Rains, Not GST, Behind Spike In Vegetable Prices

Vegetable prices have risen by more than 50 percent over the previous week as heavy rains and fog hurt supplies.

The prices may go up more as the Goods and Services Tax will increase transportation costs, said Ishwar Jadhav, a vegetable seller at Agricultural Produce Market Committee in Vashi. This will be a double-whammy for consumers who are already bearing the brunt of supply shortage, he said.

Levy on transportation services has marginally risen to 5 percent under the unified tax regime. But it’s a relatively smaller part of the overall costs in the vegetables supply chain and dealer margins are “exceptionally high”, said Anish Tripathi, director-GST and supply chain advisory services at law firm Lakshmikumaran & Sridharan. Wastage is the biggest cost, which will fall as transportation time will come down under GST with the elimination of octroi and entry taxes, he said.

There is no basis to say that prices of vegetables are going to go up or down due to GST, Tripathi said. Cash-driven vegetable distribution business is largely unorganised and exempt from GST and transporters who register for the first time may find costs going up, he said. “Even if they do not intend to get registered, the psychology would be to increase prices and say that costs have gone up.”

Some traders at the Vashi market BloombergQuint spoke to said the exact impact of GST can be gauged only after a week. “How can I tell you now? Let the GST stock come in first. Right now, the supplies are low due to rains,” said Maruti Mallale, owner of Mahesh Vegetable Company at Vashi.

The new stock of almonds, imported raisins, spices, cranberries, figs and walnuts is expected to cost at least 6 percent more as the effective rate has doubled to 12 percent under GST, said Nikunj Kedia, Preeti Enterprises, a trader at the Vashi spice market. Tax on cashews and raisins produced in India, however, is 5 percent.

Branded and packaged jams, jellies and pickles are also in the 12 percent slab. The tax hike will be absorbed by companies and there won’t be much change in prices, said Manilal Gala, Waghad Marketing, another trader at the Vashi spice market.

Wholesale prices have risen marginally in New Delhi, again due to supply shortage. “It has nothing to do with GST. The rains have caused delays in delivery of fruits and vegetables,” Rajendra Sharma, secretary, Agricultural Produce Market Committee, Azadpur, New Delhi, told BloombergQuint. The produce is lying in storage or in transit, which has increased prices a rupee or two per kilo, he said. “This happens every year and there is nothing new about it.”

(With inputs from Krishanu Mukherji in New Delhi)