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Pressure to lift export tax on basmati intensifies
October, 23rd 2008

The pressure on lifting of the current Rs 8,000-a-tonne duty on export of basmati rice is intensifying, with paddy realisations for farmers ruling 10-12 per cent lower compared to last year.

Paddy prices

On Monday, prices of Pusa Basmati-1 paddy averaged Rs 1,800 a quintal in the major mandis of Punjab and Haryana. This is against Rs 2,050 a quintal on the same day of last year. The trade blames the lower realisations to the Rs 8,000-a-tonne (Rs 800 a quintal) export duty clamped on basmati shipments since May 10.

The Rs 800-a-quintal duty on rice translates into around Rs 525 in terms of paddy. The main reason for farmers getting lower prices is the tax. Since the exporters are not able to pass on the tax to the buyers, they are loading it as much as possible on to the farmers, sources pointed out.

Currency devaluation

The situation has been rendered worse by competition from Pakistan, following the plunge in its currency from Rs 63 to over Rs 81-to-a-dollar since the start of the current fiscal much more than the Indian rupees corresponding fall from Rs 40 to Rs 49.3.

The steep currency devaluation, in conjunction with a bumper crop, has enabled them to scrap the minimum export price (MEP) of $1,500 a tonne that was being levied on Super Basmati (which competes with Indias Pusa Basmati-1). Pakistani exporters are now quoting for as low as $800 a tonne, the sources noted.


On the other hand, export of basmati as well as Pusa-1121 (an aromatic non-basmati variety) rice from India continues to attract an MEP of $1,200 or Rs 48,000 a tonne.

Indian exporters have not been able to sign a single contract for rice from the new Pusa Basmati-1 crop. The huge price differential between our Pusa Basmati-1 and their Super has meant that Saudi or European buyers are lukewarm about sourcing from us. To expect that they will absorb an export tax on top of this is too much, the sources added.

According to them, time is running out as nearly a third of the Pusa Basmati-1 crop has already come into the market. Doing away with the export duty one month from now is not going to really help the farmers, they observed.


The problem is less in the case of Pusa-1121, which technically being a non-basmati rice, is not subject to the export duty. As a result, Pusa-1121 is now fetching an average Rs 2,550 a quintal more than the Rs 1,700 levels at this time last year.

Besides no export tax, there are two other reasons for better prices for Pusa-1121 this time. First, the heavy rains since September have led to incidence of blast disease, due to which yields are expected to drop from 20 quintals to 15-16 quintals an acre. Second, there are strong rumours of Pusa-1121 being officially notified as a basmati variety in the next few days, the sources said.


Further, exporters have already contracted Pusa-1121 shipments of 1.10-1.20 lakh tonnes at about $1,050 a tonne, cost & freight Dubai. The bulk of this is destined for Iran, which is a captive market. While Pusa-1121 does not attract the Rs 8,000-a-tonne export tax, it is, however, subject to the MEP applicable on basmati shipments.

Unlike the Rs 8,000-a-tonne export duty, the Government has stipulated the MEP at $1,200 or Rs 48,000 a tonne. The exporters have been quoting at $1,050 a tonne by taking the Rs 48,000 value, which at current exchange rates, comes to $980 a tonne, the sources added.

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