GoM seeks excise cuts to contain inflation

As a measure to contain inflation, a Group of Ministers headed by Agriculture Minister Sharad Pawar has readied another package that proposes cutting excise duty to zero from the present level of 8 per cent on a variety of items including food based on perishable farm produce, intermediate food products and food ingredients.

The ministers have also proposed to exempt ready-to-eat packaged foods and all instant food mixtures, including dosas and idlies, from excise duty. At present, the excise duty on these items ranges from 8 to 16 per cent.

The ministers have suggested fixing a uniform value added tax rate of zero per cent on perishable processed food throughout the country, along with a 4 per cent rate of duty on non-perishable items in this category.

They have also proposed customs duty reduction on packaging material, food processing, packaging machinery and cold chain machinery to 5 per cent from the existing duty level of 15 per cent. They have also recommended cutting excise duty on these items.

The logic behind the proposals is to allow producers to respond flexibly to market trends and avoid tax anomalies. Official sources said the GoM's recommendations are most likely to figure in the Budget.

It may be recalled that the government has slashed customs duties on a number of manufactured items, including edible oils, made maize imports duty-free and also banned export of sugar (since lifted), pulses and milk powder.

In light of that, a policy response to contain inflation may come sooner than that also. The weightage of primary articles is 22.02 per cent on the wholesale price index for all commodities.

Primary articles include food, non-food and minerals. The latest bout of inflation increase has been driven by food items.