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On 20 May 2020, the Union Cabinet led by Prime Minister Narendra Modi gave its approval for a new Central Government sponsored scheme known as ‘Scheme for Formalization of Micro-food processing enterprises (FME)’.The outlay of its budget is Rs. 10,000 crore and expenditure shall be incurred by the Government of India and the State Government in a ratio of 6:4 for unorganized micro-food enterprises. The Scheme shall be implemented during a span of 5 years starting from financial year 2020-21 till 2024-25. Around 2 lakh micro-enterprises shall be assisted with credit linked subsidy.

Aarushi Relan, 7 June, India: Formalisation Of Micro-Food Processing Enterprises

WHAT IS THE SCHEME?

In India, the Micro-Food Processing Enterprises face a number of challenges which include inability to pay back and access the credit, lack of access to technology, inability to comply with good standards of health and safety. Henceforth, this scheme shall aim to increase the access of finance and monetary assistance to the micro-food processing units.

It has the intention to achieve an up-gradation to comply with the standards of FSSAI (Food Safety and Standards Authority of India). 2 It lays special emphasizes and precise attention towards the women entrepreneurs, the aspirational districts and minor forest produce in tribal regions.

The scheme shall support the individual micro-units, FPOs, SHGs and cooperatives. Apart from providing the financial assistance, which is the primary function of the scheme, other secondary objectives include:

 To increase the revenues of the target enterprises.

 To enhance the compliance with a better quality of food and increased level of safety.

 To strengthen the capability and competence of the support systems.

 To shift from an unorganized sector to a formal sector.

 To encourage the transformation of waste into wealth activities.

SALIENT FEATURES

By strengthening this sector, it will eventually lead to a reduction in wastage of resources, flourish work opportunities in rural areas apart from farming and help the government to achieve growth of farmer’s income. The Salient features of the scheme can be enunciated in two dimensions predominantly stated as ‘fundamental’ and ‘ancillary’ features as explained in the following points:

1. FUNDAMENTAL FEATURES:

The fundamental features explain the materialistic elements of the scheme, construed as following:

 The Scheme shall be centrally sponsored with the expenditure shared by Government of India and states in a ratio of 6:4.

 It shall provide around 2 lakh micro-enterprises to be assisted with the credit linked subsidy.

 The implementation of the scheme shall be rolled out on an All-India basis with seed capital given to all SHGs and grant provided to all FPOs for their functions.

 The duration of scheme shall be implemented over a 5-year period starting from 2020-21 to 2024-25.

 The Scheme shall be monitored at Central level by an Inter-Ministerial Empowered Committee (IMEC) chaired by the Ministry of Food Processing Industries.

 The government shall follow the cluster approach. According to the World Health Organization (WHO), a cluster is a group of agencies which gather to work towards common goals. The approach aims to strengthen the leadership, accountability, predictability, timeliness and effectiveness to achieve key goals.

 The scheme shall focus on perishable goods like mangoes, tapioca, ragi, kesar, foxnuts etc. These goods are of such a nature whose quality deteriorates due to environmental circumstances including factors like time.

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2. ANCILLARY FEATURES:

The ancillary and supportive features of the scheme shall include the following important points:

 Support to Individual Micro-Units: The scheme shall support micro-enterprises which shall be getting a credit linkage with the subsidy of 35% for the eligible project cost of Rs. 10,00,000. The beneficiary contribution shall be with a minimum percent rate of 10 with an on-site skillful training and up-gradation of technology.

 Support to FPOs, SHGs and Cooperatives: It shall act as a seed capital to Self-Help Groups for the purpose of credit in order to attain a working capital. In addition to this, it shall also grant backward or forward linkages, packaging, marketing, branding etc. It shall gather support by skillful training and credit linked capital subsidy.

RELEVANT LEGAL PROVISIONS

With the development in micro-food processing unit, it is integral to provide a link of such schemes with existing laws and statutes to provide a fundamental growth to their legality:

MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006:

Our Vice President M. Venkaiah Naidu once quoted in his speech that, “Medium, Small and Micro Enterprises form one of the largest workforce in India and shall act as a bulwark for the Indian economy. They have the major contribution in country’s GDP, development and growth”. This enactment helps to facilitate the promotion, development and enhancement for a fair competitiveness of small and rising enterprises.


In case of micro-food processing enterprises, according to section 7 of MSME Act, 2006 states that a micro enterprise does not invest more than 25 lakh rupees in plant & amp; machinery and equipment which is worth more than 10 lakh rupees. As stated in Section 9 of MSME Development Act with regard to the measures of promotion and development, the central government shall facilitate it by developing the skill of employees, providing a technological up-gradation, cluster development, marketing assistance etc., the scheme for micro-food processing units has been introduced.

Moreover, Section 10 which enunciates credit facilities that the polices and practices with regard to MSME must be progressive for a smooth flow of cash and minimize the incidence of insolvency or sickness. The Central Government is also responsible to provide pronouncement policies, funds and administration or utilization of such funds for MSMEs under Chapter IV (Measures for Promotion, Development and Enhancement of Competitiveness of Micro, Small and Medium Enterprises) under MSME Development Act, 2006.

Under Section 29 of MSME Development Act, it has been comprehensively explained how the Central Government has a ‘power to make rules’, under sub-clause (2) (f) in particular and without any prejudice with regard to the generality of the foregoing power, it shall have authority to make rules for any other matter which is to be or may be prescribed under the Act.

