Levy 20 to 30 percentage health tax on food high in sugar, salt, fat, study (GS Paper 2, Health)
Why in news?
- A health tax of between 20% to 30% in addition to GST can be considered to be imposed on sugar, sugar sweetened beverages (SSBs) like colas and juices as well as foods high in sugar, salt and fat(HFSS), public health researchers have recommended in a study.
Stakeholders:
- The recommendation is an outcome of a UNICEF-funded project, and the authors hope that this study along with others will influence policies aimed to reduce consumption of sugar and related products.
- NITI Aayog is interested in understanding the impact of imposing health taxes and warning labels on food products for encouraging healthy eating practices in Indian consumers.
- According to Ministry of Consumer Affairs, Food and Public Distribution data, confectionery manufacturers purchase up to 55% of annual sugar produced in India.
Price Elasticity:
- Currently, sugar is taxed at 18% GST, if an additional 20-30% tax is imposed, this will take the tax to 38-48%. Researchers have applied the metric of ‘Price Elasticity’ to determine if there will be any reduction in demand if the prices of the product go up.
- For sugar sweetened beverages, a health tax of 10-30% could result in a 7-30% decline in demand, while a 10-30% health tax for HFSS products would result in a 5-24% decline in demand.
- Researchers also noted that additional taxes would increase tax revenues for the government by 12-200% across different scenarios. Different products are currently taxed differently. While sugar currently attracts 18% GST, sugar sweetened beverages attract 28% GST and a 12% additional cess, while high fat, salt and sugar products only attract 12% GST.
Sugar consumption:
- India is the largest consumer of sugar in the world.
- Global average consumption of sugar is 22 kg per person per year, an average Indian consumes 25 kg per year which includes regular sugar, free sugar from sugar sweetened beverages, traditional sources like jaggery, which is five times the WHO recommended threshold for free sugar intake.
- India is facing a sugar epidemic with a rise in sales of aerated drinks by 22.5% and a rise in all soft drinks by 24.8% from 2016 to 2019.
- Also, HFSS food products account for 10-30% of the average total caloric intake in rural and urban households respectively.
Potential:
- Imposing a health tax on sugar and related products can help control obesity, tooth decay, risk of type 2 diabetes, cardiovascular disease and certain cancers.
- Researchers say that if people continue to consume sugar sweetened beverages year-on-year the overweight and obesity prevalence is expected to rise from 39% to 49% from 2014 to 2023 and type 2 diabetes incidence is expected to rise from 319 to 336 per 1,00,000 in the same period.
- Tax rate is tied to the volume of sugars and manufacturers are encouraged to reformulate and reduce the amount of sugar in drinks.
Global scenario:
- Up to 70 countries have imposed a health tax on sugar, SSBs and HFSS including Mexico, Chile, Saudi Arabia, Argentina and South Africa.
- In Mexico, taxation on SSBs decreased consumption of taxed beverages (and increased purchase of bottled water) in the first year of implementation and reduced mean BMI in younger age groups.
What may 2024 hold for the economy?
(GS Paper 3, Economy)
Why in news?
- Reeling from the aftershocks of the Ukraine-Russia conflict, such as elevated oil prices and high inflation, 2023 had begun on a sombre note with worries of an economic slowdown leading to a hard recessionary landing for advanced economies that would drag down growth in emerging economies like India’s too.
- While Indian stock markets ended the year at record highs, the economy has delivered positive surprises, with ₹1.6 lakh crore becoming the new normal for monthly GST collections and GDP growth hitting 7.7% between April and September on top of a 7.2% rise in 2022-23.
India’s economic forecast:
- The Reserve Bank of India (RBI), which had earlier projected India’s real GDP to grow 6.5% in 2023-24, has recently raised its forecast to 7%.
- The Finance Ministry is indicating an uptick of over 6.5% for the year ending March 31, 2024, in its review of the economy published in December. Global agencies have also rebooted their growth math for India.
- Some of the key sectors of the economy; construction, manufacturing, financial and real estate services are showing a robust growth and even the trade, hotels, transport sector which had remained below its pre-COVID level of 2019-20, has now fully recovered.
- While the domestic growth engine is pulling along, risks to the growth and stability outlook mainly emanate from outside the country.
- Slack global demand has been hurting goods exports through 2023, and IT-led services exports may feel greater heat in the coming year as developed economies continue to face challenges.
- The fresh disruptions like the attacks on shipping lines in the Red Sea corridors could pose challenges. Interest rate cuts by central banks will be watched closely.
What is expected on the policy and political economy front?
- The first half of 2024 may see a lull of sorts, as the government gears up for the Lok Sabha elections.
- Finance Minister, who will present an interim Budget on February 1, has indicated that there will be no spectacular announcements, just a vote-on-account to meet public spending needs till a new government is sworn in.
