Economics of the Food Processing Industry by Debdatta Saha

Author:Debdatta Saha
Language: eng
Format: epub
ISBN: 9789811385544
Publisher: Springer Singapore

PMA

Rice

Maize-based

Milk-based

RABC

Others

Total(Rs.cr.)

GoB sanctioned subsidy(INR crore)

IL&FS

117 (29%)

23 (8%)

10 (3.23%)

46 (12%)

102 (67.77%)

298 (3492)

680

Hebe & Spa

6 (21%)

5 (26%)

2 (31%)

– (-)

11 (22%)

24 (394.1)

58

Darashaw

26 (59%)

6 (15%)

3 (3%)

4 (7%)

6 (16%)

45 (395)

95

SREI

24 (74%)

7 (13%)

– (-)

2 (6%)

5 (7%)

36 (366)

84

Source PMA data sourced from Dept. of Industries, GoB

Assuming that attracting mid- to large-sized investments and fostering the growth of small firms in food processing was priority (correcting for the skew in the size distribution), the precursors to the present policy (2016) seems to have failed to achieve their objectives. This is a surprising outcome as the comprehensive subsidy coverage of the 2011 policy received an unanimous thumping support from entrepreneurs in our survey. The BIA members expressed their concern that a policy ‘which was probably most industry-friendly’ could not encourage desirable entrepreneurship (in the form of entry of medium and large projects domestically and from outside).

Informally, some entrepreneurs have opined that many non-entrepreneurs took advantage of the front-loaded capital subsidies (with no intention of carrying their business forward). In fact, at the district level, the percentage of such entry was quoted to be as large as 60%. This is not a surprising development, given the strong connection of the twin asymmetric information problems of adverse selection as well as a moral hazard associated with front-loaded capital subsidies. A possible explanation for the 2016 policy correction is presumably to remove this perverse incentive with front-loaded subsidies.

This analysis is rudimentary and does not comment on the relative policy performance in Bihar in comparison with other states. As we mentioned earlier, there is a strong inter-state rivalry in policy to attract investments, particularly in the less industrialized states of India. Just when Bihar was about to step out of special sectoral targeting of food processing, Jharkhand entered this policy regime in 2015 with a special policy for food processing. The policy19 is very similar in content with the 2008 food processing policy in Bihar. How do we account for this inter-state policy rivalry in food processing? The following section develops on this.

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