Thursday, February 23, 2012


Like a ritual every year the Finance Ministry consults various stakeholders in Indian economy for getting new ideas while formulating the annual budget though very few suggestions find they way in the eventual budget when it is presented. Besides many individuals and organizations express their unsolicited views, pleas and ideas, probably with good intention. This years budget, scheduled for placing before the Parliament in the first week of March, is also going through the same routine and what is going to come out remains to be seen. FICCI, the apex body that represents the entire manufacturing sector has sought several fiscal measures to strengthen the food processing industry, most of which seems to be reasonable and justified. Here is a take on the demands being made by this industry body to the government on the eve of budget presentation this year.   
"With regard to the food processing sector, on top of the FICCI agenda is reduction in the current 10 per cent rate of central value-added tax (CENVAT) on a number of categories of items produced by the sector. Further, FICCI wants the finance minister to put packaged drinking water, a common man's product, in the nil category, and exempt biscuits from VAT, or at least lower the rate of VAT on them. It opines that a total macro view is necessary instead of focusing on the revenue-generating potential of levying excise duty on products. But if the government is unable to do away with the excise duty completely even after taking the revenue aspect into account, it must reduce the excise duty in a calibrated manner. This, it says, should be done in two phases: it should be brought down to four per cent in the first phase and reduced to zero in the second. FICCI believes that biscuits should be treated as merit goods and therefore be secured in a more rational manner, as is done in the case of bread. After all, biscuits are a product of mass consumption across India and cut across all economic groups and geographical boundaries. They are eaten in larger quantities in the rural areas of the country and the brands that are sold at lower price points find more takers in the lower-income group". 

One of the perennial demands of food processing sector has bee to make this industry zero tax sector with the sole intention of making processed foods cheaper, affordable and acceptable to larger segment of the population. But such sensible pleas have met with stubborn refusal by the government which is more concerned with revenue generation than the welfare of the industry as well as the consuming public. Imagine the potential for the food industry to grow fast and on an exponential pace, if the price of the products is reduced dramatically through removal of all taxes! Think about the benefits the country can derive in the agri-horticulture sector and employment creating opportunities through such a fiscal measure! To some extent the government deserves applause for its progressive tax abating policies on packaging materials which contributed to dramatic expansion of small packs market in the country with thousands of foods available to low income consumers at prices as low as Re 1 to Rs 5 per pack. Same enlightened policy is necessary for bringing out the full potential of the food industry by expanding their reach into small income groups of population through reduction in prices through zero taxation.

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