Companies setting such facilities can now raise funds through ECBs
In a move that could give a major fillip to both trade and investment in the agricultural commodity sector, the finance minister today announced several concessions for developing warehouses and cold storages. The concessions are of two types — while one provides a project import status for cold storages, warehouses and mandis, the other makes such projects eligible for raising funds through external commercial borrowings (ECBs).
The project import status will be granted to the initial set-up or substantial expansion of a cold storage or an industrial unit for processing of agricultural dairy, horticultural dairy, poultry, aquatic and marine produce, and meat. These projects will attract a concessional rate of basic customs duty of 5 per cent. The project import status is also being granted to the installation of mechanised handling systems and pallet-racking systems in mandis or warehouses for foodgrains and sugar, with a concessional rate of basic customs duty of 5 per cent. Such systems are also being exempted from the additional duty of customs (CVD) and the special additional duty (SAD) of customs.
Apart from duty reliefs, those companies that set up cold storage units will be able to raise ECBs, which are considered a cheaper alternative given the prevailing interest rates abroad. The finance minister said that “as a part of the farm-to-market initiative, external commercial borrowings will henceforth be available for cold storage or cold room facility, including farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat”. The definition of infrastructure under the ECB policy is being changed to give effect to this.
Cold storages were given “infrastructure” status in the last Budget for getting income-tax concessions. “These measures would support the cold storage industry to grow at a CAGR (compound annual growth rate) of 10-11 per cent and reach a size of around Rs 13,000-14,000 crore over the next five years,” said Manoj Mohta, head of Crisil Research.
At present, there is 23 million tonnes of cold storage capacity, of which 75-80 per cent is being used to store just potatoes. Around 10 per cent may be dysfunctional, which leaves little for other food products and fruit and vegetables.
If more cold storages and warehouses are set up, it will help farmers store their produce and wait for better prices rather than dumping them at mandis. It will also prevent losses and ensure better realisation to farmers, besides improving quality of the produce.
Mohta said one-third of the cost of cold storages is on account of equipment, and that part of cost will fall due to this duty relief.
Truck refrigeration units for the manufacture of refrigerated vans/trucks have been fully exempted from the basic customs duty. Such units are already exempt from excise duty. Moreover, the basic customs duty is being reduced from 7.5 per cent to 5 per cent on specified agricultural machinery, such as paddy transplanter, laser land-leveller, cotton-picker, reaper-cum-binder, straw or fodder balers, sugarcane harvesters, etc.
Manish Saigal, head of transport and logistics at KPMG, said the “move to lower the cost of funds as well as equipment will certainly improve returns from such projects, but to see more investments happening in this area, more needs to be done”. He suggested that from the point of capital and other costs, such projects need to be given top priority. There is 400 million square feet of warehouse capacity that exists in the country, and there is scope for further 100-200 million square feet capacity.
