Tax incentive to attract funds for warehouses, cold storages

Tax incentive to attract funds for warehouses, cold storages
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First Published: Fri, Jul 10 2009. 12 37 AM IST

Optimal condition: Fresh farm produce worth an estimated Rs50,000 crore at current prices gets wasted every year in India. Ramesh Pathania / Mint
Optimal condition: Fresh farm produce worth an estimated Rs50,000 crore at current prices gets wasted every year in India. Ramesh Pathania / Mint
Updated: Fri, Jul 10 2009. 12 37 AM IST
Bangalore: The investment-linked tax incentive scheme proposed in the Budget to firms setting up cold stores and warehouses for farm produce is likely to attract private funds.
Finance minister Pranab Mukherjee announced the scheme in his Budget speech on Monday to attract investments into the sector as the government aims to reduce wastage of such perishables.
The scheme proposes that all capital expenditure—other than expenditure on land, goodwill and financial instruments—to build and operate such facilities can be fully treated as deductions for tax.
Optimal condition: Fresh farm produce worth an estimated Rs50,000 crore at current prices gets wasted every year in India. Ramesh Pathania / Mint
India is the second largest producer of fresh fruits and vegetables in the world.
Gateway Distriparks Ltd, which operates a cold storage business through its subsidiary, Snowman Frozen Foods Ltd, a joint venture with the Mitsubishi Group, welcomed the move.
“The cold chain and warehousing sector will get a big boost from the investment-linked tax incentive scheme,” said Ravi Kannan, chief executive officer, Snowman Frozen Foods. “The move can reduce the phenomenal wastage in fruits and vegetables.”
“Due to lack of post-harvest management facilities, absence of suitable cold stores and the lack of an organized distribution system, the wastage of fresh produce in India is as much as 25-30%,” said Atul Chaturvedi, chief executive officer of the farm produce business of the Adani group, which has set up storage, handling and transportation infrastructure for fruits and vegetables.
The industry estimates the spoilage to be worth Rs50,000 crore at current prices every year.
“This business has huge potential,” said D.S. Kapoor, senior general manager, planning and development at state-owned transporter Container Corp. of India Ltd (Concor).
Fresh and Healthy Enterprises Ltd, a 100% subsidiary of Concor that was set up to tap opportunities in the agriculture business sector, started operating a modern, controlled-atmosphere warehouse at Rai in Sonepat in Haryana for storing apples in 2006.
The rapid evolution of organized retail in India, along with the emergence of a large food processing sector, has made it essential to have a modern warehousing and cold chain infrastructure for perishables, industry experts say. The development of a modern retail sector will necessitate streamlined supply networks with well-developed storage infrastructure between the source and the end consumer, they say.
Currently, private companies investing in the sector are eligible for a subsidy but it is not sufficient to attract more money.
The Income-tax Act provides for a number of profit-linked exemptions and deductions.
But such benefits are not sufficient, impose higher compliance and administrative burden, result in revenue loss, increase litigations and lead to competitive demand for similar tax benefits, the finance minister said in his speech. However, investment-linked incentives are relatively less distortionary in their impact, he added.
Additionally, poor connectivity between the production and consumption centres, lack of good roads and varied tax structures across the country have so far prevented large-scale investments in building a nationwide cold-storage infrastructure.
The development of highways, introduction of value-added tax and a projected shift to a national goods and services tax are also likely to provide an impetus to the sector.
“The current fiscal regime is not supportive of cold store chains and warehouses for perishable agricultural produce,” said S. Ramanujam, business head at Adani Agri Fresh Ltd.
The capital expenditure for setting up cold chain facilities and warehouses is high. Besides, such projects have high operating costs because of the need for uninterrupted power supply, he said.
“The purpose of setting up cold chain will be defeated if the power supply is erratic. This requires investment in back-up systems, which adds to the capital investment costs,” Ramanujam said.
The domestic market for fruits and vegetables is characterized by oversupply in the peak season and shortage in off-season, resulting in off-season prices that are often three-four times more than seasonal prices.
“The lack of appropriate storage and logistic infrastructure jacks up the prices for the ultimate consumers. As a result, neither does the produce reach the consumer in the optimal condition nor does the producer get fairly remunerated,” Chaturvedi said.
Adani Agri Fresh has set up atmosphere-controlled storage facilities at Rewali, Sainz and Rohru in Himachal Pradesh.
An executive at Fresh and Healthy Enterprises said the firm recently sold its best apples, preserved in its atmosphere-controlled warehouse at Rai in Sonepat, for Rs80-84 a kg in New Delhi and Mumbai markets.
“We reached so close to the quality of imported apples that were sold between Rs95 and Rs100 a kg,” he said. The executive didn’t want to be named as he is not the company’s spokesperson.
“The wastage rate of apples at our atmosphere-controlled warehouse is as low as 0.5%, compared with 10-15% at ordinary cold storages,” he claimed. “Based on the success rate, mandi (fruit and vegetable market) merchants have now approached us to hire space in our Rai facility to preserve apples.”
Fresh and Healthy Enterprises plans to open 11 more such warehouses across the country, and add fruits such as oranges, grapes and cherries into its portfolio, he added.
p.manoj@livemint.com
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First Published: Fri, Jul 10 2009. 12 37 AM IST
More Topics: Farm | Agriculture | Cold Stores | Warehouses | Funds |