The government needs to review the taxes on processed food, improve rural infrastructure and aim at increasing private investments in the sector, Prime Minister Manmohan Singh said on Tuesday.
India is among the leading producers of some farm products globally, but absence of a vibrant food processing industry leads to massive wastages and has restricted the country's share in world food trade to less than 2 percent.
The Congress Party-led coalition government, which was re-elected this year for the second term for its pro-farmer policies, now wants to prepare a National Food Processing Policy to accelerate growth in the sector and increase farm income.
"I recognise that we need to look at the taxation structure in the industry. Though primary agricultural commodities are mostly exempted from taxes, processed foods are subjected to multiple levies," Singh told a conference of state ministers.
"There is therefore an urgent need to rationalise and simplify the tax structure," he said, without elaborating on what changes could be made.
The government will review tax rates in February, when it presents its next budget.
"States should work towards early implementation of the Goods and Services Tax (GST), while removing subjectivity in treatment and classification of food products," Singh said.
The finance ministry has set April 2010 as a deadline for implementing GST that will replace multiple levies such as excise and service tax, and help lower the tax burden of the industry.
Singh urged corporates to increase their presence in the food processing industry and build global brands.
"Expanding public investment is also necessary in building rural on-farm infrastructure like primary processing centres, collection centres, cold chains etc," the prime minister said.
"We should reflect on how best we can increase private sector investment in these areas," he said.
At present, India processes only 6 percent of food items it produces, sharply lower than 60-80 percent in developed nations and 30 percent in some Asian and Latin American nations.