Taxing the food-A retrograde step by governments in India

Whether in ancient kingdoms or in modern democracies, taxation is a genuine tool to garner resources for the development of the Society at large. But who ever is ruling a country must exercise caution and wisdom in choosing the basket of items to be taxed and at what rate. India to day is considered vibrant democracy with the governing fraternity being for the people and by the people. If so indiscriminate taxation regime can be nothing but suppression of the aspirations of people. This is what has been happening in the country with successive governments refusing to go by the wishes of the people not to tax their foods. If the industry is to be believed the present General Sales Tax GST) regime, being pushed through, wants to impose 20% tax on foods which is nothing but a cruel joke in a country where poor people predominate in the population. While lot has been said about "Right to Food" by the political class it is not realized that right to access food cannot be "at any cost"! The plea by the industry to reduce the food taxes to 4% is very reasonable and if the present government prides itself as a "responsive and responsible" one it must heed to this well reasoned suggestion. Here is a take on this contentious issue. 

"Preferred policy option should be imposed on food processing sector, keeping GST rate not more than 4% and farm sector should be kept outside the scope of GST, said Sharad Jaipuria, President, PHD Chamber of Commerce and Industry. The likely implementation of GST at more than 20% on food processing sector would not only impact the sector adversely but also hit the economic and social sentiments of the country, said Jaipuria. The food processing industry is still at a nascent stage of development in our country as only 2.2% of food output is processed in India as compared to 78% in Philippines, 65% in the USA and 23% in China. At this juncture, high rate of GST will slow down the growth trajectory of food processing sector in India. Further, as food comprise a major part of the Wholesale Price Index (WPI) which is nearly 14.3%, an increase in tax on food items will adversely impact WPI leading to higher inflation in the country, he said. We believe since food constitutes a large portion of the consumer basket of lower income households, any tax on food would be regressive in nature. Further, extending GST to food processing sector will also cause difficulty in view of the fact that production and distribution of food is largely unorganized in India, added Jaipuria. On global front, most of the countries tax food at a lower rate keeping in view the considerations of fairness and equity. Even in countries such as Canada, UK and Australia where food constitute a relatively small portion of the consumer basket, food is taxed at zero rate.  While in some countries, food is taxed at a standard rate which is as low as 3% in Singapore and Japan at the inception of the GST. Even in international jurisdictions, no distinction is drawn on the degree of processing of food. Hence, the benefit of lower or zero tax rates should also be extended to all food items in India regardless to degree of processing, he said."

It will be easy for the government to brush aside such suggestions branding industry as not adequately patriotic to help the government  in refurbishing its treasury but the citizens in this country will eventually punish the government if does not remove all taxes on food materials, whether processed or raw. There has been and still a procession of politicians going to foreign countries on some pretext or the other but never seems to learn good things of benefit to the citizens there. If food is not taxed in countries like Canada, Australia and the UK why should it be taxed in our country? On one hand successive governments never get tired of proclaiming from the top of their perch that agroindustries must be promoted as it provides more employment per unit investment while in successive budgets taxes are neither removed nor reduced but invariably increased What an anachronism! Can we expect from the present Finance Minister, when he presents his budget in February next to start the process of reducing the food taxes progressively, to eventually achieve zero taxation in 5 years? Pray God for good sense prevailing over him in the next 3 months! 

V.H.POTTY

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INFLATION AND FOOD PRODUCTION COST-INDIAN AGRICULTURE ON CROSS ROADS

It has been said umpteen number of times that Indian agriculture system as it works to day is a no-win situation for both the farmer as well as the consumer. As food inflation is intimately linked to production cost, during the last one decade the cost of agricultural inputs has climbed steeply, in spite of billions of rupees of subsidies supposed to be doled out by the federal government. Almost 700 million people stay in rural hinterlands, close to the agricultural production areas working against all odds to raise food crops for the entire nation and with average size of land holding estimated to be less than 2 acres per family what can one expect from the agricultural activity which depends heavily on regular rainfalls. Land productivity being abysmally low, being fraction of what is achieved even in African countries, agriculture is not and has never been a viable pre-occupation for many. Absence of a long term agriculture policy which makes some sense, the drift is clearly visible with thousands of farmers choosing the suicide route for salvation. As this subject has several dimensions, a detailed discussion here is out of place but reference to the article cited below gives some insight to the problem India is suffering from.

