind reporting allocations under Part B of the GBS remain questionable.

Way Forward

● An assessment of gender responsive budgeting in India reveals a mixed picture.

● There are number of positive developments, such as changes in select planning and
budgeting processes and creation of gender budget cells.
● However, restricted reach of GB and stagnant or even declining allocations for the gender
agenda are stumbling blocks.
● The adoption of the GB should be accompanied by multifaceted and interrelated
improvements to budgets in general and the gender sensitivity of budgets.
● There needs to be shift from mere "reporting" of gender allocations to “purposive planning”
with wider participation of women.
 Special Economic Zones (SEZs)
What are SEZs?

Special Economic Zones (SEZs) are geographically delineated ‘enclaves’ in which regulations and
practices related to business and trade differ from the rest of the country and therefore all the units therein
enjoy special privileges.

The basic idea of SEZs emerges from the fact that, while it might be very difficult to dramatically improve
infrastructure and business environment of the overall economy ‘overnight’, SEZs can be built in a much
shorter time, and they can work as efficient enclaves to solve these problems.

● SEZs in India:

○ Asia’s first EPZ (Export Processing Zones) was established in 1965 at

Kandla, Gujarat.
○ While these EPZs had a similar structure to SEZs, the government began to
establish SEZs in 2000 under the Foreign Trade Policy to redress the
infrastructural and bureaucratic challenges that were seen to have limited the
success of EPZs.
○ The Special Economic Zones Act was passed in 2005. The Act came into
force along with the SEZ Rules in 2006.
○ However, SEZs were operational in India from 2000 to 2006 (under the
Foreign Trade Policy).
○ India’s SEZs were structured closely with China's successful model.
○ Presently, 379 SEZs are notified, out of which 265 are operational. About
64% of the SEZs are located in five states – Tamil Nadu, Telangana,
Karnataka, Andhra Pradesh and Maharashtra.
○ The Board of Approval is the apex body and is headed by the Secretary,
Department of Commerce (Ministry of Commerce and Industry).
○ The Baba Kalyani led committee was constituted by the Ministry of
Commerce and Industry to study the existing SEZ policy of India and had
submitted its recommendations in November 2018.

■ Objectives of the SEZ Act:

○ To create additional economic activity.

○ To boost the export of goods and services.
○ To generate employment.
○ To boost domestic and foreign investments.
○ To develop infrastructure facilities.
● Major Incentives and Facilities Available to SEZ:

○ Duty free import/domestic procurement of goods for development,

operation and maintenance of SEZ units.
○ Exemption from various taxes like Income Tax, minimum alternate tax, etc.
○ External commercial borrowing by SEZ units upto US $ 500 million in a year
without any maturity restriction through recognized banking channels.
 ○ Single window clearance for Central and State level approvals.
●
●
● Performance so far:

○ Exports: Exports of Rs. 22,840 Crore (2005-06) has increased to Rs. 7,59,524
Crore (2020-21).
○ Investment: Investment of Rs. 4,035.51 Crore (2005-06) has increased to Rs.
6,17,499 Crore (2020-21).
○ Employment: Employment from 1,34,704 persons (2005-06) has increased to
23,58,136 persons (2020-21).
● Challenges:
●
SEZs in India have not been as successful as their counterparts in many other countries.
Several Asian economies, particularly China, Korea, Malaysia, and Singapore, have
greatly benefited from these zones.
● Most of India’s new generation SEZs came up not for exporting, but for avoiding taxes.
Large fiscal sops, in the form of a bunch of reliefs from central and state taxes, lured
developers into building SEZs.

● Most manufacturing SEZs in India have performed below par due to their poor linkages
with the rest of the economy. Weak connections of coastal SEZs with their hinterlands
inhibited these zones from utilising their full potential.

● Many states did not match the central SEZ Act with State-level legislation, which rendered
the single window system ineffective.

● Lack of a robust policy design, efficient implementation and effective monitoring have
seriously jeopardize India’s effort to industrialise through SEZs.
●
○ Unutilized Land in SEZs:

■ Due to lack of demand for SEZ space and disruptions caused

by the pandemic.
○ Existence of Multiple Models:

■ There are multiple models of economic zones such as SEZ,

coastal economic zone, Delhi-Mumbai Industrial Corridor,
National Investment and Manufacturing Zone, food park and
textile park which pose challenges in integrating the various
models.
○ Competition from ASEAN Countries:

■ In the past few years, many of the ASEAN countries have

tweaked their policies to attract global players to invest into
their SEZs and have also worked on a developmental set of
their skilling initiatives.
■ Consequently, Indian SEZs have lost some of their competitive
advantages globally and hence need to have fresher policies.
Why industrial growth has lagged behind?

India’s GDP growth rate in post- 1991 era stands at around 7% while touching 10.26% once in
2010 while industrial growth has lagged behind a lot standing at around 3-4% only.

Industrial policy 1991 set out directions for industrialisation in an economy that began its
journey in liberalisation. It dealt with liberalising licensing and measures to encourage foreign
investments. However, Industrial growth rate could not match the pace with the overall growth of
GDP.

Constraints to industrial growth

● Inadequate infrastructure:Physical infrastructure in India suffers from substantial

deficit in terms of capacities as well as efficiencies. Lack of quality of industrial
infrastructure has resulted in high logistics cost and has in turn affected cost
competitiveness of Indian goods in global markets.
● Restrictive labour laws:The tenor of labour laws has been overly protective of
labour force in the formal sector.
● Complicated business environment:A complex multi-layered tax system, which
with its high compliance costs and its cascading effects adversely affects
competitiveness of manufacturing in India.
● Slow technology adoption:Inefficient technologies led to low productivity and
higher costs adding to the disadvantage of Indian products in international
markets.
● Inadequate expenditure on R&D and Innovation:Public investments have been
constrained by the demands from other public service demands and private
investment is not forthcoming as these involve long gestation periods and
uncertain returns.

Point to remember:

Without industrial growth India cannot become developed country as services sector cannot
employ millions of youth who have emerged due demographic dividend and moving away from
agriculture due to lower productivity. These low skill manufacturing jobs will drive economic
prosperity of India. Developed countries' economies have large services sector due to internal
demand generated by prosperity of the industrial sector. Thus for generation of large scale
employment and economic progress India needs large industrial base and initiatives like “Make
in India‟ & NIMZ policy are in right direction

NIMZ The National Investment & Manufacturing Zones (NIMZs) are an important instrumentality
of the manufacturing policy. The NIMZ policy aims to galvanize the manufacturing sector by
bringing in domestic and foreign investments