Interview with President of ICMA and Chairman of Sampre Nutritions Limited

The Indian Confectionery Manufacturers’ Association (ICMA), a New Delhi-based body that represents around 25 multinational and small and medium confectionery manufacturers in the organised sector, says that the industry is under pressure because of anomalies in the Central government’s excise duty structure. In an interview, ICMA President and Chairman of Hyderabad-based Sampre Nutritions Limited B K Gurbani shares with K Rajani Kanth the challenges that the industry is currently facing. Edited excerpts:

What are the problems that the Rs 2,000-crore Indian confectionery industry is currently facing?
The major hurdle for our industry is the five to 12 per cent excise duty in this category. While the biscuit industry is flourishing, as it is totally exempt from excise duty where the selling price is up to Rs 100 per kg, our margins are under pressure. Even if the government could give us a relief of three per cent from excise duty, which corresponds to Rs 60-70 crore, we would get two per cent credit if the excise rate is five per cent. We have repeatedly made representations to the Union finance ministry to exempt us from excise duty. But it has not given a serious hearing to our plea. Adding to these woes is the value-added tax (VAT) component, which in our industry goes as high as 14.5 per cent. When we sell outside of a state, we pay excess VAT, and we find it difficult to get a refund from the government.

The prices of the main raw material, including sugar and liquid glucose, also seem to be on the rise...
If you see the cost of sugar today, it is fetching almost Rs 37-38 per kg, compared to Rs 29-30 a month ago. While a kg of liquid glucose was Rs 21-22 last year, it is currently commanding Rs 25-26. Despite the sharp increase in our input costs, we are unable to hike our maximum retail price (MRP) because of the coinage problem. A sugar-boiled candy or an eclair needs to be sold at an MRP of 50 paise or Rs 1 but we cannot increase it to Rs 1.25, as some denominations of coins have gone out of circulation. This is the unfortunate scenario that our industry is currently in.

With the high tax structure and power holidays for industry in Andhra Pradesh, which houses six confectionery companies, how is the situation now?
Most state governments have opened up a lot of tax-free zones, especially in north India. There they give a 10-year exemption on excise duty and five years from income tax. This resulted in big players in pharmaceutical and a couple of confectionery companies moving from Andhra Pradesh and setting up shop in tax-free zones in Baddi and Pantnagar. The power situation in the state has become so bad that we are running our plants on diesel generator sets, thereby tripling our production costs. Besides, we are paying salaries to workers who are idle three days a week. With these overhead costs, we do not have any kind of bottom line.

With the multinationals dominating, what is the state of competition?
The entry of multinationals always creates healthy competition. They bring in newer technologies and new product ranges, which the conventional confectionery manufacturers in this country have not really focused on. MNCs’ presence will really open up the market and people who have quality focus are certainly going to get the fruit of it.

Is the industry gearing up for the Food Safety Standards Certification (FSSC) norms?
The FSSC norms are going to be very stringent. A government order has already been passed and all our member- companies have applied for certification. It is a lengthy process and we will get the final certification only after our manufacturing plants have been evaluated. All our member-companies should have obtained the certification within another six months or so.