Govt fixes 8.19% 'return on capital' for jute bag supplies for foodgrain packaging

Indian jute mills will earn an 8.19% "return on capital" for supplying jute bags for foodgrain packaging under the newly approved pricing framework by the Ministry of Textiles, a senior official said.

This implies that mills will earn the predetermined percentage of profit on the capital invested, regardless of market fluctuations of input costs, he said.

According to the Indian Jute Mills Association, the new pricing formula will result in only a 4-5% increase in the price of gunny sack supplies.

In contrast, the Office of the Jute Commissioner estimates the pricing benefit to be between 6% and 8%, considering various other modifications made in the new pricing policy following the Tariff Commission recommendations.

The new pricing formula will be applied retrospectively from September 2016.

"The total benefit impact from the current price revision in sacking bags to mills is estimated to be anywhere between 6-8%, taking into account all aspects of the pricing mechanism," Jute Commissioner Moloy Chandan Chakrabortty told PTI.

"The return on capital has shifted to a revised norm of 8.19% under the new framework. Additionally, there have been changes in the return policy, all of which favour the mills," Chakrabortty said.

Raghavendra Gupta of the Indian Jute Mills Association said the pricing is dynamic with a lot of variables, and it will depend on several factors, including raw jute prices.

However, the pricing revamp will benefit the mills in the range of 4-5%, he said.

Union Textiles Minister Giriraj Singh, during a recent visit to Kolkata, had said the new pricing will also benefit other stakeholders, around 4 lakh jute mill workers and 40 lakh farmer families engaged in its cultivation, primarily in West Bengal.

He had also said this year's sale of jute products is expected to cross ₹14,000 crore.

Singh advised the mills about reducing their dependence on government supplies and exploring new avenues driven by value addition through innovation and modernisation efforts.

He had said that with coordinated efforts of all stakeholders like the government, mills, workers and farmers, the goal is to increase the value of finished jute goods from about ₹1,15,000 per tonne to ₹2 lakh per tonne in the near future.

This value accretion, however, does not apply to government gunny sack supplies, an official clarified.

The textiles ministry has been constantly investing in research and development in the life cycle of the golden fibre towards this goal, he said.