GST and Rural India: No takers for ‘branded’ foodgrains

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Before July, when the Goods and Services Tax (GST) happened, Nitin Nahar’s shop used to sell around 150 tonnes of cereals and pulses daily. That has since dropped to 90-100 tonnes. The festival season normally sees 25-30 per cent more business. But this time, there’s no sign of it, even as the ten-day Ganesh Chaturthi celebrations have gone by and the nine-day Navaratri festivities kick off from September 21.

Nahar — whose firm Nitin kumar and Co. is a major wholesale dealer of foodgrains at Pune’s Shree Shiva Chhatrapati Market Yard — ascribes his loss of sales to a single factor: the imposition of a 5 per cent tax on all ‘branded’ cereals and pulses under the GST regime. It has led to small retailers sharply cutting back on purchases from wholesale merchants like Nahar.

Notwithstanding brands from Aashirvaad atta to Rajdhani besan, 90-95 per cent or more of cereals and pulses purchased by retail households are still in loose unbranded form. Interestingly, it’s just the opposite in the wholesale market, where 90-95 per cent of the grain bought by retailers constitutes branded packs!

“The retailers mostly buy branded grains in 25-kg packs from us, which they then sell loose at their end to the final consumer,” explains Ajay Sethiya, former president of the Poona Merchants Chamber, which represents Pune’s wholesaler farm produce trading community. “Retailers source branded grain because it allows for traceability and addressing complaints, which is less possible with buying in loose. Also, the loaders, who are often not so educated, can be instructed to read from the signs on the bags,” he adds.

But the 5 per cent GST has abruptly upset this established system of trading. The small retailers are now shying away from purchasing ‘branded’ cereals and pulses. Worried that it would force them to cough up the tax, they have shifted to dealing only in unbranded loose grains that have been kept out of the GST’s ambit. These retailers, in any case, dread the prospect of coming under the GST net.

Nitin Kalantri, owner of the Latur-based Kalantry Food Products, blames the current situation on uncertainty among retailers on the definition of ‘branded’ foodgrains. The market now has brands that are ‘registered’, ‘trademarked’ and ‘non-registered/non-trademarked’. Registered brands are those that are registered with the Controller General of Patents, Designs & Trade Marks; they are recognised as the intellectual property of the firms concerned. Trademarked brands are in the process of conversion into registered brands, but need renewal every 10 years. Besides these two, there are brands that are neither registered nor trademarked.

The Union finance ministry has clarified that the 5 per cent GST will apply only on grains sold in packs and bearing brand/trade names that are on the Trade Marks Registry under the Trade Marks Act, 1999. In other words, grains sold under non-registered/non-trademarked brands will not attract the 5 per cent levy. Kalantri reckons there are some 1,000 operational brands in pulses, but of whom not even a tenth would be registered. His firm sells pulses under Rifle brand, which is registered.

While the bulk of so-called branded pulses and cereals may not be chargeable to the 5 per cent tax, retailers do not, however, seem fully convinced. “They do not want to risk any liability in future, when the taxman will suddenly knock on their doors and raise demands. The finance ministry’s message is clearly yet to reach the ground,” points out Kalantri.

In the meantime, business is totally down. Pune’s Bhusar or foodgrain market, which was trading 200-225 truckloads daily, is at present doing only 150-160.

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