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G. Chandrashekhar

Mumbai, July 7 The country’s oilseed-based trade and industry never ceases to be in the news, often for the wrong reasons.

Whether it relates to imports, invoicing, tariffs, taxes or quality, there is always something that causes eyebrows to be raised and leaves a sense of suspicion.

The latest relates to a fiscal benefit accorded by the Government to only soyabean and some of its derivative products under the Vishesh Krishi and Gram Udyog Yojana (Special Agriculture and Village Industry Scheme).

In terms of public notice 136 (RE-2007) 2004-2009 dated March 31, 2008 issued by the Director General of Foreign Trade, export of soyabean, soya extraction (soya meal), soya sauce, soya milk drink and isolated soya protein shall be entitled to a duty credit scrip equivalent to 5 per cent of the f.o.b (free-on-board) value of exports.

The value of export of soyabean extractions during fiscal 2007-08 is estimated to be in excess of Rs 5,000 crore.

At 5 per cent, the duty credit scrip would be valued at over Rs 250 crore.

Strangely, the benefit has been granted retrospectively, that is with effect from April 1, 2007, although the notification was issued exactly a year later. Enquiries from within the industry circles reveal that the benefit of this windfall has been reaped by a handful of soyameal exporters who account for a dominant share of such exports.

There is a smell of suspicion in this largesse for reasons more than one.

The admitted position of the Commerce Ministry is that one of the objectives of the foreign trade policy was to make exports an instrument for growth and employment generation because over a third of our GDP comes from foreign trade.

To meet the objective, particularly in the rural and semi-urban areas, the scheme of Vishesh Krishi and Gram Udyog Yojna has been put in place and indeed expanded from April 2006 to include export of ‘gram udyog’, that is village industry products.

Herein lies the catch. First, ‘soyabean extraction’ is not a primary produce. It is actually manufactured after putting soyabean through an elaborate physical and chemical process of crushing to extract oil. After oil is extracted from the bean, what remains is the meal which is used as animal feed.

Soyabean, the primary produce grown by farmers, is purchased by the solvent extraction industry, predominantly located in Madhya Pradesh. After elaborate technical treatment of soyabean and extraction of oil what remains is the meal which is a product vastly different from the primary produce in name, characteristics and use.

Soyameal production is an organised industrial activity of large-scale, adopting modern technological processes and employing large capital. Soyabean crushing is ‘de-reserved’, unlike crushing of say groundnut and rapeseed which is still reserved for the SSI category.

So, soyabean extraction is neither a special agricultural product nor does the processing qualify to be a village industry.

Importantly, the incentive or subsidy of 5 per cent of the value of exports restricted to soyabean extraction, that too with retrospective effect, is undeserved primarily because it is a windfall gain for a few large exporters and is unlikely to really boost exports. Indeed, the financial benefit of the incentive will be pocketed by the export houses, and nothing is expected to flow back to the humble grower.

Some industry insiders point out that the benefit has been accorded exclusively to soyabean-related products because of intense lobbying by three or four large export houses who, it is widely spoken about in industry circles, enjoy the patronage of a high profile Cabinet minister.

Grant of the incentive under the village industry scheme to promote export of a commodity that has undergone elaborate manufacturing process and is in heavy demand overseas is a joke.

Inflation in the country has been rising at an alarming rate week after week. The entire oilseeds complex (including oilmeals and edible oils) contributes to inflation.

Domestic feed market prices are ruling strong. Recently, there was talk of a prohibition on extractions export. A ban may not be desirable; but surely a financial incentive to export soyabean extraction is simply out of sync with present market conditions.

The sooner it is withdrawn the better, for it distorts the market rather than promote, and arbitrarily enriches a few.

The largely undeserved fiscal incentive accorded to soyabean meal exports has encouraged other industry bodies such as the Solvent Extractors’ Association of India (SEA) to demand similar incentive.

In a representation sent early in April to the Commerce Minister, Mr Kamal Nath, the SEA has sought similar benefit on the lines of soyameal to other extractions under its purview, namely those of rapeseed, groundnut, sunflower seed, cotton seed and rice bran.

The aggregate value of these exports is just about a fifth of soyameal, or about Rs 1,000 crore. But there has been no positive movement on the representation so far, it is said.

It is likely that SEA members do not enjoy the same kind of clout that large soya-based companies wield in New Delhi.

More Stories on : Oilseeds & Edible Oil | Exports & Imports | Commodity Commentary

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