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Biscuits should be exempted from VAT line, says FICCI
February, 17th 2012

1) The packaged drinking water is a common man's product and accordingly should be put in the NIL category. A total macro view would be necessary than a sectional view focusing only on the revenue generating potential of levy of excise duty on packaged drinking water. However, if the government on revenue consideration is not able to remove the excise duty completely, it may look at reducing the excise duty in a calibrated manner and in the first stage Excise Duty may be brought down to 4% and taken to zero in the next year.

2) Biscuits deserve to be treated as merit goods and to be secured in a more rational, lower rate of VAT or exempted from VAT in line with bread.

> Biscuits are a food product of mass consumption across all economic and geographical groupings across India. It is significant that biscuits are consumed in higher percentages in rural India. In addition to the rural-urban consumption indices, even on an economic mapping, the consumption of biscuits, particularly lower priced biscuits, is at a significantly higher percentage amongst the lower economic groupings within the country. Biscuits are, therefore, truly the food of the masses in India.

> In the Indian economic scenario, the value which accrues to consumers from the money that they spend on food products is an area of critical concern. While several natural agricultural products offer good value for money spent, from a nutritional and calorific perspective, one area of concern is that the natural products have a very short shelf life and are incapable of consumption beyond a point.

This factor leads to wastage of precious resource for the lower income groups. Of all manufactured food products, biscuits offer an equivalent, and at times higher, nutritional and calorific benefits to consumers, at price points which are often equivalent or lower to the price of natural agricultural foods. Biscuits, therefore, offer nutritional and calorific benefits, with a longer shelf life of more hygienically packaged and produced food products and at more economical price points than other manufactured food products and several natural food products. .

> The higher taxation of biscuits has several adverse points of impact within the Indian economy including the following:

- Biscuits are a highly price sensitive product. Historically it is proven that an increase in the taxation/price of biscuits has an immediate and inverse impact on the consumption of biscuits. Higher taxes and/or prices have inevitably resulted in a sharp diminution in the consumption of biscuits. It is because of the highly price-sensitive profile of biscuits that manufacturers of biscuits have, despite extreme pressures, sought to maintain the price of biscuits at a largely uniform level over the past several years.

- Lower consumption inevitably leads to lower production which in turn causes a diminished capacity utilization within the industry, resulting in inefficiencies in relation to the capital deployed in the industry.

- Lower consumption and lower production have an immediate and adverse impact on employment, within and related to the biscuit industry. The biscuit industry directly / indirectly employs in excess of 3.5 million people. Most significantly, the employment opportunities are secured to non-skilled and semi-skilled workers involved in the production process. The employment created is at the lowest economic tiers of our work force. In addition to employment in the production of biscuits, employment is generated in relation to storage, transportation, distribution, marketing and retailing. The employment opportunities created are, therefore, not localized, and, extend to the entire country.

- The biscuit manufacturing industry has a direct nexus with the Indian agricultural sector. The raw materials for biscuits, viz. wheat flour, sugar and vegetable oil are primarily agricultural or agri-industrial products. The deep connect with the agricultural sector is best illustrated by the fact that in excess of 50% of the retail price of biscuits is contributed by costs related to the acquisition of agricultural raw materials required for the manufacture of biscuits

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