- But the last such exercise, before the 2019 polls, had included a rejig of income tax slabs and the unveiling of the PM-Kisan scheme that put cash in the hands of farmers. The full Budget for the year, likely in July, will see a larger armoury of policy tweaks at play.
- Politics may also create turbulence and uncertainty, as there are 40 upcoming national elections representing 41% of the global population in 2024 alone.
- Russia, India, the European Union and the U.S., will hold elections that will likely re-shape the path of global affairs in the second half of the decade.
- Global voters’ mood amid an increasing shift to inward-looking, protectionist polity in many countries, could thus, impact trade deals and the broader direction of global economic engagement.
Rate cuts in 2024:
- While most expect the RBI to start interest rate cuts in the second half of the year, the U.S. Federal Reserve’s indication of a pivot from its rate hike cycle has prompted hopes of many other central banks following its cue.
- A Bank of America report earlier said there will be 152 rate cuts next year from central banks around the world. If they materialise, demand for Indian goods and services may yet get a bump-up in 2024.
- In the Indian context, industry and consumers also eagerly await changes on two more rates - prices of petrol and diesel that have been frozen since mid-2022 and the unwieldy multiple GST rates’ framework.
Inflation trajectory in India:
- Despite intermittent spurts, India’s inflation trajectory seems to be under better control than a year ago. The RBI expects retail inflation to average 5.2% in the first half of 2024 before easing to its 4% target between July-September and rising to 4.7% in the final quarter. However, as its Governor has asserted, food prices remain a concern.
- With Kharif crop estimates not rosy and El Niño effects hurting Rabi sowing, the supply of several food items, including pulses, could remain under pressure and keep eating into household budgets.
- Weaker farm sector performance would also constrain rural demand and feed into a trend of uneven consumption demand with high-end goods and services booming while low-price segments lag.
- Recent curbs on retail loans and weak hiring trends in sectors like IT services could also hurt urban demand. Without a broader consumption boost, private capex is likely to be limited to some sectors, which may not suffice to kickstart the virtuous investment cycle necessary to create more and better jobs that can drive up spending capacity and factory utilisation rates.
Textile sector faces ESG challenges
(GS Paper 3, Economy)
Context:
- As the European Union (EU’s) moves towards implementing its environmental, social, and governance (ESG) goals and the European Green Deal takes effect in 2026, several global brands are insisting on sustainable production and supply chains.
- Some sustainable practices that India’s textile and clothing sector has invested in over the past two decades include
- The textile and apparel sector in Tamil Nadu contributes more than 50% of installed renewable energy capacity in the State;
- nearly 300 textile processing units in Tiruppur are connected to common effluent treatment plants with zero liquid discharge;
- in Panipat, Haryana, open-end spinners use only recycled fibre; and
- India recycles almost 90% of its used PET bottles into fibre.
- These are among some sustainable practices that India’s textile and clothing sector has invested in over the past two decades.
Concerns:
- There is palpable concern in India’s textile sector, dominated Micro, Small and Medium Enterprises (MSMEs), about the impact new rules like EU’s Carbon Border Adjustment Mechanism would have, aside from complying with ESG standards.
- But there is also recognition that this might well be the moment to attempt a paradigm shift in sourcing, production, pricing and supply processes, to cement the sector’s position as a top global supplier.
Steps taken by Indian Government:
- India exports 16% of its cotton textiles to the EU, 40% of its synthetic fabric and about a third - 28% of the country’s total apparel exports are to European countries.
- The Ministry of Textiles has formed an ESG task force and is considering supportive interventions for the industry; industrial associations are joining hands with organisations that will enable exporters to put systems in place, document the measures taken, and get the required certifications; the Cotton Textiles Export Promotion Council (Texprocil) is promoting Indian cotton brand Kasturi that comes with traceability; and some of the financial institutions are reaching out to MSMEs to fund green and sustainable projects.
- Despite these positive strides, significant hurdles remain for the sector to meet various mandates as almost 90% of garment exporters are MSMEs, and 50%-60% of cotton and synthetic exporters as well.
- And, these compliances and documentation come with additional costs, thinning the units’ margins. Moreover, individual European countries are coming out with their own codes.
Challenges for textile sector:
- While manufacturers, irrespective of the size of the company, in the supply chain must invest to meet ESG norms, only some global brands are ready to pay a higher price for these products.
- The Synthetic and Rayon Textiles Export Promotion Council (SRTEPC) is advocating exemption for MSMEs from ESG norms in the proposed FTA with the EU.
- The EU has exempted its own MSMEs from ESG norms and the Indian government must ask for a similar treatment for India’s producers.
- There are other concerns, like the rising use of recycled or regenerated material across the production process, but domestic consumers are not made aware of such developments.
- Retailers do not sell them in the local market as sustainable products, reducing a premium price from domestic consumers.
