The Hindu Business Line : Views from the bottom of a coffee cup

Matters of great concern to the coffee grower had been the confusion regarding Rule 7B of the income tax and its applicability to small growers in particular which has caused immense harm to the coffee processing industry and for the quality of Indian coffee was expected to be addressed.

This rule basically discourages growers from having their coffee processed and by resorting to farm gate sales, a double whammy is being delivered to the organised sector.

Although mention has been made of more support to the agri sector, I am afraid the problems of the coffee sector in relation to repayment of bad loans will continue until the banking sector takes bold steps to initiate fresh credit flows instead of first waiting for the old dues to be fully recovered.

By treating all coffee loans as one and making it appear that the problem can be solved by Government largesse is only confusing matters and giving the banking sector an excuse to stay away from addressing the problem they had created.

Steps should be taken to invite collateral management agencies to assist banks in dispersing warehouse loans against stocks by cutting through all the present red tape. It currently requires a grower to be physically present at the bank and affix around 24signatures along with a few dozen from the guarantor before he can avail of a simple loan against his stocks.

Now with the multi-commodity exchanges in operation, growers must be encouraged to hedge their stocks, which will act as an insurance scheme against price fluctuations. Stock options are to be allowed.

FDI in the coffee sector, such as in tea should have been allowed in order to infuse the much needed financial support.

Lastly, with coffee being a totally export oriented industry, all the export sops must be made to flow backward to reach the planting sector by removing all the internal taxation hurdles. Coffee consumed locally can be taxed at the local prevailing rates.

However, Mr Chidambaram needs to be complimented for having taken bold steps to announce the reliefs to the agri sector. We may have to actually wait to see the results and how the financial institutions will respond to these moves. The Finance Minister had mentioned that he would conduct on the spot inspections to see for himself the response of the banks to his policies and I hope he will spare some of his valuable time to look into the coffee sector. Given the opportunity, I would gladly appraise him of the practical difficulties encountered on a daily basis.

As I had mentioned, the reaction of the coffee industry to the Budget has been lukewarm and one of disappointment. All sections of the trade will be eagerly awaiting the response to the lip service paid to the agri sector and the prevailing gloom will only be lifted if and when the actual credit starts to flow in the right direction.

(The author is Managing Director of Karnataka Coffee Brokers Pvt Ltd)