Ministry wants lower duties on bottled water

The Rs 1,600-crore packaged bottled water industry may grow at over 25 per cent from 2008 if a proposal from the Ministry of Food Processing Industry on reduction in value added tax (VAT) and Excise duty on packaged drinking water is accepted.

This may also result in a reduction in the prices of branded packaged waters by 10-15 per cent from next year, sources said.

Currently, the packaged water industry is growing at 10-12 per cent annually, but a reduction in the taxes and duty will encourage more regional players to enter the business, thereby fuelling growth in industry currently dominated by few players like Coca-Cola's Kinley, Pepsi's Aquafina and Bisleri, apart from a number of regional brands.

In order to promote clean and hygienic packaged water, the food processing industry wants the VAT to be in the range of 0-4 per cent. It is pushing for reduction in Excise duty from 16 per cent to 8 per cent.

The proposal is meant to encourage regional companies to start bottled water and packaging plants.

"Since the food processing sector is expected to grow by more than 10 per cent annually, reduction of VAT and excise is a viable option. There should be uniform VAT between 0-4 per cent and the Excise duty should be lowered substantially," Subodh Kant Sahai, minister of food processing industry, told Business Standard.

Sahai further said that the ministry has even presented their case before the empowered committee on VAT for reduction in the tax rate at the state level.

According to an industry estimate, there are over 600 known regional branded water companies in the country and another 800 firms wish to enter this market at the regional level.

The industry chambers have also demanded a reduction in VAT and Excise duty.

"Since packaged drinking water fulfills the basic needs of the consumer outside the house and is an essential item of consumption, the duty should be drastically curtailed on this item," CB Gupta, advisor, Federation of Indian Chamber of Commerce and Industry (Ficci), said.

"If the duty is brought down, the Rs 1,600-crore packaged drinking water industry is expected to go up by 25-50 per cent," said Samir Barde, director, Confederation of Indian Food Trade and Industry (Food wing of Ficci).

Barde further said there was a possibility that the prices of packaged water would come down. "However, it is the discretion of the company producing it," he said.