A notification dated June 2 issued by the Department of Revenue, Ministry of Finance, reducing the import duty on lentil (masur dal in Hindi) from 30 per cent to 10 per cent has created confusion among the pulse trade and industry worldwide.
After adding welfare cess, the rate of duty will be 11 per cent. At the same time, lentils of US origin or exported from the US will attract 30 per cent duty, and after adding welfare cess, it will be 33 percent.
Confusion
There is enormous confusion over the date of application of lower duty. Is it with immediate effect and valid till August 31 or will it take effect from September 1?
The Customs portal says the said notification “seeks to further amend notification dated June 30, 2017 so as to temporarily reduce the import duty on lentils (masur) till August 31, 2020.” However, the official gazette notification gives a clear impression that the duty reduction will take place after August 31, 2020.
Two issues
There are two issues in this. One, it is unclear what prevents the Ministry of Finance from issuing a notification using simple language and mentioning in unambiguous terms the effective date of application of revised duty. The kind of skulduggery involved in deciphering the content of the notification leaves many flabbergasted. A basic tenet of any tax law is clarity and predictability.
But there is a more important question. What has prompted the government to reduce duty on lentils? After all, with a harvest of 14 lakh tonnes, lentils constitute less than 7 per cent of the total annual output of 230 lakh tonnes. Chickpea (chana or gram) and pigeon pea (tur/arhar) together account for over 60 per cent.
In general, prices of most pulses are ruling below the specified minimum support price (MSP) and the State agencies are forced to undertake price support operations. By itself, the price support effort is inadequate and does not ensure growers the assured MSP.
Did a recent statement by the RBI governor about uptick in pulses prices at the retail level in April prompt the decision to reduce duty on lentils? If yes, then the decision lacks justification. (See BL Commentary May 24: ‘Has the RBI got its inflation outlook wrong’).
Because of the nationwide lockdown, food commodity prices at the retail level were jacked up in April following disruptions in supply chain and panic buying by consumers. Now that the lockdown has eased substantially for food supplies, retail rates are returning to their normal levels.
Timing is suspect
More importantly, as a rabi crop, masur is harvested only in March/April and its availability is comfortable. So, it is incumbent on the government to explain the rationale behind the reduction in customs duty on lentil.
Within trade circles, there is now growing suspicion that the decision to lower the rate of duty on lentils is to help some influential trading group whose cargo may be arriving soon. If so, it would be tragic. It would be appropriate for the Finance Ministry to allay the doubts in the minds of pulse traders.
If the duty reduction takes effect from September 1, it should be welcome because by then a large part of domestic lentil crop would have been consumed and the next harvest would be more than six months away.
The writer is a policy commentator and agribusiness specialist. Views are personal.