Financial Daily from THE HINDU group of publications
Tuesday, Jan 21, 2003
Agri-Biz & Commodities
Columns - Focus
New tea order aims to quicken auction process
Rabindra Nath Sinha
KOLKATA, Jan. 20
BANNING of reopening of bids and raise in the rates of advance of bidding may be seen as part of the efforts of the Tea Board to speed up the process of auctions. These are in addition to the steps to compress the cataloguing time in North India.
In the new directives issued on January 6 by the Tea Board as the licensing authority, reopening of bids has been disallowed for all auction centres. Under the old rules, reopening of bids is allowed in all auction centres till five subsequent lots (only exception is Kochi where the provision is for three subsequent lots) are allowed for sale.
In this context, A.F. Ferguson in its report noted that reopening of bids is not allowed in Colombo and Mombasa. Reopening of bids slows down the auction process and encourages (market) trend-based bidding, which is against the spirit of auctions.
Now, about rates of advance of bidding, for price slabs of below Rs 50 and Rs 50 and above but less than Rs 100, the rates of advance of bidding have to be 50 paise and Re 1 per kg respectively. For the price slab of Rs 100 and above, the rates prescribed for North India are Rs 5 per kg for orthodox and Darjeeling and Rs 2 per kg for CTC teas.
However, for the price slab of Rs 100 and above in South India, there will be only one rate, that is, Rs 2 per kg. It appears that the Tea Board has prescribed a different parameter for this price slab in South India considering that not much teas there sell at or above Rs 100 per kg.
What did A.F. Ferguson had to say on this issue? According to it, the rate of advance of bidding and related price slabs varies widely across the domestic auction centres and, in practice, ranges from 20 paise to Re 1. The low rate of advance reduces auction speed. Also, a rate of advance, such as, 30 paise as in vogue at the Kochi centre is administratively odd to handle as currently all auctions operate on an open outcry manual system.
The price slabs specified in the new directives are the same as recommended by the consultant. However, it recommended only three incremental bidding rates 50 paise, Re 1 and Rs 5. But, obviously the authorities have gone by their own assessment of the ground realities. They have not only modified partly the recommended rate for the Rs 100 and above slab but also introduced a differential between North and South India.
An important issue dealt with in the new directives relates to payment to warehouse owners. In this regard, the licensing authority has restored the system in vogue till 1995. Which is that every broker shall deduct warehouse charges payable to a warehouse owner by tea manufacturers on account of each specific lot and credit the charges to the account of that warehouse owner on the day of the sellers' prompt. For this service, the licensing authority may, from time to time, prescribe service charges payable by warehouse keepers to brokers.
With the introduction of tax deduction at source under the I-T Act, the system of brokers discharging the responsibility of payment to warehouse owners came an end after 1995. Then auction organisers advised sellers to pay directly to warehouse owners. But, in the three North Indian auction centres, many sellers defaulted in payments to warehouse owners, whose dues in course of time added up to a huge sum. Therefore, the licensing authority has sought to rectify the situation by bringing back the system in vogue till 1995.
A.F. Ferguson recommended reintroduction/enforcement of the previous system and noted that the matter involved a legal/taxation angle. It also noted that payment to warehouse owners by buyers was not an issue as buyers paid while taking delivery of tea.
When the new directives are considered in totality, it will be seen that the Tea Board has very substantially implemented the recommendations of its consultant, A.F. Ferguson.
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