Reduce mandi tax to curb prices of essential commodities

Amarsingh Deo | Updated on February 16, 2011 Published on February 16, 2011

Mr Amarsingh Deo

In order to put growth on to a new trajectory in India, agriculture needs to grow faster and essential commodities prices need to be controlled.

As India experienced a sharp rise in average inflation rate of 9.43 per cent in 2010 against an average inflation rate of 2.1 per cent in 2009, key expectation from the Union Budget 2011-12 is to bring up measures to curb inflation.

From 1969 until 2010, the average inflation rate in India was 7.99 per cent. Commodities form a major part in WPI index wherein primary Articles which consist of foodgrains, fruits and vegetables, milk, eggs, meats and fishes, condiments and spices, fibres, oil seeds and minerals constitute nearly 22 per cent in WPI Index.

Hence, we expect that the Budget may provide cut down in specific rates and taxes to reduce the prices of essential commodities in India.

In India, over 600 million people are dependent on agriculture for their livelihood. Some of our key expectations are that the mandi tax may be reduced.

The tax that is applicable on all products which come into a mandi for selling is around 2-4 per cent.

In India, there is a huge difference between farm gate prices and retail prices of products. Around 20-30 per cent cost is increased at mandi level and rest 70 per cent is increased due to intermediaries associated in bringing the essential commodities from mandis to retailers and finally to common man.

So a common man's pocket may earn a larger part of his hard earned money if the government takes the decision to abolish or reduce mandi tax. One of the recent examples of price reduction was that the Rajasthan Government abolished mandi tax on onions for 15 days.

The import duty of 7.5 per cent on refined edible oil can be reduced to bring down the prices. India, the world's top edible oil buyer, allows duty-free import of crude varieties and imposes a 7.5 per cent duty on refined variants.

Further warehouse charges may be lowered to store huge crop production of some of the essential foodgrains such as wheat and pulses in 2010-11. India's overall foodgrain output in the 2010-11 crop year is expected to bounce back after a drought year with a growth of 6 per cent at 232.07 million tonnes.

Reducing of warehouse charges may help farmers store huge crop in a safe manner and the effect of big crop may be transferred to a common man.

Entry of FDI in retail sector is another expectation from this year's Budget. This may help reduce the chain of intermediaries which actually elevate the prices of foodgrains after they leave farmgates.

This entry will be a dramatic change in the Indian retail sector whereby it will help the farmers to earn better and a layman to save more. We expect that with almost four-fold increase in inflation rate last year, the Finance Minister may spell out a reinforced strategy for maintaining the prices of key agriculture products, in view of its critical importance for both growth of the economy and price stability.

(The author is Head Commodities Research, Aditya Birla Money)

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Published on February 16, 2011
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