Countries such as Brazil, China, Japan, the US, UK, Thailand and Mexico use their trade agreements to promote processed food exports (including non-alcoholic beverages). India is one of the largest global producers of horticultural products; Production in 2020-21 was 334.6 million tonnes, which is 4.4% higher than 2019-20. According to the data of the Department of Agriculture and Farmers Welfare, the production of fruits in the same year was around 102.5 million tonnes. The country is a leader in the global production of bananas, mangoes, lemons, limes, papayas and other ingredients required for non-alcoholic beverage processing such as milk and sugar. Nevertheless, a recent study by us, titled ‘Contribution of the Non-alcoholic Beverage Sector to Indian Economic Growth and Aatmanirbhar India’, found that the country has low beverage processing and revenue in 2019 Our rank was below China and ranked 19th. Other developing countries such as Mexico, Brazil, Indonesia and Nigeria (see table). With government incentives such as our strength in raw material availability and production linked incentive schemes, can we harness our strengths in beverage processing and trade agreements to gain greater market access for our exports? .
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where are we today? India’s large and growing domestic market is a major driver for increased investment in beverage processing as well as research and development and product innovation, which can lead to huge exports. Our survey of companies, their supply-chain partners and farmers found that less than 10% of the fruits grown in this country are used for beverage processing. In recent times, established companies and startups are trying to come up with innovative products; Of these, 35% have introduced new products, including zero-sugar/sugar-free products, fruit-based, tea/coffee-based beverages and organic/Ayurvedic beverages. While consumers are experimenting with these products, overall per capita sales revenue remains low due to higher prices. We hardly export any beverages. In 2020, India was ranked 59th among global exporters of fruit and vegetable juices (HS Code 2009), while Brazil ranked first. Foreign investment is only around 1%. About 25-30% of India’s fruits and vegetables go to waste along the supply-chain path, a figure that is less than 10% in countries with strong beverage processing industries.
Beverage processing can help increase farmers’ income. Our survey of 500 farmers (divided into two equal groups of people connected to the supply chain of beverage companies and those who produce the same fruit and are located in the same district but not linked) found that the non-alcoholic beverage company Apple farmers in the supply-chain received 20% higher yields per hectare after training by beverage companies, 5% higher prices, and earned 59% more income per crop season than their counterparts in the same district. In the case of mangoes, supply-chain participating producers had an 8% higher yield and a 23% higher price. However, only 5,000-6,000 fruit growers in India can join these companies, as businesses are finding it difficult to scale up due to weak domestic sales. One reason for this is high taxes.
Top-bracket GST rate prevents expansion of scale: India has the highest GST rates among countries with which it has trade agreements (or FTA schemes), which adversely affects the competitiveness of our firms in export markets. For example, in Australia there is a standard 10% tax on all goods. In India, zero-sugar carbonated drinks and carbonated fruit-based drinks attract 40% tax (20% GST + 12% compensation cess). Natural/mineral water and aerated water are taxed at 18%, but water packaged in a 20-liter bottle is taxed at 12%, discouraging small purchases. In most countries, mineral water is taxed on an average of 5%, regardless of pack size, as clean and safe drinking water is a part of the UN’s Sustainable Development Goals. Fruit juices are usually taxed at 12%.
Let us highlight the potential of India’s beverage sector: In the past, India excluded most of its food processing industry, including beverage processing, from its trade agreements. However, it will be an important area for discussion in trade agreements with the UK, Canada and the European Union. Given our strength in raw materials, we need to rapidly scale up our domestic manufacturing capabilities and adopt a well-planned export strategy to promote Brand India in the export markets. To support the growth of this sector, our study found a marginally higher GST of 28% on carbonated sugar-sweetened beverages, lower tax on zero-sugar drinks and a minimum tax of 5% on nutritious/essential drinks like fruits. rate. Juice and packaged water will drive sales in the domestic market, increase tax revenue collection from this sector and enable our companies to export and export in a big way.
The experience of countries like Denmark shows that new tax policies can generate better revenue. As of 2013, Danes were taxed at €0.22 per liter of sugar-sweetened soft drinks, but in 2014, Denmark abolished its sugar tax as Danish residents buy un-taxed sugary foods in neighboring countries and border stores. and traveled to buy beverages, which adversely affected the country. Jobs are being lost in the manufacturing sector. While the elimination of that sugar tax resulted in a loss of approximately €60.35 million in revenue per year, this money was not only recovered, but the government earned more overall as it reduced the sale of illicit soft drinks, investing in manufacturing. increased, and prevented people from crossing the border to buy cheaper soda. India, whose 80% beverage processing is still in the informal sector, can look to such examples to redesign taxation.
These are the personal views of the authors.
Arpita Mukherjee and Ishana Mukherjee, respectively, are professors and research assistants at the Indian Council of Research on International Economic Relations