Uniform taxes; not just FDI in multi-brand retail will cool inflation: study

Much will depend on how food processing sector is treated under the new Goods and Services Tax Regime and whether there will be a single GST

Amid high food inflation, a report by Indian Council for Research on International Economic Relations (ICRIER) today said allowing FDI in multi-brand retail alone will not help in fighting surging prices, but much will depend on how the food processing sector is treated under the new Goods and Services Tax Regime and whether there will be a single GST.

 

The report carried  a survey in which all respondents pointed out that allowing FDI in multi-brand retail alone  cannot bring down inflation or help streamline the supply chain, as envisaged by the governnment..

 

"The findings countered some  of the popular beliefs in this regard," the report said. 

 

The wholesale  price index-based food inflation reached almost 20% in November, compared to bit over 18% in the previous two months. 

 

The report said said one key factor which could bring down inflation is to ensure that food processing sector faces uniform low tax and other fiscal and regulatory barriers are removed. 

 

Interestingly, almost 95% of the respondents in  the survey felt that FDI in multi-brand retail would not only provide them with wider choice of products and brands, but will help them in getting better deals and discounts on products.

 

Releasing the report on India’s Food Processing Sector, agriculture minister Sharad Pawar too echoed the same sentiment. He said implementation of GST will benefit the country’s food processing sector which has been struggling with the existing  myriad tax structures.

 

GST, touted as India's most far-reaching indirect tax reform, aims to remove barriers to movement of goods and services across states. However, GST is not  likely to come  into effect in the life of this Lok Sabha as the Empowered Committee of State Finance Ministers has rejected the Centre's proposal to bring alcohol and petroleum products under GST.  

 

The report, whose main focus is on non-alcoholic beverages,  said this  sector accounts for almost one% of India’s GDP and is expected to grow by double digits in the next 10 years which will be better than other manufacturing sectors. 

 

Criticizing the current structure of providing subsidies to develop cold chain or other facilities, the report said that in most cases these subsidies do not benefit the industry much which is further eroded by multi-layered tax structure and high cost of doing business. 

 

“It is often argued that bottled water is a luxury commodity and therefore it faces high and differential taxes…in a country like India where it is difficult to get clean drinking water, such steps are anti-poor,” the report said.

 

The report also suggested that India should learn from the experiences of countries such as the UK, Canada and Australia that have used low taxes to streamline the agro-supply chain.      

 

The report said India's ability to emerge as a manufacturing hub for non-alcoholic beverages is inhibited by poor infrastructure like power shortages and inconsistent supply of raw materials and high duties on intermediate products, especially packaging material. 

 

Unless reforms are initiated at a rapid pace in this sector, Indian companies will relocate to other countries and use the free trade agreement route to cater to the domestic market, the report added.      

 

The current size of the Indian non-alcoholic beverages sector is estimated to be in excess of Rs 30,000 crore and accounts for over one% of country's GDP.

Item	Avg Monthly Expenditure on Non-Alcoholic Beverages*
Carbonated Soft Drinks	355
Fruit Based Juices	250
Milk & Yogurt Based Beverages	228
Vegetables/fruit concentrates/fruit powder or syrup	137
Bottled water	136
Vegetable Juices	94
Tea-based drinks	79
Coffee-based drinks	45
Other	45

Source: ICRIER Report On Food Processing Industry In India