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To combat obesity, the government imposed taxes on unhealthy food items in India

Consuming unhealthy snacks that not only taste delicious but also pair up well with beverages like tea, coffee, soft drinks etc., on a daily basis can not only lead to weight gain but also invite a number of health problems. To combat India's soaring obesity rates, the Centre intervenes in the market and on March 2, 2022 intends to impose a special tax on foods loaded with sugar, fat, and salt.Items such as non-branded namkeen, bhujia, fruits, vegetable chips, and snack items are now subject to a 5% GST, while the tax on branded stuff is even higher and stands at 12%.

 

According to graph 1 when there is a negative consumption externalities, MSB curves lie below MPB, which means that society social benefits are less than private benefits because the government increases marginal private costs by counting the amount of negative consumption externalities. The external cost is a vertical distance between the MPB and MSB. Since the government of India's intervention in the market for junk food is taxes, the supply curve shifts upward from S=MPC to MSC (=MPC+tax). The external cost is a vertical distance between the MPC and MSC. This happens because high Pp is an incentive to firms to produce less, since the cost of production increases. Also as Pc for consumers increase the ability and willingness to consume more decreases, this is an incentive to consumers to buy less. Demand curve shifts to the right, because demand for junk food products decreases. As you can see on the graph, Qe > Qt, which indicates that there is an inefficient allocation of resources, which results in welfare loss. However, it can be seen on the graph that by imposing tax on junk food welfare loss is reduced.


Advantages:


Advantage of using the tax on junk food products to correct negative consumption externalities in India in 2022 is that the people pay less on their health. Junk food leads to various diseases, such as obesity and diabetes. According to the National Family Health Survey of 2019-20 the proportion of obese women in India has climbed from 20.6 percent in 2015 to 16 to 24 percent. … Around one-third of men and women (aged 15 to 49) in states like Telangana, Kerala, and Himachal Pradesh are overweight or obese. Since, P is higher, the quantity sold has decreased, which means that other people spend less on health care. Therefore, society is better off. “According to the Indian Journal of Community Medicine, India alone has 135 million people as obese as of 2021. India also ranks 3rd in the Global Obesity Index after the USA and China.”


Disadvantages:


First disadvantage is that the decrease in consumption is little. Junk food goods are a demerit and addictive good. It leads to not decreasing health issues, since even if tax is imposed people will not stop consuming them, since they have an addiction and low-income people can only afford this type of food. Therefore, society is worse off. Second disadvantage is that negative externalities are hard to measure, so the amount of tax that is imposed can be less than it’s needed. According to TimesOfIndia (2022) India imposed 5% GST on items such as non-branded namkeen, bhujia, fruits, vegetable chips, and snack items and the tax on branded stuff is even higher and stands at 12%, which means that consumption of unhealthy food can be decreased little by little. Therefore, society is worse off, since the tax is not so effective as the government still has to pay a lot of money on the healthcare system.

 

To conclude, taxing junk food in India in 2022 is a positive step to reduce health issues associated with consumption, though challenges like addiction and measurement accuracy still exist. It contributes to a healthier society by curbing consumption, but effectiveness needs ongoing assessment and improvement.


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Amina Urzakanova
Amina Urzakanova
Sep 10, 2023

It’s a very insightful article

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