CURRENT SCENARIO OF RICE INDUSTRY

HYPOTHESIS:
To establish our initial hypothesis, we conducted a survey in LSR College with a
sample size of 26. The question was: What do you think is the current status of
Rice Industry? We presented everyone with three options: a) Growing b)
Stagnant c) Declining.

Response
0%

46%
54%

Growing
Stagnant
Declining

RESEARCH METHODOLOGY:
The last Diagnostic Report prepared for Rice Industry (Non-Basmati) by
Small Industries Service Institute of Haryana was in year 2003.
Therefore, due to unavailability of relevant data sources, we decided to
visit Rice Mills and talk to various stakeholders (Mill owner, managerial
staff and workers) in person. Additionally, we conducted a telephonic
interview of the Cluster Development Executive to better understand
the existing issues. All interviews (in person and telephonic) have been
recorded and are available if needed.

VALUE ADDITION:

MSP for Paddy:

Rs 1400 per Qtl

Rice Production
Process: 65%
output

Rice Market
Rate: 2200 per
quintal

Or Rs 1430 for
65 kgs

COMPARISON BETWEEN 2004-05 AND 2014-15

Price of Rice per qtl
Price of Rice per 65 kg
MSP of Paddy
Margin

2004-05
1400
910
590
320

2014-15
2200
1430
1400
30

OBSERVATIONS IN DISTRICT PALWAL:

No. of Rice Mills
2004-05 11
2014

FOR THE FACTORY STUDIED:

No. of people employed

No. of hours in operation

2004-05

102

24

2014

48

10

Margin of
Rupees 30 for
wages,
transport, other
inputs etc

IDENTIFIED PROBLEMS:
1. GOVERNMENT POLICY:
i) Minimum Support Price: The minimum support price offered to the
farmers as a part of the agriculture policy is currently Rupees 1400
per quintal for Paddy Mucchal for Non Basmati Variety. The existence
of Minimum Support Price does not leave any scope to negotiate the
input price for the mill owners.
ii) Affordability of food grains: To protect the consumers, the price of
non basmati rice is often regulated either directly or by releasing the
stock acquired through Food Corporation of India in the market (thus,
increasing the supply and reducing market price). The current market
price is Rupees 2200 per quintal for Rice. Post de-husking and
processing, 1 qtl of paddy yield 0.65 qtl of Rice. This essentially
implies only Rupees 30 margin for other inputs, transportation,
labour loading unloading etc leaving the industry with low or zero
profitability.
iii) Export Ban: The Government has banned export of non basmati
variety which essentially reduces the potential market. The export
was open till 2007-08 and the ban resulted in close down of various
rice units (40% to 75% units depending on the district under
consideration). The still in operation units have reduced their output
drastically and are operating for 10 hours instead of 24 hours a day.
This has also resulted in massive reduction in employment in these
factories (more than 50%) in addition to the lost market.
2) FINANCIAL SUPPORT:
i) Lack of subsidies: The 30% subsidy on capital investment which
existed a decade back has been removed leading to a fall in
investment in rice industry. Currently, there is no investment subsidy
in the sector.
ii) Bank Negative list: The Government has classified Rice Industry as a
negative borrower which has increased the hardships involved in
obtaining a loan. Leave alone a preferential rate of interest for

3)

4)

5)

6)

7)

8)

9)

financing capital expenditures, classifying the rice industry in negative

list has further aggravated the problem.
SOCIAL SUPPORT:
Due to the above problems, many units were forced to shut down. Earlier,
each major rice producing district had a millers association. With decline in
number of mills, the associations have either been broken or at least
weakened.
TECHNOLOGICAL ADVANCEMENT:
Due to financial constraints and lack of appropriate government support,
the rice mills have not witnessed a major change in rice production process
even through there have been major breakthroughs in the technology
arena especially in terms of Sortex machines.
RAW MATERIAL:
Due to unstandardized and faulty design of harvesting machines, a
substantial proportion of rice grains in paddy crack under stress. This
combined with pre-mature harvesting brings down the percentage of rice
produced from a quintal of paddy and therefore the margin even more.
TAX STRUCTURE:
In Haryana, in addition to VAT, the units also pay Market Committee fees
(2%) and HRDF (2%) putting them at a disadvantage as compared to other
states. Also, a decade back, the fees were just 0.5%. A 300% rise in both the
fees has squeezed the margin further.
GOVERNMENT MILLING:
The Government procures paddy at MSP and supply paddy to mill owners in
exchange for rice with a margin of Rupees 18 per quintal which is too low to
finance the production process.
Additionally, it has been observed that the Government officials do not in
reality provide paddy but pay the MSP to the rice mills to buy and process
the rice. This entails further loading unloading labour charges,
transportation charges and commission charges.
SIX MONTHS OPERATION:
Rice Industry (Non Basmati variety) operates only for six months due to
seasonal nature of paddy availability. This stretches the requirement for
credit for the industry.
FALL IN DEMAND:

Migration from rural to urban, rise in income and consumerism has led to a
shift in consumer preference from non basmati to basmati quality in India.
Also, a complete ban on export of non basmati rice has reduced demand
more than the rise in demand due to population rise. Thus, the demand has
considerably fallen.
10) MISCELLANEOUS:
The water used for production process is only used for boiling of paddy and
is fit for agricultural use. However, it is listed under Polluting Industry.
PROPOSED SOLUTIONS:
1. Judicious mix of Price and non-price agriculture policy: MSP has
become more of a political issue. Providing non-price support to the
farmers will enhance the infrastructure and improve efficiency in
production. Just increasing MSP will have a detrimental effect on the rice
industry in absence of a rise in price.
2. Exports: Instead of banning exports completely for rice, a quantity
restriction or a policy involving a certain percentage of an industry
output should be permitted for exports. This will also ensure output
standardization.
3. Subsidies and low interest rates: Subsidies for capital investments
should be provided. West Bengal even provides subsidy on electricity for
rice mills. A national wide common subsidy policy will enhance
efficiency. Additionally, a low interest rate loan will on just capital
investments will improve technology.
4. Social Support: Rice Millers association should be promoted and
commissioned to prepare reports on the status of the industry and taken
seriously by the government.
5. Tax structure: A uniform tax policy should be adopted for the nation.
6. Government Milling: Proper vigilance is required to check the paddy
purchase and milling activity to avoid any discrepancies on part of the
officials.

Submitted by: Rashi Berlia (780), Shrishti Shree (877) and Shivani
Kejriwal (883)