Union Budget 2022-23 | Rationalize GST To Boost Farm Mechanization

A.S Mittal Jan 27, 2022

India’s stressed farm sector is gasping for a fresh breath, which the Center can facilitate by rationalizing the Goods and Services Tax (GST) on farm equipment in the FY 2022-23budget. At present, GST slabs applicable for Agri-implements are irrational. GST rates applicable on tractors is 12 per cent. It is worth mentioning that before July 1, 2017, there was zero excises and value-added tax (VAT) applicable on tractors. The era of GST has hit the farm mechanization sector like anything.The farmers have to pay Rs 60,000 GST on the cost of a tractor Rs five lakh at 12 per cent which was nil four and half years back. Government should at least rationalize the GST on tractor to boost farm mechanization. A unified GST rate of 5 per cent on tractors, their components instead of 12 per cent, will be ideal for the sustainable promotion of mechanization.

There is a strange dichotomy in the government’s approach, which also puts a question mark on any claimed intent to empower farmers. Under the Rashtriya Krishi Vikas Yojana (RKVY) and the National Food Security Mission (NFSM), the government is offering subsidies up to 50 per cent of the cost of machinery such as tractors, combine harvesters, sugarcane harvesters, cotton pickers, for establishing custom hiring centers (CHCs) and also to individual farmers for buying pump sets, tractor mounted sprayers, zero till and seed drills. On the other hand, there is a heavy GST on agri-implements. Why have a fatty GST slab for farm equipment when the government is giving up to 50 per cent subsidy benefits to farmers?

Similarly for the promotion of renewable energy 5 per cent GST rate is applicable on biogas, solar, windmills devices and electronic parts. Why can’t we have similar affordable slabs for the promotion of mechanization among small and marginal farmers? Because of the Centre’s commitment to a unified and simplified taxation process, there is a need to consider re-assessing numerous harmonized system (HS) codes for different categories of farming equipment and group them under a single tax slab to facilitate the use of farm equipment in the country.

The ramifications of high steel prices have already multifaceted the agri-implements industry. In budget 2021-22, Finance Minister Nirmala Sitharaman had revoked the anti-dumping duty (ADD) and countervailing duty (CVD) on certain steel products while reducing customs duty uniformly to 7.5 per cent from 10-12.5 per cent levels, to be brought down further to nil. The import of second-grade steel should be restored to create more availability for a level playing field.

As the per capita land holding among Indian farmers is decreasing, the need for small farm implements, mostly individually operated, is constantly increasing. There is a huge scope for the ‘Atamnirbhar Bharat’ initiative if it is right-aligned to the Indian farm sector’s holistic mechanization. Similarly, domestic manufacturing of specialized farm implements currently being imported can also be promoted.

Farm mechanization in India is still not adequate. It requires heavy investments. The overall farm mechanization in India has been lower at 40-45 per cent as compared to other countries such as the US 95 per cent, Brazil 75 per cent, and China 57 per cent. With the shrinking land and water resources and labour force, mechanization has become important for production and post-harvesting operations.

In the last ten years, agriculture credit increased by 350 per cent, despite an increase in agri-credit, even today 90% of tractors and other agri-implements sold in the country are being financed by NBFC(Non-Banking Finance Companies) at 18% rate of interest whereas banks’ long-term loans rate of interest for purchasing of the same is 9%, but the financing of agri-implements did not prioritize by the banks. There is a need to reform the agri-credit system to fill the gap to reach out to maximum small and marginal farmers for farm mechanization.

Domestic sales of tractors have increased from 4.82 lakh units in FY 2010-11 to 9.88 lakh units in FY 2020-21, registering an impressive CAGR of 10%. Traditionally, tractors and tractor-led devices have dominated farm equipment use, largely helping in land preparation, sowing and other activities which require mobility. As tractors dominate the farm equipment market in India. The rest of the farm equipment -- sowers, tillers, harvesters, etc., -- account for 15 to 20 per cent of the market share. It is only because of the lack of knowledge about the benefits of using additional equipment and mechanical practices in terms of productivity and yield, operative challenges, and so on. It is expected that the dissemination of additional farm machinery will advance in the coming years as a result of the growing prominence of mechanization, impetus of the Government of India and multilateral agencies to mechanization-based schemes.

Apart from these positive interventions, there is a need to have a minimum GST slab on farm implements, hassle-free access to financial assistance and enhanced focus on farmer aggregations and linkages. These are necessary interventions if we wish to take farmers and farming to the first level of their sustainability.

The farm machinery industry is poised at an inflection point from where it is set to move into a high-growth period and expected to transform the way an average Indian farmer works in the farm. However, the pace of this transformation would depend on how all stakeholders like farmers, machinery manufacturers and the government work together to provide an appropriate policy framework, schemes, rationalized GST, financing mechanism and technology that is suited for diverse climatic and environmental challenges.

‘More crop per drop’ has become the new mantra. Resource-conserving and climate-smart farm mechanization such as zero-tillage and drip irrigation are commanding greater attention from progressive farmers. More innovations to be incentivised around advanced mechanization through drones, sensors, artificial intelligence and the Internet of Things hold the potential to improve efficiencies in agri-food production, post-production management and agro-processing.

The ‘magical’ character of farm mechanization needs a booster dose. Increasing R&D spending on mechanization is not only a vital necessity for ensuring national food security but also important from the socio-economic point of view. The onus is now on the central government to increase special financial allocations for research and development in farm mechanization.

WAY FORWARD

Enabling factors such as minimum GST on farm implements will be a big boost to manufacturers. This will also contribute towards reducing the overall capital cost and provide sustainable mechanized solutions to the majority of small and marginal farmers through better affordable interventions.
As in Australia and Canada, there is a need to establish an agri-specific council on the functional lines of the GST Council. This council will explore a mechanism to reimburse GST paid by farmers during the purchase of agri inputs including farm equipment.
To ensure a rationalized subsidy support mechanism, a single minimum GST slab will be pivotal for the successful dissemination of mechanization. Mechanization is still a cost-intensive activity to be undertaken by farmers. For this, a collective call should be taken by the GST Council for a uniform and minimum tax slab for better uptake of farm mechanization at large.