Tax distortions, poor infra hit Basmati farmers

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Karnal (haryana) & Khanna (punjab) | Updated: November 10, 2014 1:48:18 AM

A heavy burden of taxes and levies, exacerbated by inter-state trade disparities in taxation...

A heavy burden of taxes and levies, exacerbated by inter-state trade disparities in taxation and under-developed market infrastructure in key producing states like Uttar Pradesh, is threatening to dent India’s lately acquired export competitiveness in basmati rice.

In 2013-14, India’s basmati rice exports peaked an impressive R29,299 crore, but industry sources say, given a widening of tax differential between Haryana and Punjab, processing costs have gone up. As a result, export realisations from the rice variety have taken a hit.

Punjab now has a big tax differential of about four percentage points with neighbouring Haryana after it lowered the taxes in October 2013. As a consequence, traders from Haryana, where most of rice processing units are located, have stepped up their buying at various mandis in Punjab, resulting in gross under-utilisation of processing capacities in Punjab.

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Also, a lack of marketing infrastructure in Uttar Pradesh has forced its farmers, especially those in the districts bordering Haryana, to take their produce to the processors in Haryana. In the process, the UP farmers incur transportation costs that render farming of basmati less remunerative for them.

An official from Punjab food and civil supplies department told FE that so far this year, Haryana traders have purchased a substantial 17,000 tonne of Basmati paddy in Punjab’s Khanna mandi, Asia’s biggest grain market. Neeraj Singh Chaudhary, a farmer from UP’s Muzaffarnagar district, told FE he had brought 50 quintals of Basmati paddy to Karnal mandi in Haryana which is 35 miles away from his paddy fields, in what indicated the predicament of UP farmers.

The tax and levies on grain are at irrationally high levels — the combined onus of taxes and other imposts are as high as 11.5% in Haryana and 7.75% in Punjab. Ashok Gulati, former chairman Commission for Agricultural Costs and Prices (CACP), said that all key Basmati-growing states should have a uniform taxation regime and the taxation on staple grain trade should be around 3%. Analysts say the proposed Goods and Services Tax (GST) would present an opportunity for rationalisation of taxes on trade of grain across states.

For promoting food processing, the Punjab government had exempted Basmati paddy purchase in the state from 2% rural development fund (RDF) tax and 2% mandi fee last year. This brought down the overall tax to 2.75% for local buyers and 7.75% for exporters. The tax refund system for exporters is barely useful to nullify the taxes incurred.

“These variations in tax structure create uncertainties in the supply of key raw materials in basmati trade. We need to have an unified tax structure for sustaining our growing Basmati rice exports,” Vijay Setia, a former president of All India Rice Exporters Association and executive director, Chaman Lal Setia Export, an exporter of Basmati rice, said.

According to Rakesh Rawal, secretary, Agricultural Produce Market Committee, Karnal, which handles 4.5 lakh tonnes of paddy and wheat annually, more than 60% of the grain traded are from the districts of Muzaffarnagar, Meerut and Sambhal in Uttar Pradesh.

Punjab, Haryana and western Uttar Pradesh are the biggest producers of aromatic long-grained basmati rice, especially PUSA 1121 and the newly introduced PUSA 1509 varieties. Basmati rice is being cultivated in more than 2.5 million hectare in these three states this year. The country produced 5 million tonne of basmati rice last year.

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