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D&B Budget Impact Analysis: Food processing sector

Overall impact: Positive

Excise Duty Changes

  • The Special Excise Duty (SED) on aerated soft drinks & soft drink concentrates have been brought down from 24% to 16%. This is in tune with rationalisation of SED.

  • Food preparations based on fruits & vegetables have been completely exempted excise duty. This move relieves products of common use like pickles, sauces, ketchup, juices, jams, jellies, vegetable juices etc. from the burden of excise duty.

  • Fruit pulps, fruit based drinks & ice creams and non-alcoholic beverages dispensed through vending machines have been exempted from CENVAT.

  • Rate of abatement on MRP of aerated water has been reduced from 55% to 50%.

  • Concessional rate of duty of 8% on biscuits in retail pack of 100 gms with price below Rs 5 has been withdrawn & will be chargeable at the rate of 16% CENVAT

Custom Duty Changes

Custom duties have been amended upwards in order to safeguard Indian industry after the removal of Quantity Restrictions as per WTO regimes.

  • Duty on tea, coffee, coconut & desiccated coconut has been raised from 35% to 70%.

  • Presently edible oil attracts custom duty ranging from 35% to 55% & refined oil attracts duty of 45-65%. The Finance Minister has fixed a uniform rate of 75% on edible oil & 85% on refined oil. Soyabean oil will be charged at a lower rate of 45% as per the WTO agreement.

  • Duty on crude palm oil has been increased from 25% to 75%. But sick vanaspati units have been given the benefit of concessional rate of 55%.

Other Changes

  • CII had demanded a special focus to encourage the growth of the industry. In consideration to this demand, FM has announced tax holidays under section 80-IB of the Income Tax Act to those assesses who are engaged in the integrated business of handling, transportation and storage of food-grains on or after 01/04/2001. These tax holidays are offered in the form of:

    • 100 % exemption from tax for the first 5 years and
    • Deduction of 30% of profits for corporate assesses & 25% for other assesses for next 5 years.

  • Deduction of development allowance available for tea industry under section 33AB of the Income Tax Act has been increased from 20% to 40%. The additional allowance is intended to be used for re-plantation, rejuvenation, and modernization of tea plantations and processing facilities.

Some of the budgetary reforms undertaken to boost the agriculture sector, are likely to have a favorable impact on the food processing industry. These are

  • Extension of Credit Linked Subsidy scheme for construction of cold storage for perishable commodities rural godowns.

  • Proposed reduction in rate of interest by NABARD for funding the storage of crops, from 10 % to 8.5 %.

  • Proposed review of the operations of the Essential Commodities Act, 1955. This is mainly intended to remove many of the restrictions that have been imposed on the free inter-State movement of foodgrains and agricultural produce and also on the storage and stocking of such commodities. This will give a helping hand to the development of this sector

Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001

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