Organised players in the Indian basmati market may have to take a dent in their profits as they have to pay 5 per cent tax under the Goods and Services Tax (GST), rating agency ICRA said on Friday.

Even though there was a value-added tax of 5 per cent on basmati rice earlier, it was tax-exempt in many States. However, under GST, branded basmati firms registered in the Register of Trade Marks face a levy of 5 per cent.

Interestingly, the Noida-based KRBL, which has a 30 per cent share in export and 25 per cent in the domestic market, has managed to stay out of the ambit of GST as its popular India Gate basmati rice brand is not registered under the Trade marks Act. According to Deepak Jotwani, ICRA Assistant VP, the imposition of GST is likely to put branded players in a somewhat disadvantageous position compared to the unbranded segment as it would widen the pricing gap.

Advantage unbranded

This may result in some transition of demand from branded to unbranded basmati, benefiting unorganised players, he said. “More likely, the branded players will witness some erosion of profitability as they would look to absorb the GST impact and maintain pricing parity with the unbranded segment,” Jotwani said in a release.

The Indian basmati rice industry has primarily been export-oriented; however, over the last few years, the domestic market has expanded significantly. There have been concerted efforts by large industry participants to establish their brands in the domestic market.

Coupled with the increased penetration of modern retail stores, and increasing purchasing power of consumers, this has aided the growth of basmati rice consumption in the domestic market, the ICRA official said.

As a result, the market has now become as strong as the export market for most organised basmati rice companies.

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