Food companies set to get tax breaks

P Vaidyanathan Iyer

In a bid to lure private investments in the agricultural sector, the government is likely to extend tax sops to companies involved in the production and marketing of cereals and other food items. The move would not only benefit multinational companies like Nestle, Kellog's and Hindustan Lever, but also encourage more private participation.

According to senior government officials, finance minister Yashwant Sinha might also ask the states to take a cue from the Centre and prompt them to do away with taxes on production and marketing of cereals. Sinha might also dereserve roller flour mills, pesticides and fungicides and further remove rapeseed and groundnut processing units from the ambit of the definition of the small-scale industry.

Officials said the government had already received two sets of recommendations aimed at unshackling the agricultural sector from licences and controls.

While the noted agriculturist-economist, M S Swaminathan, has recently submitted his report to the Prime Minister's Office, the Planning Commission too has suggested specific measures for managing the excess food stock and simplifying the government's food procurement policy.

Although the decentralisation of food procurement has encountered stiff resistance from a majority of the states, the finance ministry is keen to pursue the dialogue with the states in the next fiscal too. It believes that the entry of the private sector on a large scale could be possible only if the Food Corporation of India's monopoly on procurement ends and its role is restricted to maintaining buffer stocks.

The Planning Commission has stressed that the government should strictly adhere to the minimum support price (MSP) set by the Commission for Agricultural Costs and Prices. The procurement prices should not be much in excess of the estimated costs of production.

It has called for privatisation of the existing assets of FCI over and above those needed for maintaining the buffer stock, and phasing out of the minimum support price mechanism by gradually handing over the operations to private traders.

The specific policy recommendations of the Planning Commission include lifting the ban on futures trading, allowing 100 per cent foreign direct investment in food retailing and 49 per cent in rural insurance.

It has also called for dereservation of the roller flour mills, pesticides and fungicides sectors. It wants insurance companies to be given income tax incentives for a promotional period of about five years.

The legislative changes that it has recommended include amendments to the Agricultural Produce Marketing Acts of the states to allow direct purchase of grains and other produce from farmers by farm-produce trading, storage and processing companies.

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