United Planters’ Association of Southern India (Upasi) is an apex body of planters of tea, coffee, rubber, cardamom and pepper in the southern states since 1893. In an interview, Prashant Bhansali, president, Upasi, tells Rajesh Ravi about the concerns and outlook of the plantation sector. Excerpts:
Are things back to normalcy in the sector or do you see a prolonged impact of Covid-19 pandemic?
Relatively, the plantation sector was the one to resume operations pretty soon as it was largely an agricultural activity. But the larger issue in the sector was that it was going through a bad phase for some time, due to high cost of production and low-price realisation, coupled with climate change issues.
The initial challenge due to the pandemic were restrictions on the movement of workers, leading to shortage of workforce for cultivation especially plucking or picking, delay in streamlining the supply chain, as movement of goods from the production points to consumption or export destinations were disrupted and the cash flow issues due to the disruptions in the supply chain. This has resulted in direct economic loss due to damage of crop and decline in exports.
How is the South Indian tea industry coping in the current scenario?
This year, there is a severe shortfall in production to an extent of 151.6 mkgs as of October 2020. The drop was mainly in North India [152.24 mkgs]. South India reported more or less same crop as on date, but 2019 reported one of the lowest crop from the region. South India has been reporting lower crop during last five years and it maintained status quo in this pandemic year. Prices were on an increase since July due to supply issues which was very much needed for the sustenance of this sector. However, in the last few auction sales, there was a severe fall in price realisation and quantity sold at auctions, and the latest prices are on par with November 2019 levels.
Upasi has been talking about an absurd tax on coffee in respect to value addition. Can you explain it ?
A grower of coffee needs to go through various stages of processing to make it ready for sale. At each stage, there is a value being created for the farmer. Rule 7B(1) was introduced in the year 2001 and to quote, “Income derived from sale of coffee grown and cured by the seller in India shall be computed as if it were derived from business, and 25% of such income shall be deemed to be income liable to tax”. Curing is nothing but a process akin to Milling where the coffee husk is removed through a process of hulling, pealing, polishing, grading, colour sorting, garbling, grading and bagging. A farmer, who is processing his produce and making it fit for market, cannot be termed a manufacturer and be subjected to tax.
The government may consider coffee up to the stage of “Curing” as an agricultural produce and not to be taxed under Rule 7B(1). “Curing” is only an intermediary stage before making the product marketable but not the final product which can be consumed. This Rule 7B(1) dissuades the grower from going in for value addition. Accordingly, Income Tax Rule 7B be amended to tax coffee only from the stage of roasting and powdering, where the actual value addition takes place. This would enable the grower to sell his coffee after curing, thereby enabling them to get a better price.
What is happening with the Merchandise Export from India Scheme (MEIS) ?
The MEIS module in the DGFT (directorate general of foreign trade) website was not accepting new applications for uploading claims and shipping bills. This was initiated to limit the issuance of any more MEIS scrips due to shortage of funds, causing severe hardship for the smooth functioning of export operations.
Exporters factor in the MEIS benefits while quoting their export price to the overseas buyers. Hence, any mid-way changes in an ongoing scheme will put the exporters into tremendous hassle, leading to incurring huge losses besides hardship in the working capital/cash flow issues.
Exports of plantation commodities need to be supported as they were at a competitive disadvantage compared to other exporting origins due to infrastructural inefficiencies and other associated costs.The scheme needs to be continued till a new scheme is in place.
The benefits of MEIS for plantation commodity exports was 5% and was reduced to 3% from January 1, 2020.
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