India's 'Fat Tax' Debate

 
 

The recent announcement of a new “fat tax” included in the Kerala budget has generated a lot of discussion around India. The proposed tax seeks to tax burgers, pizzas, and other processed foods at 14.5 percent. It also seeks to tax food served by major fast food brands.

Obesity has emerged as a global problem. According to a study published by acclaimed medical journal Lancet in 2014, India has the third largest number of obese people in the world. According to the study, India is home to 30 million obese people; if the current trends continue, this number will skyrocket to 75 million by 2025. Childhood obesity tracks into adulthood, and is an important risk factor for the development later in life of type 2 diabetes mellitus and metabolic syndrome, among others. The obesity epidemic has to do with unhealthy food, sedentary lifestyles, and loss of traditional knowledge. Given the circumstances, it is indeed laudable that Kerala has taken an initiative to tackle the problem.

The concept of a fat tax, one type of Pigovian tax, is not new. A fat tax seeks to impose restrictions on the unhealthy food regime that has emerged in the world. Japan was the first country in the world to impose a “metabo law.” This law, which included measuring citizens’ waist sizes, was sought as a tool to fight rising obesity numbers in Japan. Similarly, in 2011 Denmark introduced a fat tax on certain products as a way to fight rising obesity and lifestyle diseases. However, after a 15-month stint the law was scrapped. The government admitted that people had been buying the same food from across the border.

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Understandably the introduction of a fat tax in Kerala has lead to discussions over its effectiveness. One of the first points of discussion has been the financial rationale behind this tax. The fat tax would add almost 100 million rupees (roughly $1.5 million) into the coffers of the Kerala government. Those who do not favor the tax argue that this amount hardly makes a difference into a budget that runs into the tens of billions. Industry insiders argue that such a tax will not signal a shift in consumption patterns but will only add to the burden of consumers. Moreover Kerala does not have large number of fast food chains, compared to the other major southern states, so there as questions as to whether this tax will make any major impact. In summation, critics argue that this fat tax will only mean rising costs for the consumer.

Another major argument relates to the fact that a fat tax on pizzas and burgers is essentially a nonstarter because such “Western” foods constitute a small part of Indian dietary patterns. India has long been a haven of spices and oil, with samosas, pakodas, and other fried items almost inevitable on Indian menus. Kerala has its own share of fried items, in form of its famous banana chips and beef fry. Each of these items carry huge potential threats to the health of the population. Viewed in this light, the imposition of a tax on pizzas and burgers does not make sense.

Others argue that Denmark’s failed experiment must be a lesson for those who seek to tax fast food. The government of Denmark’s decision to wind down the scheme within 15 months, citing administrative burdens, is a sign that such schemes are doomed to fail, critics say.

However each of these myths must be addressed logically. The rationale behind this taxation is not so much to earn taxes as to create awareness about the existence of health hazards. It is true that the Indian diet consists of a large share of unhealthy items; however, what can’t be denied is that products like pizzas and burgers have made rapid inroads into Indian markets and are poised to soon take over from traditional Indian foods. A recent judgment of the Delhi High Court in 2015 is noteworthy in this regard. The judgment, delivered in 2015, sought to ban the sale of junk food near schools. It also sought to control and regulate the advertisements of such products in schools. This undoubtedly shows that policymakers recognize the obesity issue and awareness is the first step toward combating it. This tax would not so much as fill the government coffers as it would create awareness about unhealthy food items. In the long run, such awareness will also spread over to traditional Indian unhealthy snacks. Hence such a tax should not be opposed merely because it targets only a particular category of items.

While the Denmark experiment was a failure, there are other examples around the world in different forms which have shown such schemes are successful. For example a soft drink tax imposed by Mexico in 2014 of one peso per liter resulted in the dropping of soft drink sales by 2 percent. It also added about $2 billion to government coffers, almost a third more than what the government had anticipated. While sales have picked up again since then, the rate of sales are nowhere near pre-taxation levels. On the other hand, there have been successful experiments in Hungary, Finland, and France of taxing one junk food item or another. Governments worldwide are waking up to the reality of obesity and unhealthy lifestyles.

The most important component to this debate, however, is the threat to the poor. As any economist would tell us, the poor are vulnerable to false impressions of a better lifestyle, because it signals aspiration. Burgers, pizzas, and cold drinks are seen as symbols of a better lifestyle. This is why perhaps there are stories of McDonald’s employees mistreating street children who are later fed by benevolent customers. The fact that such street children hang around fast food chains is a testimony to the vivid imagery that these chains project. And it is this image to which the poor are most vulnerable. In a country like India, which is confronting the poverty challenge boldly, providing a better food basket is an important part of that challenge. To effectively combat obesity, the image of fast food will have to change, from being  a symbol of growth to one that is fraught with its dangers.

As we move into a global order food habits and dietary charts will undoubtedly change. For example the consumption of pulses have rapidly fallen in India. Yet it is important to keep reinventing the food basket so that at any point it offers a healthy modicum of choices for the consumer. The fat tax should be seen as a move toward this change of perception. It is not a tool to earn revenue or rapidly shift consumer consumption patterns. It must be seen as a indicator that seeks to check and balance our dietary behavior should it reach dangerous levels.

Ibu Sanjeeb Garg is an avid follower of ethnic contentions and their multiferous dimensions in India’s Northeast. The views expressed here are his own.

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