"The key reasons for the escalation in the cost of producing food in India are the rapid increase in farm input prices and long-term structural deficiencies such as low productivity, fragmented landholdings, and declining public investments in agricultural infrastructure. The prices of various farm inputs, measured by WPI inflation rate, were subject to significant increase over the years. On an average basis, the WPI inflation rate (Base: 1993-'94) of light diesel oil has recorded an increase of 18.28 per cent between 2003-'04 and 2008-'09. During the last two years also, together with fertilizers and electricity, the prices of most of these farm inputs have increased substantially. As regards labour cost, according to the estimates provided by the Commission for Agricultural Costs and Prices (CACP), between the second half of 2008 and second half of 2011 the agricultural wage rate at the all India level has increased sharply by 74 per cent. The rise in the wage cost ranged from 43 per cent in Himachal Pradesh to 102 per cent in Odisha. A multi-pronged approach is needed to tackle the increasing cost of food production. Estimates show that more than 40 per cent of the total variable CoP in Indian agriculture consists of labour. Due to reasons such as high non-farm wages, aspirational migration, educational attainment, and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) farm labour has become scarce and costly in rural India. Some of the sensible ways to overcome the labour shortage are increased mechanisation of the farm operations, including that of small land holdings through group farming method; extending the provision for taking up asset creation works on private agricultural land under MGNREGS to more beneficiaries; and making agricultural operations a part of MGNREGS on an equal cost sharing basis between the farmer and the government"

Will there be salvation for this country ever? Sadly the federal government seems to be banking on its FDI policy to get foreign investors for helping the farmers of this country! If during the last 65 years of Independence the country has not been able to provide the farmers even with simple infrastructure for carrying out the farming activities efficiently, will this nation become permanently dependent on imports of vital foods like pulses and oil seeds? The argument that the country is exporting food grains and sugar cannot gloss over the fact there are about 300 million people in the country who are considered impoverished, malnourished and hungry with inadequate access to food. As the report above points out there has to be a serious re-look at the agricultural policy to provide a conducive environment for the farmers of this country to produce food economically and help consumers to access the same at affordable prices.

V.H.POTTY
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AN OVER BEARING GOVERNMENT-BASHING THE CITIZEN

Inflation is supposed to eat into the real buying power of people and all responsible governments try hard to rein in such distortions in the economy. India is no exception to this bitter reality. Inflation affects different people in different ways, the affluent families not feeling the pinch to the same extent as those in the low and middle income groups of population. Economic liberalization in India two decades ago has unleashed a force that is influenced more by international developments than by any ameliorative policies of the national government. In a democracy every citizen has a right to protest against the policies of the government elected by him if they are found to be heaping misery on him. While the suffering citizens do expect the government to be sympathetic to his woes, bashing him for raising his voice against price rise especially of staple foods, is not an acceptable behavior of a responsible official of the very same government. Here is the controversial "admonition" from a senior minister in Indian Government who expressed his displeasure against citizens railing against price rise. 

"Answering a question on the burden on the common man, the Home Minister referred to the different segments of the population and the schemes that benefit the different segments.  He referred to higher MSP (as benefiting the farmers); MGNREGA (as benefiting the rural poor); mid-day meal scheme (as benefiting millions of children); and he referred to PMGSY (as benefiting thousands of villages).  He referred to the price of crude oil and how the Government was constrained to first raise petrol prices and then how it was reduced twice to benefit the middle class.  He then said (as can be seen from the exact text of the answer): "You mentioned high food prices.  Yes food inflation is high.  But higher procurement prices will reflect in slightly higher food prices.  But higher procurement prices benefits millions of farmers.  If you increase the price of sugarcane, sugar cannot be cheaper than before.  If you increase the price of procured wheat or procured paddy, rice and wheat for the consumer cannot be less. Sometimes, and I have written about this once, we are prepared to pay fifteen rupees for a bottle of water but we will not bear one rupee increase in the price of a kilo of wheat or a kilo of rice.  We are prepared to pay rupees twenty for an ice cream cone but won't pay a rupee more for a kilo of wheat or rice." 

