TCP buying operations to cost Rs21bn: Cotton, wheat and urea
By Sabihuddin Ghausi
KARACHI, Nov 13: The commercial operations of the public sector Trading Corporation of Pakistan (TCP) will cost a staggering sum of Rs21 billion to the taxpayers in the form of subsidy on trading of cotton
, wheat and urea during the current fiscal year.
And if the TCP is asked by the government to import half a million tons of more wheat and 90,000 tons of urea in next six months, the subsidy cost will rise to over Rs25 billion by next June.
Given in the name of protecting the interests of the consumers and giving the small growers the due prices of their produce, the real beneficiary of this massive subsidy remain about 15,000 vulgarly rich and politically powerful farmers who have considerable interest in business of cotton ginning, textiles and in sugar.
Their representatives dominate the mega size federal cabinet. They are there in the provincial cabinets and they control and run the national and provincial assemblies and the Senate.
A bumper cotton crop this season has pushed down the market prices from peak Rs3,600 a maund last season to about Rs2,100 a maund at the beginning of current season in September. With Jehangir Tareen, Hayat Bosan and their likes dominating the federal cabinet, the government moved in swiftly to instruct the TCP to procure cotton from the ginners.
In matter of weeks, the TCP has contracted over 675,000 bales of cotton and has entered the export market only this week. Its procurement price plus the handling charges and financial cost of bank loans is costing the TCP roughly 47 to 48 cents a pound. The export price is 42 cents a pound. So it is a loss of six cents on pound of cotton which the tax payers are being forced to pay.
By all indications, it is more than apparent that the TCP will contract one million bales of cotton this season. "It is Rs1,393.50 subsidy on a maund of cotton" a market analyst estimated who assesses total subsidy on cotton handling and trading will touch Rs14 billion figure.
The TCP has already imported 170,000 tons of urea and is being asked to import 90,000 more urea. TCP Chairman in one of the press conferences informed the newsmen that a 50 kg bag of imported urea will be sold to the farmers at Rs450 as against a cost of about Rs900 to Rs950. A rough estimate shows a subsidy of Rs17,686 involved in trading one ton of urea and total operation of 170,000 tons will cost more than Rs3 billion subsidy.
Wheat is being imported at a total cost of roughly Rs13,500 toRs14,000 a ton and is being sold at Rs9,500 a ton. The subsidy on a ton of wheat comes to about Rs4,300 a ton and total wheat operation will involve a subsidy of more than Rs4 billion. A further import of half a million tons of wheat will push up this subsidy burden to Rs6 billion for Rs4 billion being estimated at present.
Besides benefiting from the subsidy on commodity trading, the rich and the influential farmers enjoy a highly subsidised supply of irrigation water and on other inputs. In Sindh, the cost on irrigation is more than Rs2 billion against which the current fiscal year's budget shows a recovery of hardly Rs600 million.
Situation in Punjab is relatively better where against a budgetary expenditure of over Rs5 billion, the recovery of water charges is over Rs4 billion. In Balochistan water scarcity remains the main excuse for refusing to pay water charges but farming was done on a limited scale.
Farmers get 33 per cent subsidy on electricity bills of their tube wells and there is government support on inputs besides generous lending from the banks. Bank lending to farmers is reported to have increased by 25 per cent during 03-04 and will increase further.
With all this state patronage and financial benefits, the farmers hardly pay any tax on their incomes. The Sindh budget shows a projection of Rs400 million in the current fiscal year.
In the last fiscal year, the revised estimate of AIT is Rs240 million, which analysts believe is doubtful. The explanation for not paying tax on agricultural income is water scarcity. But despite this water scarcity the farmers harvested a rich cotton crop.
Prime Minister Shaulat Aziz recently said that a bumper cotton crop and intervention of government in cotton trading will pump additional Rs24 billion in the rural economy.
How much of this Rs24 billion will trickle down to small farmers is a question that will always remain unanswered. In Sindh where urban-based Muttahida Qaumi Movement is the senior partner of the coalition government, the tax on agricultural income has become a forgotten issue.
The agricultural income tax remains a live issue in Punjab where the current year's budget projects a recovery of more than Rs1 billion tax from the farmers. The Punjab Resources Management Programme is constantly reviewing the proposals to increase the recovery of taxes from the farmers.
At present there is a proposal to convert it to income based from land based and presumptive at present. The share of agriculture remains less than one trillion rupees in total GDP of Rs4.44 trillion which is hardly 22 or 23 per cent.
