Financial Daily from THE HINDU group of publications
Saturday, Mar 01, 2003
Agri-Biz & Commodities - Oilseeds & Edible Oil
Too harsh on the edible oils sector
AN unexpectedly superb Budget - unexpected because recent newspaper reports were suggesting otherwise due to election compulsions.
The Budget is expected to spell out the policy intent to drive the Government's agenda both over the short and the long terms. This Budget has kept the development agenda sharply focused.
The exhilarating feature is that it has latched on to the positives in the economy to leverage them to a sharper rate of economic growth. The emphasis on infrastructure, health, agriculture, education, housing is certainly going to touch the lives of the masses across the country.
The infrastructure projects should result in an increase in rural income and boost the relevant industries, including giving a fillip to rural demand, the impact of which will be felt by the FMCG sector also.
The spending power of the middle classes will also increase because of the tax sops provided through higher exemption limit for education expenses, increase in standard deduction, removal of dividend tax and surcharge on income tax.
The de-reservation of 75 items for SSI should facilitate technological upgradation in these sectors and improve their competitiveness. The FMCG sector should benefit from this move.
The introduction of VAT and the integration of service tax in the tax net is a highly welcome feature. The plan to phase out CST as a sub-set of this move should also help industry in improving the efficiency of their distributed operations.
The reforms in tax administration and the staggered implementation of the Kelkar Committee recommendations indicates the intent of the Finance Minister to progressively simplify and rationalise taxation, while maintaining the buoyancy in revenues to meet the development needs.
Excise duties have been rationalised into three slabs and peak custom duty has been reduced from 30 per cent to 25 per cent except for agriculture and dairy products.
Items on which the excise duty was four per cent have either been shifted to the exempted category or realigned to the lowest level of eight per cent. On many items of mass consumption, such as biscuits and confectionery, the rates have been reduced from 16 per cent to eight per cent.
Branded edible oils and vanaspati, so far exempted from excise, have been brought under the eight per cent net with Cenvat benefit. This is a hugely retrograde step as the branded category accounts for less than 10 per cent of the total edible oil consumption in the category and is the only section diligently paying its tax dues.
Imposition of excise is mindless and may drive the final nail in the coffin for this sector.
As it is, edible oils are subjected to very high rates of custom duty ranging from 45 per cent to 95 per cent. Hence, introduction of excise duty on branded refined edible oils was totally unwarranted.
Ironically, other items of mass consumption such as salt and atta have been kept out of the excise purview but not branded refined edible oils, which equally account for a sizeable share of the home manager's monthly budget.
Considering that the Government has been trying to promote the concept of packaged edible oils to bring some discipline into this industry, this certainly is a harsh measure.
Further, the introduction of excise may not yield much revenue for the Government considering that a very small section of the industry will be covered, but what it will certainly do is accentuate the disparity and increase the already high instance of malpractice - sometimes at the cost of the consumer's health.
The country is the world's largest importer of edible oils in the world and therefore, the burgeoning imports contributes generously to the custom revenues (almost Rs 5,000 crore). That being the case, there is really no logic for imposing excise duty on refined oils.
Overall, the Budget should catalyse the increasing business confidence and drive the economy to a higher level of growth. Investments in infrastructure should boost consumer demand, which will eventually benefit the FMCG sector.
The author is CEO (Healthcare), Marico Industries Ltd.
Stories in this Section
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |
Copyright © 2003, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line