Here is a comment by an enraged citizen after hearing the above statement which aptly reflects the revulsion among the masses.

"Tea Re.1.00 Soup Rs.5.50 Dal Rs.1.50 Meals Rs.2.00 Chappathi Rs.1.00 Dosa Rs.4.00 Veg Briyani Rs.8.00 This is actual price list. These items are meant for "POOR PEOPLE" & is available at Indian Parliament Canteen. The salary of those poor people is Rs.80,000.00 per Month!! PLUS HEFTY BONUS IN SCAMS.... Pls forward to all Indians (this all money comes from our pocket, TAXES YOU PAY)" 

Probably the minister, drunken with absolute power felt that he is not answerable to the people who elected him as his survival in the government depends more on paying obeisance to people not answerable to the constitution of India where accountability is the last thing that counts in public life. With luxurious life given on a platter to the "elected" representatives in the name of "serving" people, there seems to be a disconnect between common man and their representatives as reflected by the comments quoted above. Whether it is the salary, perks, living facilities, transport, communication facilities the "leaders" seem to be united in granting these privileges liberally to them selves unanimously with hardly a few seconds deliberations! Probably it is time that the present constitution is thoroughly over hauled to return the real power to the people of the country in the true sense.

V.H.POTTY
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http://foodtechupdates.blogspot.com

HIGH PRICED FOODS-A NEW GENERATION BUYERS

Does the inflationary pressure on foods affect all the consumers equally? If the present trend in the buying habits of consumers is any indication, many buyers are willing to spend double or triple the price of standard products if there are USPs with them. It is understandable that many young professionals with large amounts of money in their hands rarely look at the MRP printed on the label and their concern is only the quality of the product they are buying. Unlike the average middle class consumers of yesteryear who used to spend 40-50% of their income for buying groceries and food, to day's average consumers spend only about 20-25% of their income on these daily needs because  of high salaries drawn by them. Especially in cities like Bangalore, Pune, Hyderabad, Chennai, Trivandrum etc where there is a considerable concentration of IT professionals with high monthly income, price of a product is never the critical factor that influences the buying decision. Under such a splurging environment consumers in general are "infected" with a desire to buy high priced products, generating more demand for new products with distinct personality and foot print. Is this going to be the drive engine for the growth of food industry in India in future? In all probability this may be true.  

Inflation is all around us. Every visit to the market brings shock at newly raised prices. So would you then voluntarily pay Rs 75 for a litre of milk when you can get a packet for Rs 25 or a tetrapak for Rs 44? Or Rs 60 for a loaf of sliced bread when you can get one for Rs 16? How about Rs 50 for six eggs that might cost Rs 24 otherwise? Or Rs 50 for a bottle of water that might otherwise cost around Rs 15 - and not for imported brands like Evian, whose prices might soar due to excise duties and the falling rupee. All these prices are for shudh'Indian products only. Of course, they are hardly run-of-the- mill products. The Rs 75 milk comes from a herd of Holstein cows at a farm at the foot of the Sahyadri mountains not far from Pune. It is packed under absolutely hygienic conditions and rushed to Mumbai, reaching the city just 8-10 hours after milking (regular milk takes 36-48 hours). And no time is spent on shop shelves because the bottles are delivered direct to the doorsteps of consumers who have subscribed to the service, which currently operates in south Mumbai only. DANZ bread also goes direct to consumer. The product, now being test marketed in Mumbai, claims to be made from a mix of five wholegrains and seeds, with no potentially-harmful chemical additives, and will reach you two hours from being packed. Keggs is the brand name for eggs with distinctive light brown shells that come from special chickens raised by low-income farmers, who let the birds range around and eat a mixed diet, the exact opposite of the cramped, unhealthy battery farms that produce most eggs. Keggs are not home delivered, but are sold at gourmet food stores in Delhi and Mumbai". 

