The pre-Budget Economic Survey report of the Economic Advisory Council to the Prime Minister has provided some kind of solace to consumers through its anticipation that the year 2012-13 would in all probability see stability in food prices.

The statistics, based on estimates in the survey, have predicted that the rice and wheat harvest and procurement are going to be very comfortable – as far as prices go, even if they strain the resources of the Food Corporation of India. Pulses output is comparable to last year and too much price pressure may not be expected next year.

“On the basis of this and assuming that the monsoon is moderately normal, we should be able to maintain stability in food prices, especially given that global food price pressures seem to have eased,” was the soothing line for those who bore the impact of inflation last year.

The normalisation of inflation in the current year, which was even negative at one point of time, had to a great extent being driven by easing of prices of primary food articles, especially of food grain, vegetables and fruit.

While there had been some moderation in the inflation rate for milk, eggs, meat and fish, rates in the recent months are still in double digits. Though there had been strong output response from the farmers. The country now quickly needs to improve storage, processing and logistics facilities to improve efficiency.

This would ensure that not only the consumer got a better price, but the farmer too would be able to secure better realisation – all at the expense of avoided wastage and unacceptably inefficient and pre-modern intermediation.

There is also a great degree of synergistic inter-linkages between crops, horticulture, animal husbandry, water harvesting and fishing, which can be exploited much more intensively in order to obtain economies of operation through better resource use, according to the government.

The survey did fail to explain methods and means of achieving this synergy. The Budget probably might.

Whether the predictions are merely an empty show to pacify consumers or whether decline in prices will actually take place is yet to be seen.

The survey has easily overlooked the role of hoarders and intermediaries in prices sky-rocketing.

The government has been unable to deal with hoarders and price manipulation by wholesalers. Even with a bumper crop, food prices went up.

The rise in prices of eggs, milk, meat and poultry is also puzzling. It was total mismanagement by the government to control the hoarders.

Also, the country does not have a reliable pricing policy. Many segments in the food industry have forewarned the government that if package sizes of the products are regulated then they will increase the price of the products. The government has not yet responded to the threat.

The food processing industry has also threatened to increase prices if food products are give a special slab. How will the government tame such industries is also something it needs to think about.

The government is not likely to tax processed food items like breakfast cereals at a lower rate under the impending new tax regime GST (Goods and Services Tax). “There is no need to tax processed food items like breakfast cereals at a lower rate,” the survey said.

Processed food, if kept at a higher tax bracket, is likely to create furore in the food processing industry, which is already reeling under the impact of inflation.

“We cannot have even an additional one per cent tax. Like many other countries, processed food should be excluded from the purview of taxes as it will lead to an increase in inflation by 10-15%,” Piruz Khambatta, CMD, Rasna, had earlier stated.

Even the All India Food Processors’ Association (AIFPA) had asked the government to keep the GST on food Nil as a Budget recommendation.

On administration of the GST, the Economic Survey says that the GST has been the states’ other major issues requiring discussion and that the resolution related to the administration of this tax was needed.

The presently-agreed proposal to have two separate administrations for the purposes of Central GST (CGST) and the State GST (SGST) would create high administrative and compliance costs.

The proposal of the states that the Union government should retain a high threshold for taxation of goods to minimise the perceived compliance costs cannot be a long-term solution. “It is therefore, important to initiate measures at coordination in tax administration. This implies, first, it is necessary to ensure uniformity in forms and procedures among the states and harmonise them with that of the Centre,” the report stated.

“The second issue is related to the IT system. Assigning the task of incubating the technology and system for GST with the NSDL (National Securities Depository Ltd) has been an important development and this will help in coordinated use of the information system between the income tax and GST,” it added.

Further, both the Union government and the states have agreed to setting up of a common GST portal for registration, filing of returns and payment of taxes.

However, there is as yet no consensus on the form of the return to be adopted. Further, for the implementation of GST on inter-state supplies, the mechanism for tracking of such supplies on a timely basis is yet to be developed and this is necessary to phase out CST (Central Sales Tax), which is an important step in the implementation of GST.

Source: www.fnbnews.com

Crystal