February 28, 2011 / 11:12 AM / in 8 years

Govt to bolster fresh food distribution network

NEW DELHI (Reuters) - India, keen to restrain rising food inflation, took steps in its national budget on Monday to spruce up fresh food distribution systems by building cold storage facilities and making more loans available to farmers.

Homeless people prepare food on a roadside during the early morning in Ahmedabad February 28, 2011. REUTERS/Amit Dave

Finance Minister Pranab Mukherjee, who is struggling to rein in food inflation that hit a one-year high in December, said cold storage chains would be given infrastructure status, giving them tax benefits to drive construction of new facilities.

Industry officials welcomed the step.

“The move will certainly bring private investment into the sector,” said Patit Paban De, an official of the northern region of the Federation of Cold Storage Associations Of India.

“The sector is unlikely to grow rapidly without private investment.”

State-run agencies own more than a third of India’s cold storage and warehousing capacity of about 60 million tonnes, and there is shortfall of about 32 million tonnes, industry officials said.

“In the warehousing and cold storage business the gestation period is lengthy and the profit margins are small,” said Sanjay Kaul, chief executive of National Collateral Management Services Limited (NCMSL), which aims to invest 4 billion rupees to set up 800,000 tonnes of storage capacity in the next 24 months.

“After getting infrastructure status, the business will get tax benefits and will attract private investment,” he added.

As much as 40 percent of India’s fruit and vegetable production goes to waste because of inefficient networks and a lack of cold storage facilities, with much produce still sold on flat-bottomed carts by smallholders, even in the heart of its large cities, like the capital Delhi.

Yet food inflation remains high, despite a clutch of measures to check prices. Food prices rose 11.49 percent in mid-February.

India’s farming sector grew at a rapid 8.9 percent in the three months to Dec. 31 and the country aims for growth of 8.5 percent in the financial year from April to achieve its current five-year plan target of average annual growth of 4 percent.

The farm sector is likely to grow at 5.4 percent in the financial year to March 2011.

Mukherjee said he wanted loans to the sector to increase to 4.75 trillion rupees in 2011/12 from 3.75 trillion a year ago and said the government would raise the subsidy on cheaper farm loans to 3 percent from 2 percent.

The minister said a food subsidy was expected to run to 605.7 billion rupees in the next financial year, marginally lower than the 606 billion figure for 2010/11.

Government compensates state-run procurement firms such as Food Corp of India for buying staple grains such as rice and wheat from local farmers to supply to the poor at subsidised rates.

The budget estimates India’s 2011/12 fertiliser subsidy at 500 billion rupees, down from 550 billion a year earlier.

Mukherjee also announced an allocation of 3 billion rupees for oil palm plantations on 60,000 hectares.

In an interview to Reuters in January, Food Secretary Prabeer Kumar Basu said India’s palm oil output should surge in five years to 4 million tonnes from about 60,000 currently as the government encouraged largescale oil palm cultivation.

Mukherjee, who began his budget speech by expressing concern over high food prices, said his government would spend 4 billion rupees to usher in a green revolution in the country’s eastern rice-growing areas.

He also allocated 3 billion rupees each to promote cultivation of pulses, cereals and vegetables in a bid to cut import dependency.

The budget has cut basic customs duty on micro irrigation equipment by 2.5 percent to 5 percent to promote dryland farming.

Reporting by Mayank Bhardwaj, Rajendra Jadhav and Jo Winterbottom; Editing by Clarence Fernandez

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