Financial Daily from THE HINDU group of publications
Sunday, Mar 27, 2005
Agri-Biz & Commodities
Columns - Plantation Panorama
Budget thrusts on plantation sector development
THE plantation industry is happy with the Union Budget presented by the Finance Minister, Mr. P. Chidambaram, broadly on three grounds. First, there are no new taxes of direct significance; second, the industry's tax liability will come down though not significantly; and third, the Finance Minister has shown interest in its long-term development.
Although tea, coffee, natural rubber and spices come under the umbrella of plantations, the specific tax relief has been announced only for tea and that too, in the form of the abolition of the Additional Excise Duty (AED) of one rupee on every kg of tea produced by the corporate factories. The small-scale sector had already been exempt from excise and AED.
Ever since this levy was imposed in 2003, the industry had been pleading for its withdrawal as its production cost left Rs 12 a kg uncovered in the sale recovery. The Government was not all that convinced as it felt that the abolition of Re one would, at best, reduce the loss to Rs 11, while the ploughing back of the collections from the surcharge through incentives would help the industry become cost-effective. It had collected around Rs 120 crore so far and, among others, the industry is hoping to have an incentive scheme announced for the production and export of the orthodox tea. How far such an incentive would survive in the context of the nil-subsidy post-WTO regime is yet to be seen, but the industry is already hopeful that the very abolition of the levy would make its teas competitive in the global market. Now that the profits of the tea companies have started to surface again, cost saving would further the competitiveness. The abolition of the AED is likely to result in a saving of Rs 65 crore to the industry in the current year.
All the same, industry is reading a lot into Mr Chidambaram's open admission of its plight: "I am aware of the difficulties that the plantation sector has faced for some years now. While the prices of some commodities like tea and coffee have shown some improvement, the sector still faces difficulties." Stakeholders meets had been held and the Commerce Ministry had also promised packages, but the industry is yet to benefit. So, while the industry is disappointed that the Budget did not unveil such packages, it is happy that the Finance Minister has recognised its difficulties.
Besides, some of the recently floated schemes have failed to serve the intended purpose.
As for the long-term measure, the industry is happy on the programme for rejuvenation.
This has been the plea of the industry as it has identified the age-old bushes as a major impediment to augmenting its productivity. But, replantation, rejuvenation and pruning - involve a gestation period when the industry has to lose revenue. In addition, there is increased cost in the form of the planting materials, inputs and wages. That is why such a programme is necessary and the industry has been waiting for this estimated at Rs 4,000 crore for some time now. This scheme would generate more employment, improve the quality of the leaves and hence the made-tea, increase their market value, fetch higher returns to all the players, bring in additional foreign exchange and thus brighten the long-term prospects through the creation of a rejuvenated young field source.
There is nothing special for coffee or spices in the Budget, but the rubber planters have reasons to be worried as the import duty has been lowered by 5 per cent to 15 per cent. They have been pleading for the duty to be increased to the maximum as allowed by the bound rate of the WTO for tea, claiming that rubber is just the same agricultural produce as tea.
But, the Government has been regarding rubber as a strategic raw material for tyre and other industries and hence, is keen to make it available at the lowest possible price. The industry's fear is that a lowered duty could propel more imports. Already, in the nine months of the current fiscal, imports have shot up to 48,935 tonnes from 33,123 tonnes in the same months of last year.
Tea small growers have a grievance that their plea for the formation of an independent Small Grower Development Authority on the lines of Sri Lanka and Kenya has not received the attention in the Budget.
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