Recent news reports that more than 40% of the food manufacturers in the organized sector are poised to increase the consumer prices of their products to avoid slipping into red due to all round escalation in input costs during the last two years, are not surprising. Some of them have used the "optical illusion" to lower the contents of a food packet without reducing the over all size of the pack and retaining the price, giving an impression to the consumer that they have maintained the price level, in spite of inflation! Take a simple case like the Glucose Biscuit where unit packs of Rs 2, 3 and 4 are very popular and in the lat two years the contents in these popular packs have come down by almost 25% with the biscuit size also reduced while the price is maintained at the same level. Probably such price manipulations may eventually make the middle class accept the inevitability of spending  higher percentage of their income on the daily needs to keep their body and soul together.

V.H.POTTY
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http://foodtechupdates.blogspot.com

FRUITS AND VEGETABLES-STOKING INFLATION?

Can any one dispute the fact that fruits and vegetables constitute the most important dietary component that can ensure sound health? Nutritionists world over have come to the conclusion that human beings must consume at least 4-5 servings of these vital foods every day as they are rich sources of many micro nutrients as well as fiber. Unfortunately gross distortions caused by cheap processed foods most of which are calorie rich in stead of being nutrient dense have pulled the consumers towards the former under economic compulsions. When such is the scenario, what justification any country can have in allowing these protective foods priced exorbitantly, making them beyond the reach of common man? Of course governments can always wring their hand saying that in a free market, prices are government by demand-supply dynamics! In India food inflation now raging between 9 and 10% is driven by the high prices for fruits and vegetables and such a situation is happening because of the skewed production and market policies of the government which allow "middle men" and pre-harvest contractors a free hand in dictating the consumer price. How long this can continue in a poor country like India? Obviously GOI does not seem to have any clue!

"India's food inflation turned higher in the week ended June 23 due to costlier fruits and vegetables, underscoring expectations that stubborn price pressures won't fade anytime soon and firming expectations of continued monetary policy tightening. Food inflation during the week accelerated to 8.04% from a year earlier, compared with 7.33% the week before, data issued Thursday by the Ministry of Commerce and Industry showed. On a week-on-week basis, the wholesale price index for food articles fell a marginal 0.6%. Nitesh Ranjan, an economist with Union Bank Of India, said the slight easing in the food index could be due to the prolonged rate hikes by the Reserve Bank of India. Still, it would take five to six weeks of continuous easing before a sustainable decline in inflation is seen, he added. The RBI has raised its key policy rate 11 times since March 2010 and is widely expected to raise it by a further 0.50 percentage point by March to tame inflation that has been at uncomfortably high levels for more than two years. The bond market drew some comfort from the week-on-week decline in the index for food as well as primary articles. The fall, even though marginal, gave some hope that food prices could see a sustained downtrend if monsoon rains progress normally".

There are grandiose plans and schemes announced from time to time for raising the production of fruits and vegetables but very little is happening at the ground level as reflected by the widely fluctuating market prices for these foods. Added to this the market prices are manipulated by traders during festivities which are many in the country. How can a consumer cope with a 100% increase in the price of any fresh produce during a particular festival, whether Ramzan or Diwali or Christmas, as is happening now? Since 1947 when India achieved independence, there has been only feeble efforts to establish the much needed infrastructure like cold storage, cold chain, MAS facilities etc which, if in place, could even out the prices between harvesting seasons. Probably Indian citizen is paying for the prolonged neglect of this sector by successive governments with short vision!

V.H.POTTY
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http://foodtechupdates.blogspot.com

ANOTHER GLOBAL FOOD "MELT DOWN" IN THE OFFING?

Recent focus on food prices that is threatening to plunge the world into a crisis is inevitable considering the disastrous consequences mankind is going to face in the coming years due to inadequate food production and dwindling reserves. With population surging ahead in many developing countries with inadequate resources to raise enough food, starvation is a distinct possibility. While land productivity in most of the developed countries has reached achievable limits, the focus must be on helping the poorer nations with plenty of low productivity lands to increase food production through injection of much needed inputs in the form of high quality seeds, fertilizers, crop protection technology and crop processing infrastructure. The alarm about a possible food crisis comes from no less a person than the chief of FAO, the UN body specialized in food and agriculture.

