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Pradhan Mantri Formalisation of Micro food Processing Enterprises (PMFME) Scheme

IBEF, Knowledge Centre

Nov 03, 2021 14:12

The Indian food processing industry has a wide variety of food products and the largest production base. There are over 25,00,000 food processing units in the unorganised food processing sector in India, with 66% of them located in rural areas and over 80% owned by family-based businesses providing an income source to rural communities. However, these unorganised processing units face significant challenges such as lack of institutional finance, access to modern equipment & technology and branding & marketing expertise. To address these challenges the Government of India has initiated several programs to boost investments in the food processing industry, through the Ministry of Food Processing Industries (MOFPI). In addition, the government has permitted 100% FDI under the automatic route in food processing industries, consequently FDI inflows in this sector have increased from US$ 628 million in 2018–19 to US$ 904 million in 2019–20. According to KPMG, in 2019, the food processing industry was valued at US$ 290 billion and is expected to reach over US$ 500 billion by 2025.

On June 29, 2020, Prime Minister, Mr. Narendra Modi, launched a Pradhan Mantri Formalisation of Micro food Processing Enterprises (PMFME) Scheme, under the ‘Aatmanirbhar Bharat Abhiyan’ and ‘Vocal for Local’ campaigns, to provide technical, financial and business support to micro food processing units in the country. The total funds allocated for this scheme were valued at Rs. 10,000 crores (US$ 1.3 billion) and will be disbursed from 2020 to 2025. The government intends to provide direct financial and technical assistance to about 200,000 micro food processing units under this scheme. The central government has been bearing 100% of all outlays in the first year (2020–21), whether incurred by the centre or the states, and the same outlays will be adjusted in the ratios stated below, in the funds being disbursed to states equally in the next four years.

Fund sharing pattern between Centre, State and Union Territories

Objectives of the PMFME Scheme

The scheme provides:

  • Credit access to existing micro food processing businesses, Farmer Producer Organisations (FPOs), co-operatives, and Self-Help Groups (SHGs), for technology upgradation
  • Assistance to 200,000 existing micro food processing units to transform them into organised units, by strengthening their marketing & branding, and integrating the supply chain with formal units
  • Increased access to shared services, such as storage, incubation facilities, and packaging
  • Professional and technical support for food processing entrepreneurs
  • Proper training and research to individual or group owned food processing enterprises

One District-One Product (ODOP) Approach
The PMFME Scheme has adopted the ODOP approach from the ODOP programme launched by the Uttar Pradesh (UP) government in 2018. Under this approach, the state identifies and selects a food product for the district, that could be a perishable agricultural crop, such as cereals, or a food product that is largely produced in the district. Tomato, mango, potato, litchi, millet-based goods, fishery, poultry, meat, and animal feeds are some of the food products covered by the ODOP. Traditional and innovative products like honey, minor forest products in tribal areas, and herbal items like turmeric are also supported by the scheme.

Under the PMFME scheme, assistance in the form of new micro food processing units and marketing & branding support, is solely given to micro food processing enterprises (owned individually or collectively) following ODOP approach. As of June 2021, there were over 707 districts in 35 states and union territories that had selected ODOP, comprising 137 unique products.

Components of the PMFME Scheme
The scheme primarily has four components to address the needs of Indian food processing sector:

Support for food processing units
Under the scheme, unorganised micro food processing units are eligible for a credit-linked capital grant worth 35% of the project cost, with a maximum ceiling of Rs. 10 lakhs (US$ 13,500) per unit, for upgradation. In addition, members engaged in micro food processing are eligible to receive a seed funding of Rs. 40,000 (US$ 540) for working capital and purchase of small tools. As of June 2021, the State Nodal Agency has approved seed capital for 8,040 members and disbursed funds amounting to Rs. 25.25 crore (US$ 340 million) to State Rural Livelihood Mission (SRLM).

Marketing and branding support
Marketing & branding support is provided to FPOs, co-operatives, SHGs and regional or state-level Special Purpose Vehicles (SPVs) of micro food processing enterprises. The scheme helps in areas such as packaging & branding, quality control, standardisation, and food safety adherence for consumer retail sales.

FPOs, co-operatives and SHGs are entitled to receive support up to Rs. 5 lakhs (US$ 6,750) from the State Nodal Agency for preparing a Detailed Project Report (DPR) for marketing and branding proposals. The scheme only covers 50% of overall marketing & branding expense; however, it does not cover the costs of opening retail outlets.

National Agriculture Co-operatives Marketing Federation of India (NAFED) and the Tribal Co-operative marketing Federation of India (TRIFED) are the two organisations assigned to take up marketing & branding support.

Support for common infrastructure development
Under the scheme, enterprises such as FPOs, co-operations, Self Help Groups, state agencies, and private enterprises receive support to build common infrastructure, including incubation centres, common processing facilities, warehouses, laboratories, and cold storages. Variables, such as the lack of private investment, viability gap, criticality of the value chain, and the overall benefit to the sector, are considered while determining the project’s financial eligibility. Credit-linked grants of up to 35% of the total project cost are available.

Capacity building and research
Training is a key component in the process of transforming unorganised micro food processing units into organised units. Individuals and institutions receiving grants are required to attend training to improve their skills. In addition, other ODOP producers and units that are part of support for marketing & branding in the districts also receive training, even if they are not being supported through the credit-linked grant.

Two national-level food processing technology organisations under MOFPI, the National Institute for Food Technology Entrepreneurship and Management (NIFTEM) and the Indian Institute of Food Processing Technology (IIFPT), oversee capacity building and training. These two organisations’ partner with a state-level technology institution in food processing technology, selected by the state government to conduct capacity building and training.

Recent Developments
In December 2020, Union Bank of India was appointed as the Nodal Bank and 11 other banks were selected as official lending partners for the PMFME scheme.

In September 2021, MOFPI, under the PMFME scheme virtually launched Seed Capital Module on the Deendayal Antyodaya Yojana-National Urban Livelihoods Mission (DAY-NULM) MIS Portal. This portal gives access to urban SHGs working in the micro food processing sector, to avail the seed capital assistance of Rs. 40,000 (US$ 540), per SHGs member, under the PMFME scheme.

State governments are constantly implementing reforms to maximise the benefits from the PMFME scheme. Some recent developments across various states are:

  • The Kerala government recently announced plans to create an online platform to sell products manufactured by micro food processing units.
  • On October 24, 2021, the Madhya Pradesh government announced a credit outreach programme in all its 52 districts. The programme will support sanctions and disbursement of loans associated with all government schemes, including Pradhan Mantri Mudra Yojna, Stand Up India and PMFME.
  • In January 2021, the Odisha government introduced 30 different products for 30 districts under the PMFME’s ODOP scheme and will promote these products in the global market with a major focus on micro food processing units operated by women SHGs.
  • In November 2020, the Andhra Pradesh (AP) government announced a total outlay of Rs. 450 crores (US$ 60.75 million) for the PMFME scheme, that will be disbursed over a span of five years to support 10,035 micro food processing units in the state. In October 2021, the AP government announced credit outreach programme, to disburse and sanction loans to various government schemes.

Road Ahead
The food processing industry is one of the largest sectors in India in terms of production, consumption, and exports. Key challenges faced by the food processing sector are gaps in supply chain infrastructure, access to modern technology & equipment and the lack of marketing & branding expertise. However, the widespread adoption of ongoing reforms and industry-friendly policies from the central and state governments to enhance the country’s unorganised food processing sector is expected to address these challenges in the upcoming years, driving the sector forward.