Government to bolster fresh food distribution network

Agencies/New Delhi

Finance Minister Pranab Mukherjee arrives to present the annual budget at Parliament in New Delhi yesterday

India, keen to restrain rising food inflation, took steps in its national budget yesterday to spruce up fresh food distribution systems by building cold storage facilities and making more loans available to farmers.

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 60mn tonnes, and there is shortfall of about 32mn 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, which aims to invest Rs4bn 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% 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% in mid-February.

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

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

Mukherjee said he wanted loans to the sector to increase to Rs4.75tn in 2011/12 from Rs3.75tn a year ago and said the government would raise the subsidy on cheaper farm loans to 3% from 2%.

The minister said a food subsidy was expected to run to Rs605.7bn in the next financial year, marginally lower than the Rs606bn figure for 2010/11.

Government compensates state-run procurement firms such as the Food Corporation 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 Rs500bn, down from Rs550bn a year earlier.

Mukherjee also announced an allocation of Rs3bn for oil palm plantations on 60,000 hectares.

He said the National Food Security Bill that aims to provide subsidised foodgrains to the poor was almost ready and would be introduced in parliament this year.