Two of the country's biggest players in the packaged drinking water market - Bisleri and Coca-Cola - expect the government to exempt this category from tax or lessen it to 4 per cent.

The main reason mooted by these companies and the Federation of Indian Chambers of Commerce and Industry in support of their demand is that a uniform 4 per cent value added tax on all food items, if implemented, will help in bringing down the cost for the entire food basket for the common man.

The companies have also suggested how lessening the tax may not hurt the government's revenue from the sector but increase it further through indirect taxes from states.

Bisleri Chairman Ramesh Chauhan says, "The current tax structure in packaged drinking water has been clubbed with aerated drinks. Thus, tax at 16 per cent is not justifiable. Fruit juices and fruit drinks enjoy zero excise duty. We see no reason why packaged water should not have it too. Water is an essential item of consumption and is a key ingredient in the small scale food processing sector. We expect the Budget should take a good look at the excise duty on the organised sector because there is a huge sector of unorganised water manufacturers who do not pay any excise duty whatsoever. This unorganised sector is giving unsafe water, which is not good for health."

Coca-Cola India agrees with Ficci, which has recommended a uniform 4 per cent value added tax on all food products, with packaged drinking water to be considered a food item as well.

Hence, the applicable tax structure on all food items including packaged water should also be the same at 4 per cent.

According to a Coca-Cola spokesperson, "Lesser or no tax on this category will help attract more foreign direct investment (FDI) in the entire sector, which currently stands at $2 billion."

He explained how bringing down the duties may not hurt the government's revenue from this sector.

He said: "With more foreign direct investment coming into the food sector, the industry's contribution to the exchequer by way of indirect and direct taxes at the Centre and states is also expected to grow. The food industry has strong backward and forward linkages. Any increase in production and sales would also lead to incremental growth in demand for products like glass, plastics, refrigeration, transportation, sugar, chemicals and associated post production activities, such as merchandising, marketing and sales.

Yet, due to revenue consideration, if the government is not able to completely exempt the category from tax, then it is suggested that it may look at reducing the excise duty in the first stage to 8 per cent and gradually taking it down to zero excise duty progressively, he added.

One of the other bottlenecks faced by the water industry is the non-existence of a single agency for regulating the quality of water.