Excise on liquor, junk food may stay

Excise duty on wine, beer, spirits, aerated drinks and junk foods should be retained in the forthcoming Budget, while all other food and beverage products should be exempted from the levy as well as from sales tax, the food ministry has recommended.

The ministry's proposal is likely to be implemented as part of the suggestions outlined in the 'Vision, Strategy and Action plan for food processing industries'.

Foods products having adverse health implications, those which do not possess any nutritional value but just calorific value, will continue to invite excise and sales taxes.

Globally tax rates for food processing industries are at zero level as in the case of the UK and Ireland.

The Indian industry is pushing for tax rates to be brought down to zero levels and be given the similar treatment as the information technology industry has received over the past few years.

Today excise duty on food and beverage products is as a high as 24 per cent, and sales tax varies from state to state, anywhere between 8 to 22 per cent.

The fall out of high tax rates, regulatory bottlenecks and infrastructural issues have failed to attract higher investment in India despite the immense potential.

"Growth of food processing industries has been sub-optimal because of high cost, low level of domestic demand and lack of competitiveness of Indian food products in the global market," stated the food ministry in its report.

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The vision report estimates a total investment requirement -- to create capacity and set up the requisite infrastructure -- at Rs 89,000 crore (Rs 890 billion) till 2015.

India has tremendous production advantages in agriculture, with the potential to cultivate a vast range of agricultural products.

It produces 41 per cent of the world's mangoes, 30 per cent of cauliflower, 28 per cent of tea, 23 per cent of bananas, 24 per cent of cashew nuts, 36 per cent of green peas and 10 per cent of onions, according to the food ministry.

This strong base in agriculture provides a large and varied raw material base for food processing.

These advantages if leveraged optimally, can lead to India becoming a leading food supplier to the world. Trade in processed food products has increased to 75 per cent of global agricultural trade in 2002 from 50 per cent in 1985.

By rationalising the tax structure for food processing industries and removing other bottlenecks it faces, the ministry is keen to develop this sector in order that India becomes a significant player in the global agricultural and food trade.