"Food prices remain high in many developing countries. And Diouf says the threat of another global price hike persists. Energy prices have not fallen to pre-crisis levels, and crops are still being diverted for bio-fuels. In fact, he says, except for larger grain reserves, not much has changed since 2007. "All the other factors that led to the price crisis are all here. They have not changed," he says. "So, I think that, if we have -- and I pray that we don't have it -- serious problems of flood and drought in major exporting countries, we're back to square one."Experts say floods, drought and other extreme weather are becoming more frequent, brought on by climate change.And the world's population is expected to grow by nearly 50 percent, to 9 billion by 2050. Developing countries will grow the most".

That poorer countries cannot marshal necessary resources is a well known fact. If the promised $20 billion food assistance promised during the food summit last year materializes there is hope that the looming food crisis can still be averted. But the trend so far has been continued reluctance on the part of rich nations to release the promised economic assistance

V.H.POTTY
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http://foodtechupdates.blogspot.com

THE NEW BUDGET-"PEANUTS" FOR FOOD INDUSTRY

Budget time is eagerly awaited by all segments of the Indian Society hoping for freebies, subsidies and economic gains on one or the other form. The most recent budget that was presented in the Parliament is a mixed bag giving some thing to some and taking away some thing from others, thus not satisfying any one in the process. A cursory look at the massive document does not reveal any encouraging policy support to the food industry. That food processing sector rarely gets any priority or even mention in the budget has been a recurring phenomenon year after year and this time also same trend continued.

Mukherjee outlined a four-pronged strategy—easier access to farm loans, greater focus on food processing, cutting food wastage and increasing farm productivity. The moves come in the wake of the worst drought last year since 1972 that cut farm output by 16 per cent. Nearly 52 per cent of all Indians are dependent on agriculture and allied activities. The effects of the drought quietly showed up in the form of a supply crunch and surging food prices, the single biggest driver of inflation. The Budget aims to ease supply bottlenecks by removing service charges on movement of cereals and pulses. "This could have been extended to movement of fruits and vegetables as well," said Rakesh Bharti Mittal, who heads the Confederation of Indian Industry's farm council. The Budget, however, shies away from providing enough incentives for private investment in agriculture. "I am disappointed that there has been no focus to develop agricultural markets or boost private investment," farm economist Y.K. Alagh said. The Budget does, however, offer some sops such as waiving duties on import of farm machinery. But that may not be enough to pull the farm sector out of the 0.2 per cent negative growth rate. Another bad monsoon could badly hit the country's ability to feed its millions.

Pleadings during the last three decades to with draw all financial levies on processed foods have fallen on deaf years this year also. Except for platitudes GOI does not want any thing constructive to offer to the processing sector and still considers entire manufacturing sector as a cash cow! What the Minister means by declaring that GOI would "focus on food processing and cutting food wastage" is probably a pious declaration as no concrete steps to achieve the goals have been elucidated with any commitment. Probably allocating some funds to the toothless Ministry of Food Processing Industry as its annual budget seems to be the "action" envisaged by the Finance Minister! One can only pity the fate of food processing industry in the country which has been yearning for fiscal and policy supports from the state and central governments for decades, waiting like an "eternal bride" for good days ahead!

V.H.POTTY
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http://foodtechupdates.blogspot.com

FOOD PRICES-IMPACT OF EMISSION CONTROL REGIME

Having committed for a 25-40% reduction in CO2 emission within 5 years, Indian Governments (GOI) will have to ponder over the impact of such a program on various fronts. As far as the food industry is concerned, there is a feeling that the CO2 emission control program will reflect on the manufacturing cost of processed foods very significantly. This is probably due to additional investment, which may be necessary to install palliative equipment by the food processing industry for reducing the quantum of pollution from their manufacturing facilities. This, how ever, may not be completely true as reflected by some modeling studies reported recently, simulating the future scenario vis-à-vis CO2 emission controlling regime.

