Export cess spells double trouble for rice exporters

Anil Mittal, chairman and managing director of Delhi-based KRBL, said the industry already works on a thin profit margin and the fresh export tax could wipe out the industry.

"Of our total revenues, around 70 per cent goes to farmers for buying paddy, 25 per cent goes into processing and carrying costs, while the rest 4-5 per cent is our profit margin," he said.

V K Bhasin, vice-president of Lal Mahal Group, said, "For the Rs 800 crore, which the government exchequer will get from the export tax on basmati, disturbing the whole trade is totally uncalled for."

KRBL's Mittal said global rice prices are already high and buyers may shell out more for basmati. In that case, the industry would have no option but to transfer the burden to farmers.

The move will not really help augment local supplies as only about 2-3 lakh tonnes of basmati - 2 per cent of the total 95 million tonnes domestic rice consumption - is sold in India, he said. Total output of basmati rice in the country is 1.5 million tonnes, of which 1.2-1.3 million tonnes is exported.

Industry officials say the government's decision would not benefit anybody except rice exporters in Pakistan.

Mittal said when an export cess was imposed on CTC Assam tea in the 1980s, international trade shifted to Kenya and Sri Lanka. India's tea industry is still convalescing from the move. There are fears of something similar happening to the basmati sector, as trade is bound to shift to competitors such as Vietnam, Thailand and Pakistan.

The latest decision would surely help Pakistan consolidate its hold in the international market, he said.

Mittal said the decision lands a double blow on Indian exporters as Pakistani basmati is already 25 per cent to 30 per cent cheaper while the government policy restricts the export of the commodity.

"Duty imposition is much more liberal there (in Pakistan). Besides, the authorities are encouraging exports by giving concessions on input costs like electricity," he said.

Loan defaults
Moreover, international contracts which were signed in November-December last year were necessary because exporters have to get firm export orders to get bank loans for buying paddy.

According to trade estimates, banks have lent more than Rs 5,000 crore to basmati companies.

Companies, which have entered in full-year contracts with major buyers like Saudi Arabia, would be the worst hit, Bhasin said.

A senior official of a leading Delhi-based rice exporting firm said they would have to fulfil contractual obligations failing which the buyer might pull them to courts. The buyer cannot be compelled to pay the extra $200 per tonne unless the signed contracts make provisions for it.