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Indian budget boosts cold chain logistics sector

New Delhi, India: India’s government has unveiled its annual budget, saying that the economy is expected to grow at 8.5% this year and 9% in 2012.

Finance Minister Pranab Mukherjee said inflation would decrease over the next fiscal year, the current rate is 8.4%, but food price inflation at 17% “remains a concern”.

Measures to bolster distribution and marketing systems are expected to address supply side concerns, which remain a principal contributor to food inflation. Several incentives are provided to the farming and warehousing sectors: increased credit flow to farming, cutting interest rates on farm loans, classifying cold storages as an infrastructure sector and exempting cold chain equipment from excise duties.

The grant of infrastructure status along with the viability gap funding proposal are expected to make a significant dent”, said Anil Choudhary, managing director and chief executive of National Bulk Handling Corporation.

“Despite the growing production of vegetables and fruit, availability is inadequate due to bottlenecks in retailing capacity. An estimated 40% of India’s fruit and vegetable production goes waste due to lack of storage, cold chain and transport infrastructure”, the minister said.

But the budget failed to consider foreign direct investment in India’s retail sector, a “major disappointment for the industry,” said Pinakiranjan Mishra, at Ernest & Young.

Lamon Rutten, chief executive of Multi Commodity Exchange of India (MCX) said:

“Increased credit flow to farming, cutting of interest rates on farm loans, classifying cold storages as infrastructure sector and exempting cold chain equipments from excise duties are welcome steps.”

These measures will also play a supportive role in helping more efficient price discovery for the commodity market, which is expecting more policy reforms through the passage of the FCRA Amendment Bill 2010, Rutten said.

The budget included proposals to set up 15 additional “mega-food parks” to reduce wastage of farm produce. The government is to fast track the creation of additional 15m tonnes of storage capacity through public private partnerships.

Retailers were disappointed by the lack of any announcement to liberalised foreign direct investment.

Budget highlights:

  • Infrastructure status for cold chain storage facilities
  • Additional capacity for food grain storage
  • 15 more mega food parks
  • Additional 20m tonne storage capacity planned
  • Approval for 107 cold store projects over 5m tonnes
  • Approval for 24 cold storage projects over 1.4m tonnes.