"The Treasury modelling found that in 2013, the average price impact of the Carbon Pollution Reduction Scheme on food bills will be around $68 a year -- less than 1 per cent of household food bills," Mr Garrett said. However, the council chief executive Kate Carnell said this was not realistic, given the role of electricity in the processed food supply chain. "The average shopping basket is about $200 a week, so the government's modelling suggests a barely 0.5 per cent increase off the back of increases in electricity prices of 20 to 40 per cent. That is not even vaguely credible in a manufacturing industry," she said.

As no realistic studies have been carried out in India, it may be difficult to predict the consequences of GOI tightening the screw on the industry for bringing out substantial reduction in carbon pollution. If the western modeling is transposed under Indian conditions, less than 1% increase in the prices of processed foods is just "peanuts" when the consumer in this country is already braving a 20% annual inflation in the food front. GOI must not bend before such artificial scare "taunting" by vested interest and stick to its commitment before the world community. Which is also good for the country.

V.H.POTTY
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http://foodtechupdates.blogspot.com

GALLOPING FOOD PRICES-INDIAN DILEMMA

Shortages of essential commodities and ever increasing food prices are making miserable the lives of citizens in India, especially those in the lower income group. The only redeeming feature is that people at the lowest rung of income are protected to some extent through government-subsidized supply of foods to them. No one responsible in the country seems to have any clue regarding this sudden developments though the errant monsoon is being blamed. Here is what the apex bank in the country has to say on this issue as reported by the media.

"India's policy makers can't ignore the link between higher food costs and inflation, central bank Deputy Governor Subir Gokarn said, signaling the monetary authority may quicken measures to curb the increase in prices.Gokarn is the second official in as many days to flag concerns over accelerating inflation after Prime Minister Manmohan Singh's economic adviser on Dec. 3 said rising food prices may "require monetary policy action." The wholesale food-price index climbed to an 11-month high in November, a government report showed this week. "Persistently rising food prices may spill over into inflation expectation" and "do have an expectation impact," Gokarn told reporters in New Delhi today. "We can't ignore that linkage." India's gross domestic product expanded 7.9 percent in the three months to Sept. 30 from a year earlier, the fastest pace in six quarters, as a $130 billion cash injection through monetary stimulus shielded the $1.2 trillion economy from a global recession. China grew at a faster pace of 8.9 percent last quarter, while U.S. GDP rose 2.8 percent, Europe contracted 4.1 percent and South Korea increased 0.9 percent".

While the debate goes on, there does not appear to be any relief to the common man from the increasing economic burden arising out of the illogical and irrational price escalation for almost all food materials including staples. If a 15% drop in the rainfall during the last monsoon can cause such a havoc, what, if monsoon fails again? The recent announcement by GOI declaring its plans to import 4 million tons of sugar is bound to increase international price of sugar which will have a snowballing effect in the domestic market.

V.H.POTTY
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http://foodtechupdates.blogspot.com

FOOD INFLATION-WHY ONLY IN INDIA?

After boasting of low to negative inflationary trend during the last few years based on the Whole Sale Price Index (WPI) figures, India is facing a situation where inflation in prices of food is about to reach beyond 20%. There has been all around price increases for almost all food items whether they are groceries, restaurant foods or processed products. While one of the reasons could be the widening gap between demand and supply, the chaos that can be seen in the trading business with large scale hording a rule rather than exception, must be contributing to the unbearable price escalation which is affecting the livelihood of millions of low income population.

In sharp contrast, a country like the US which imports large quantities of various food commodities is experiencing practically zero inflation in the food front. "Grocery prices may not rise much more than 1 percent for the year, said Ephraim Leibtag, an economist with the Department of Agriculture. Historically, food prices have risen 2 percent to 3 percent each year, so 2009 will mark one of the most benign years for food inflation in the last two decades".

It will be a tragedy of epic proportions if the democratically elected government is to shirk its responsibility to control food prices effectively in the coming days. While prices of groceries are fluctuating widely in different parts of the country, the farmers are not better off as they are getting only a fraction of the price paid by the consumer, rest being swallowed by the trading community. Added to this the PDS which was a source of assured staples at reasonable prices has become largely dysfunctional, thanks to the sustained neglect during the last decade.

V.H.POTTY
http://vhpotty.blogspot.com/
http://foodtechupdates.blogspot.com