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Government likely to hike duty on few crucial farm items

The government is likely to hike duties on only a few politically sensitive farm products in next week's central budget even though opposition parties have been pressing for many more tariff walls, analysts said on Wednesday.

Analysts expect Finance Minister Yashwant Sinha to offer protection to just a few items that are politically crucial, such as tea, coffee, rubber and coconut oil.

Elections in India may turn on the prices of essentials like onions, for instance, if they rise too high for the comfort of impoverished voters in the world's largest democracy.

"Tariff will be the only fiscal instrument with the government. But it will be done selectively," said G Chandrasekhar, commodities editor of Business Line newspaper.

"In all other commodities duties are already fairly high and there is no excessive imports," he said.

The government could also raise the duty on imports of crude palm oil, now relatively low compared to other edible oils.

Sinha in his budget is also expected to outline schemes to manage a huge stockpile of foodgrains, plans to implement a new agricultural policy and allow futures trading in sugar and tea.

Sinha's February 28 presentation of the national budget for the year to March 2002 is due to come a day before India lifts quantitative limits on 714 items, in compliance with World Trade Organisation rules.

This follows an earlier relaxation, last April, on 714 items.

Other items of mass consumption like wheat, rice and sugar already have tariff protection and commodities like pulses could continue to be imported duty-free because of chronic domestic shortages, analysts said.

The agricultural sector accounts for 25 to 28 per cent of India's gross domestic product, and two-thirds of the country's nearly one billion people depend for their livelihood on products ranging from wheat and rice to oilseeds and cotton.

Opposition parties have accused the government of neglecting the interests of farmers and agricultural workers already hit by high input costs and lack of rains.

QUANTITATIVE RESTRICTIONS

Analysts said the removal of quantitative restrictions on a similar number of items last April had not sparked any flood of imports and the scope for hiking duties this year is limited.

Media reports have quoted Commerce and Industry Minister Murasoli Maran as saying domestic industry should focus on efficiency rather than seek protection.

"If domestic industry continues to need protection, what is the point in talking about free trade?" a business daily quoted Maran as saying on Sunday.

Coffee now carries an import duty of 45 per cent, tea attracts a 35 per cent duty except for Sri Lankan exports, which attract a much lower rate, rubber 25 per cent and coconut oil 45 per cent.

Farmers and traders have been demanding steep duty hikes on all these items.

On agricultural products, India is free to impose high tariffs ranging from 65 to 300 percent, officials say.

TARIFF WALLS

Anil Sharma, agriculture economist with the National Council of Applied Economic Research (NCAER), said more tariffs could be needed on some items in the wake of the removal of quantitative restrictions.

But Sharma said some of the concerns were exaggerated.

"There is no question of imports flooding the domestic market. On some commodities they might raise duties and at the margin there will be some imports, but no flood," he said.

Analysts said tariff walls will have no significant impact on farmers' incomes and called instead for the reduction of the domestic cost of production, through higher yields.

Farmers' incomes have been hit not by excessive imports but by a clutch of factors that includes the high cost of production, which makes goods uncompetitive in the export market, as well as a lack of domestic purchasing power for some commodities and inadequate attention to promoting domestic demand for others.

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