 TAXATION LAWS:

With regard to Income Tax Act, 1961, under Section 80-IB, the businesses which are involved in the processing, preservation and packaging of fruits and vegetables (starting operations from 1 April 2001) and of meat and diary products, marine or poultry (starting operations from 1 April 2009) are eligible for a profit linked tax holiday as follow:


a. For initial 5 years, 100% of profits and gains shall not be taxable

b. For next 5 years, there shall be a tax deduction of 25%

Under Section 35AD of the Act, deductions with respect to investment will be provided for businesses involved in set-up and operation of cold chain facility, warehouse facility for storage of agricultural and sugar produce, production of honey and beeswax and production of fertilizers in India. For purpose of GST, the Ministry of Food Processing Industries has concessional rates for the products at a specified 0%, 5%, 12%, 18% and 28%.


 FOOD SAFETY AND STANDARDS ACT, 2006:

The act aims at establishing food safety levels by laying down the basic standards for food articles and regulate their storage, sale, distribution, consumption etc.

Concerned legal provisions state that according to section 2 (zd), a ‘manufacturer’ is a person who is generally engaged in a business for producing, labelling and packaging for an article of food. To adopt a healthy manufacture of food-processing in crisis like covid-19 pandemic, a ‘risk management’ as per section 2 (zq) is essential. The definition states by evaluating the policies of central government, it is essential to ensure the health of consumers and the promotion of fair trade practices.

According to Section 16 (3) (a) of the Act, it is the duty and function of Food Authority to provide a scientific advice and technical support to the central and state government with regard to framing policies to ensure food safety and nutrition. In addition, Section 16 (3) (d) states the implementation of crisis management procedures in a close co-operation with crisis unit being set by the Central Government. Accordingly, Chapter III of the Act states the ‘General Principles of Food Safety’ stating it as a goal of Central and State Government to attain an ideal and safe food quality to its citizens. Accordingly, it is the duty of government and food authority to adhere the scheme and ensure better standards of food safety and standards.

 ESSENTIAL COMMODITIES ACT, 1955:

The statement and objective of this Act is to ensure a control for the production, supply and distribution of essential commodities. According to Section 2A of the Act, ‘essential commodity’ means a commodity as specified in the Schedule. The Schedule states with regard to various perishable goods such as foodstuffs including edible oil seeds and oils, seeds of food- crops and seeds of fruits and vegetables etc.

The Central Government can add and remove any commodity as per its necessity by publishing a notification in Official Gazette. In the instant scheme, it has decided to extend the operations Greens Scheme which is formally implemented by the Ministry of Food Processing Industries to generate more tomato, onion, oil seeds and potato crops in order, to include all kinds of vegetables and fruits for a better sale and minimize the wastage.

As per Section 3 of the Act, the Central Government has a power to control the production, supply and distribution of such essential commodities. It has a power to regulate licenses, control the price, prohibit the withholding from sale of any essential commodity etc.

CRITICAL ANALYSIS

After almost more than 30 lakh unregistered food processing enterprises in India which constitute 98% of the food sector, this scheme created a silver lining for the growth of these unorganized and informal enterprises. Statistically, around 60% of these enterprises are located in rural areas and nearly 78% of them are a family-based enterprise.

The formalization of micro-food processing units has been constructed in light of vision ‘Vocal for Local’ and promotion of ‘Make in India’ campaign by making India self-reliant (also known as ‘Atma-Nirbharta’ in Hindi).

The scheme by central government for a formalization in food-processing sector will be positive, will lead to a competitiveness and shall enable economies of scale across the production value chain. Adopting a cluster-approach will be most beneficial since, it would help in farm gate processing which will eventually add income in farmer’s pocket.

This approach has earlier enabled economies across the globe to increase the production value chain and increase GDP, which is the aim of a self-reliant India amidst covid-19 pandemic. Moreover, this scheme shall generate employment by benefitting almost 8 lakh micro-enterprises through mechanisms such as access to information, a better exposure and aformalized standard and push the manufacturing sector to generate profits.

It shall be our aim to carve out a substantial growth from such MSMEs and ensure the manufacturing sector contributes around 20-25% of GDP. Ultimately, it will make India a leading economy in food-processing industry worldwide. The optimistic note does not end here, as the project will likely uplift opportunities for women entrepreneurs and entrepreneurs in the tribal regions. It was an important drift to be made for farmer’s growth from a traditional crop harvestation to a higher value yet improved post-harvest technology by investing in food-processing industry.

CONCLUSION

The Formalization of Micro-Food processing scheme is a successful move for a self-reliant India since the food-processing industry is indigenous and derives from traditional knowledge of every Indian Home. Either it is Indian pickle, papad, chutney or murabba, all have a worldwide importance and acknowledgement. The country has geographical advantage because of variety of exotic and tropical vegetables and fruits like mangoes, bananas, ginger, rice, okra, coconut, lettuce, papaya etc. grown here.

India is one of the world’s largest producer of milk and spices like nutmeg, mace, cardamom, pepper etc. to count a few. According to our Vice President M. Venkaiah Naidu, it is essential to invest in micro-food processing enterprises since “such emerging start-ups will bridge the gaps in the facilitation of technology to farmers and create a right atmosphere for agri-entrepreneurship in India”.

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