Coupled with the fact that vanaspati imports from Nepal has been on the rise, domestic producers feel that the industry will be hit severely if the government does not take a sympathetic view and make favourable policy decisions.

Prior to the announcement of uniform sales tax policy, a number of states like Maharashtra, Madhya Pradesh, Gujarat and Andhra Pradesh had rationalised their sales tax rate and brought it down to 1.5-2.0 per cent.

However, with the adoption of uniform tax structure these states have accordingly increased the rate to four percent. Producers feel that the move would prove counter-productive and result in an unnecessary burden on the consumers for an essential item of daily consumption.

Speaking to The Financial Express, executive director of Indian Vanaspati Producers' Association (IVPA) IR Mehra said that the vanaspati industry in the country has not been doing well for the past few years.

The decision to impose four per cent of sales tax will worsen the situation. ``If prices of our products increase, our market may shrink further.'' Mehra pointed out that the increase in sales tax on edible oils to four per cent would also hurt the vanaspati industry.

``Edible oil is the chief raw material in the production of vanaspati. Increase in sales tax on oil will make our inputs expensive.'' This will lead to a increase in cost of production of vanaspati and a further hike in prices.

Mehra said that in the interest of the industry and the consumers, the Centre and the state governments should place vanaspati and edible oils inthe zero per cent sales tax floor rate.

To protect the interests of the domestic industry, the government should also take actions to regulate the flow of vanaspati from Nepal, Mehra said. He pointed out that the renewal of the Indo-Nepal Trade Treaty in December '96 whereby exports of all manufactured goods have been permitted into India with full exemption of customs duty, resulted in the flooding of the Indian market with vanaspati from Nepal.

Vanaspati exports from Nepal in the past three years has risen from a modest 10 tonnes per month to over 6,000 tonnes per month at present. According to Mehra, the main reason for heavy exports of vanaspati into India was the fact that the Nepalese manufacturers were able to import edible oils without any incidence of customs duty and thus have a considerable advantage in terms of the cost and competitiveness of its products as compared to Indian producers.