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G. Chandrashekhar

Mumbai , Jan 3

IT is that time of the year when the Budget exercise gathers pace in New Delhi. It is no secret that the Centre's finances are rather stretched. The Union Finance Minister, Mr P. Chidambaram, would obviously be looking for measures to augment revenue to fund various developmental schemes.

Without waiting for February 28, the Government can begin to mop up additional revenue right away. There are two commodities that can cumulatively offer additional revenue of up to Rs 1,000 crore a year. They are sugar and edible oils.

Additional excise duty on sugar: Currently, excise duty on manufacture of sugar is Rs 850 a tonne. Given current market conditions, costs and prices as also profitability of sugar mills, there is a strong case for raising this rate by Rs 250 to Rs 1,100 a tonne.

On an estimated production of 180 lakh tonnes in 2005-06, the Government can garner an additional Rs 450 crore as revenue. The sugar manufacturing season has already started and is in full swing. After February, sugar production will taper off. Obviously, a hike in excise duty in the forthcoming Budget would not serve revenue consideration, as it would yield considerably less than Rs 450 crore.

An increase of Rs 250 a tonne in excise duty translates to a mere 25 paise a kg. Consumers who are now used to paying Rs 20 for a kg of white sugar would easily absorb the very modest hike.

Sugar mills are not going to be affected in any manner, as they would recover the additional impost from the market.

Firm and rising open market sugar prices are bringing windfall gains for many sugar mills. The topline and bottomline of many are looking healthy. The stock exchange is a reliable barometer. Increase in the market prices of publicly traded sugar stocks should provide undisputable evidence of the positive outlook for this sector.

In other words, by hiking the excise duty, none of the stakeholders are going to be hurt, while the Government's revenue could swell. Of course, the idea of a higher excise duty on sugar is sure to attract howls of protest from the industry. It would need political will to implement the idea on merits and before the season peters out.

Revive excise duty on refined edible oil: Excise duty on manufacture of refined oils and vanaspati that was imposed in 2003 was withdrawn in 2004 when the new Government presented its Budget.

The earlier occasion when excise duty on refined oils was abolished was in 1997. A strange coincidence that largely went unnoticed was that Mr P. Chidambaram was the Finance Minister on both occasions.

Imposition of excise duty on refined oils was a sound step initiated by the Government in 2003 in slight modification of the recommendations of the Kelkar Committee.

In addition to being a revenue raising measure (without hurting producers and consumers), a strict excise regime would do a world of good for the refining industry by infusing discipline among refining units.

It still remains a mystery what prompted Mr Chidambaram to withdraw excise duty on refined oils. The country refines over 60-65 lakh tonnes of various oils every year, including over 40 lakh tonnes of imported oils.

At Rs 1,000 a tonne, the Government can easily mop up Rs 600-650 crore from the vegoil refining industry.

In addition, the Government can make it mandatory for the refining units to pack refined oils in consumer packs.

Looking to the growing demand for and market price of refined oils, consumers would not be hurt in any manner.

On the other hand, consumer interest would be served if refined edible oil gets packed in small consumer-friendly sizes. On re-imposing excise duty on refined oils, the only matter of concern would be exemption enjoyed by units in areas such as Kutch and other notified places.

In order that the national edible oil market is not distorted, such exemption, insofar as refined oil is concerned, should be disallowed.

Hike in Customs duty on imported cotton: Currently, cotton imports are allowed under open general licence. A sharp increase in the country's cotton production last three years has created a virtual glut situation, with open market prices threatening to breach the minimum support price soon. Cotton is now exported, but in modest volumes.

Despite expanded production base and inventory overhang, cotton imports do take place. The import volumes have surely declined in the last couple of seasons, though. For 2005-06, it is projected that five lakh bales of extra-long staple (ELS) cotton would be imported. Currently, Customs duty on cotton imports is 10 per cent ad valorem. There is a case for hiking this to at least 20 per cent. No doubt, ELS cotton is rather expensive in the international market. The bale size varies from origin to origin.

Considering average bale size to be 200 kg, the landed cost would be approximately Rs 23,000-24,000 a bale. Doubling the current Customs duty on this would generate Rs 2,300-2,400 a bale; on five lakh bales, the additional revenue would be Rs 120 crore, taking total Customs duty on cotton imports to Rs 240 crore.

Such an impost would also help support falling domestic market. Import of cotton for export production of yarn or fabrics can be done under the duty exemption scheme and would be outside the purview of the customs duty regime.

Thus, three items in the commodity sector have the potential to generate close to Rs 1,200 crore in terms of Central excise and Customs duties.

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