Sunday, December 17, 2006

C(k)rack jack

Why is the humble snack so highly taxed?

The inimitable Indian impulsion of combining the timeless and fullbodied chai with biskut is under grave threat. And who else other than the indubitable Indian policy maker can defy this ageless Indian culture of having a biskut with tea, as a pre-breakfast filler or over an ever consuming senseless gossip.

As things stand, India remains at the bottom, with a meagre per capita biscuit consumption of around 2 kgs per year (as compared to an astounding 10 kgs in the developed West and around 4 kgs in the South-East Asian counterparts). To make matters worse, the sustained rise in the prices of raw materials like wheat flour, vanaspati, sugar, skimmed milk powder (vital ingredients for biscuit industry) is spelling doom for the biscuit industry. Of whatever is left of it, the policy makers have baked it black. It is shocking that currently for every Rupee an Indian spends on biscuits, Government of India charges a tax of 26 paisa!!! (Including VAT at 12.5%, Central Sales Tax (CST) at 8% and other local taxes), brazenly making it one of the highest taxed food items. The industry is neither able to absorb the tax impact’ nor are they able to pass the incidence as more than 50% of the consumers are from Rural India (figures available with NCAER). And no prizes for guessing the reason - low purchasing power! Rural India is generally and logically price sensitive, and for a commodity as basic as biscuit, they are hypersensitive. So in effect, for the manufacturers, the squeeze resulting out of this abnormal taxation is suffocating enough to bludgeon many of them to untimely death.

For India, biscuits have always been an inexpensive and possible alternative for nutrition, more so, as it is deeply imbibed within our consumption culture and is a mass based food product. Knowing that it not only adds to the much needed nutrition to our masses but also caters to the most vulnerable section of the Indian society – children, lower income groups and the rural population, the policy makers, should have dealt with the industry in a more humane fashion. Instead, in an attempt to beat all ironies, they have waived off excise duties upon food items like bread, butter, cheese, jam and potato chips, as if Indians lead an western lifestyle.

For the policy maker, waiving off the entire taxes would actually mean nothing in comparison to the sops that have been regularly doled out to the privileged middle-class, a zilch with respect to the overall budget of the state and chicken-feed when compared to the industry’s annual contribution towards the agricultural sector which is around Rs36 billion. This small and thoughtful waiver in duties would indeed provide the much needed fillip to the industry, making biscuits more affordable, augmenting consumption levels, provisioning nutritional requirements and boosting the agricultural sector. But then again, we all know that for Indian policy makers it is just like another c(k)rack jack solution!


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