The department of revenue was forced to give a three year extension to the excise holiday for new industrial units in the hill states of Uttaranchal and Himachal Pradesh. The excise holiday to the two states will continue till 31 March 2010. The four year period was to expire on 31 March 2007. The measure will give a good push to the dispersal of industry to difficult areas. A similar excise tax holiday already exist for the North East States and J&K.

Even as the revenue makes a big noise about erosion of tax base, the fact is that the zero duty treatment to the disadvantaged states is shrouded with a number of conditions which significantly impair the positive benefits of the concession. The excise and customs duties suffered by the inputs going into the manufacture are not given zero duty status in the manner of the Special Economic Zone in which both the inputs as well as the final product are on zero duty. The industrial units in the two hill states must bear service tax without exemption. Similarly, the special treatment of zero sales tax/VAT to disadvantaged areas in a thing of the past under the VAT dispensation which requires a tax on every thing.

It is time that a comprehensive approach to zero duty is adopted for backward areas in large states like Rajasthan. The zero duty measure should be extended to all industrial activity difficult areas and not just new units. The old units set up before 2002 who have already paid unjust taxes should not continue to suffer the burdens merely because of berth before the cut off date.

The Ups and downs in Crude palm oil: The oil market in India is due for another round of volatility. The customs duty on palm oil was slashed by 10 percent on 11 August. With this, the duty on crude palm oil is 70 percent while refined oil is down to 80 percent. The cut is designed to give relief to the consumer. The international price of CPO (crude palm oil), the benchmark vegetable oil, is up by nearly 26 percent to $474 a ton following the rise in demand cheap palm oil and rapeseed oil based bio diesel.

The department of revenue shifted to damage control mode to safeguard revenue in the wake of the 10 percent cut and raised the tariff value by 7.6 percent on the morning of 14 August to $ 481 per tonne. However, by evening, the move was beaten down by the anti price rise lobby, the pre price rise regime tariff value was restored. In practical terms, it means that the customs revenue takes a cut of 17.6 percent after taking the duty reduction as well as the artificially low tariff values into account. in spite of the cut in duty the final price to the consumer will be up on balance since the actual import value is up by 25 percent to reach $474. Freight and other related costs will also add to the price.
Both fuel oil and edible oil are locked together by bio-diesel. Thus rise in crude petroleum will be first reflected in the vegetable oil sector in the world market and in India.

The link with bio-diesel in the domestic scene is poor due to faulty and out dated policies. The second successive bumper crop of rapeseed from Rajasthan is seen as a curse by the farmers and the government, the public sector NAFED is forced to procure the oilseed at Rs 17 per kg. This could well turn into a goldmine if the government were to facilitate conversion into bio-diesel by putting a promotion policy into work. On the other hand, continued intervention on the part of government without a policy frame will mean exposure to the wild fluctuations in both the fuel oil and vegetable oil markets of the world.

Sugar, sweet and sour: The inevitable has taken place. The export obligation attached to the 20 lakh tonnes of duty free raw sugar advance license was extended indefinitely by a notification issued on 9 August. The argument is that the export ban of 22 July prevents the mills from carrying out their promise to make good the forex outflow on account of the import.

The ban on sugar export did not, and could not, make a significant impact in the market supply. The world market is dominated by subsidized sugar and protectionist forces. In the free market segment of the world market, the peak of 37 cents (Rs 16.65) to the kg was reached in the first eight months of this year as given in the world bank commodity prices pink sheet. The world price of Rs. 16.65 is well below the domestic price of Rs 18 per kg hence exports are not viable. Besides, Indian sugar is popular only in the poor neighboring countries of South Asia on account of taste preferences and ease of smuggling across the long land border. The informal market supplies the starved markets of Bangladesh and Sri Lanka.

Imports too as are not viable with the new sugar season beginning in October round the corner. The duty free window too will not bring in much specially when the concession is due to expire on 1 October under the sunset clause. Given the impossibility of both export and imports of refined sugar, the market price has not fallen, there is no relief to the consumer who must pay the high Rs 22 plus price for a one kg pack of sugar.

The export ban on sugar in the name of consumer welfare is only useful to postpone the export obligation of the duty free license. Saving the manufacturers directly in increase in market supply for the consumer was advanced as the reason behind limiting the duty free license of raw sugar to the mills two years ago. The export obligation on the license is due for discharge today but the mills have been let off on the false ground of export ban. Given the pliability of the Government, we can expect the regularization of the export obligation default very soon. Additional export of other items not subject to export restrictions such as textiles and iron ore will be allow to substitute refined sugar as the export product.