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Monday, September 4, 2006

Since liberalisation several policy measures have been taken with regard to regulation & control, fiscal policy, export & import, taxation, exchange & interest rate control, export promotion and incentives to high priority industries. Food processing and agro industries have been accorded high priority with a number of important relieves and incentives. Some of the important policy changes are as follows
  • No industrial license is required for almost all of the food & agro processing industries except for some items like: beer, potable alcohol & wines, cane sugar, hydrogenated animal fats & oils etc. and items reserved for exclusive manufacture in the small scale sector. Items reserved for S.S.I. include pickles & chutneys, bread, confectionery (excluding chocolate, toffees and chewing-gum etc.), rapeseed, mustard, sesame & groundnut oils (except solvent extracted), ground and processed spices other than spice oil and olioresins, sweetened cashew nut products, tapioca sago and tapioca flour.
  • Automatic investment approval (including foreign technology agreements within specified norms) upto 51% foreign equity or 100% NRI (including Overseas Corporate Bodies (OCBs)) equity is allowed for most of food processing sector, except malted food, alcoholic beverages including beer and those reserved for S.S.I. For some industries dividend balancing with net foreign exchange earnings is necessary for automatic clearance.
  • Upto a maximum of 24% foreign equity is allowed in SSI sector
  • Use of foreign brand names are now freely permitted.
  • MRTP (Monopolies & Restrictive Trade Practices Act) rules and FERA (Foreign Exchange Regulation Act) regulations have been relaxed to encourage investment and expansion by large corporates.
  • Most of the items can be freely imported and exported except for items in the negative lists for imports & exports.. Capital goods are also freely importable, including second hand ones in the food processing sector.


  • Wide ranging fiscal policy changes have been introduced progressively. Excise & Import duty rates have been reduced substantially. Many processed food items are totally exempt from excise duty.
  • Custom duty rates have been substantially reduced on plant & equipments, as well as on raw materials and intermediates, especially for export production.
  • Corporate taxes have been reduced and there is a shift towards market related interest rates. There are tax incentives for new manufacturing units for certain years, except for industries like : beer, wine , aerated water using flavouring concentrates, confectionery & chocolates etc.
  • Indian currency (rupee) is now fully convertible on current account and convertibility on capital account with unified exchange rate mechanism is foreseen in coming years.
  • Repatriation of profits is freely permitted in many industries except for some, where there is an additional requirement of balancing the dividend payments through export earnings.


  • Food processing industry is one of the thrust areas identified for exports. Free trade zones (FTZ) and export processing zones (EPZ) have been set up with all infrastructure. Also, setting up of 100% Export oriented units (EOU) is encouraged in other areas. They may import free of duty all types of goods, including capital foods.
  • Capital goods, including spares upto 20% of the CIF value of the Capital goods may be imported at a concessional rate of Customs duty subject to certain export obligations under the EPCG scheme. Export linked duty free imports are also allowed.
  • Units in EPZ/FTZ and 100% Export oriented units can retain 50% of foreign exchange receipts in foreign currency accounts.
  • 50% of the production of EPZ/FTZ and 100% EOU units is saleable in domestic tariff area.
  • All profits from export sales are completely free from corporate taxes. Profits from such exports are also exempt from Minimum Alternate Tax (MAT).

Source: Ministry of Food Processing Industries

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