New Delhi: The Indian dairy industry ranks first with 185 million cattle accounting for 51% of Asian and about 19% of world bovine population. According to estimates of the Central Statistical Organisation (CSO), the value of output from the livestock at current prices was about Rs1,73,350 crore in 2005-06. Milk accounted for 68% of this output, higher than paddy (Rs70,462 crore) and wheat (Rs48,052 crore). In terms of value of output, milk is now the single largest agriculture commodity in India.
The Indian Dairy Association says the sector contributes close to a third of gross income of rural households and in the case of those without land, nearly half their gross income. An estimated 70 million rural households, of which about three-fourth are landless, marginal or small farmers are engaged in milk production.
The association says milk production has shown a growth of 4-5% a year during the past 35 years, now reaching a level of about 100 million tonnes. But, says IDA, unless the milk group sustains 5% growth, it will not be possible for the livestock sector to achieve the target growth of 6-7%. And unless livestock sector maintains growth of 6%, agriculture shall not achieve 4% growth, since livestock accounts for 28-30% of farm sector GDP.
The comprehensive set of proposals is given in IDA’s pre-Budget memorandum submitted to the Finance Ministry. A partial list of recommendation is given below:
• On par with agriculture: A key issue the sector faces today is the high cost of production, which is largely due to low animal productivity. As a result, poorer sections of society cannot afford milk and milk products. And since it is perishable, conversion of milk to products such as milk powder, butter and cheese, is necessary.
IDA has recommended that milk products be treated on par with agricultural produce and be exempt from excise duty, sales tax and similar other taxes.
• Packaging: The cost of packaging milk and milk products is also on the higher side. Since processing of the commodity into cheese, butter and milk powder give milk a longer life, the manufacturing of these should be construed as ‘processing milk for preservation’ and should be exempted from excise, central sales tax, and other indirect taxes
• Income tax: The village level primary dairy cooperative societies are exempt from payment of income tax. However, the district and state level dairy cooperatives are levied income tax at 35%. Basically, the primary cooperative societies at the village level form a milk union at the district level to process their milk in a plant owned by themselves. Similarly, the district level milk unions of the milk producers cooperatives federate into a state level milk marketing federation so that their products can be marketed in an efficient manner.
Though, all the three levels of the cooperatives are part of the same farmers’ setup, the district level milk unions which directly cater to the needs of the farmers need a very special onsideration and need to be exempted from the payment of income tax.
Recommendations: The District Dairy Cooperative Milk Unions should be exempted from payment of income tax.
Other direct tax recommendations include exemption of IDA from income tax under Section 10 of the Act.