GST hike fuels unease among areca growers

Davangere: Arecanut growers and cooperative bodies in Karnataka are on tenterhooks after the Goods and Services Tax (GST) on pan masala was hiked from 28% to 40%. 

Organisations such as the Malnad Areca Marketing Co-operative Society Ltd (MAMCOS) fear that the hike could disrupt trade and affect farmers’ incomes, while some traders feel it is too early to predict the ripple effects of the hike.

Karnataka has reason to worry. It is India’s largest arecanut-producing state, with cultivation spread over more than seven lakh hectares (possibly approaching 10 lakh hectares now).

The state produces both raw and dried areca. Rashi idi is the major variety used in pan masala, while chali is used for paan beeda; hasa and bette are primarily used in sweet supari.

According to Horticulture Department sources, chali accounts for more than 40% of Karnataka’s arecanut output. 

Speaking to DH, MAMCOS managing director Srikanth said over 95% of the rashi variety of arecanut grown in the state is used in pan masala.

“MAMCOS alone has sent over three lakh sacks of arecanut worth Rs 400 crore this year to pan masala companies based in northern states, including Delhi, Bihar, Uttar Pradesh and Madhya Pradesh. With 40% GST, prices are likely to increase, which could reduce consumption and affect growers,” he said.

One major worry among authorised traders is that the hike may prompt companies to evade taxes by sourcing directly from growers without issuing receipts. This would leave cooperatives such as the Central Arecanut and Cocoa Marketing and Processing Co-operative Ltd (CAMPCO) and MAMCOS in the lurch.

Fearing such an outcome, MAMCOS is considering taking a delegation of office-bearers to Delhi to meet Union Finance Minister Nirmala Sitharaman.

Mixed reactions 

There is no uniformity among traders on how the hike will pan out.

Former Union Minister G M Siddeshwara, who is also an arecanut trader, was confident that the hike "will not affect growers or traders".

"Most drivers, especially lorry drivers, chew pan masala to avoid drowsiness while driving. The hike in GST will have little impact,” he said.

In Sirsi, Totgars’ Cooperative Sale Society (TSS) Chairman Gopalakrishna Vaidya said it was too early to predict the impact, adding that "if imports are restricted, prices may not fall”. 

Trader Satish Bhat, who heads the Sirsi Areca Sellers’ and Workers’ Association, predicted a fall of around Rs 6,000 per quintal due to the GST hike, while Shivamogga Arecanut Growers’ Association president Ramesh Hegde warned of long-term risks.

MAMCOS vice-president Mahesh H S Hulkuli flagged another concern, claiming that more than 90% of arecanut is traded through private channels without tax receipts.

“If unauthorised trading is not curbed, the rate of arecanut will fall drastically. We had urged the Centre to reduce GST on authorised arecanut trade from 18% to 5% to boost revenue,” he said.

Uttara Kannada MP Vishweshwar Hegde Kageri urged patience, saying fear of a price fall is only an "assumption now".  

View from coastal Karnataka

Agricultural economist Vigneshwar Varmudi, based in Dakshina Kannada, said the tax hike would not affect the chali variety cultivated in Dakshina Kannada and Udupi. “As much as 75 to 80% of high-quality chali nuts go into traditional paan chewing,” he said.

Varmudi noted that consumers in Gujarat and Maharashtra prefer chali for its wood-like consistency, aroma and lingering flavour. 

All India Arecanut Growers’ Association president Mahesh Puchchappady said fruit rot disease had already damaged over half the crop in the coastal belt, keeping prices high. He, however, warned of long-term pressures due to GST on inputs such as copper sulphate.