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4 Ways In Which GST Will Usher In Seasons of Bounty For Indian Agriculture

It’s a win-win, from farm to fork.

21/09/2017 8:47 AM IST | Updated 21/09/2017 8:57 AM IST
Ajay Verma / Reuters

The introduction of the Goods and Services Tax (GST) adds to the slew of significant economic reforms undertaken by the current government in its vision of "One Economic India." While the benefits of GST will be reflected across sectors, the farm and agricultural sphere, in particular, will reap a bountiful harvest.

Farm, food and agribusiness have traditionally been subject to multiple levels of taxation from input to the end product. Further, multifarious ad-hoc taxes and levies imposed by state governments have created a highly fragmented market structure, affecting interstate movement of goods, worsening serious and scalable private trade, and impacting investment in the sector. Simplification and uniformity of taxes across states—supported by a robust synergy through co-operative federalism--is therefore a much welcome move for the agricultural sector.

Farm procurement and trade

I believe that the implementation of GST will have a positive cascading effect across the value chain—from the farm to the consumer's plate. Much to the delight of farmers, agricultural income, production and sale of farm produce remain outside the ambit of the taxman. The GST for farm produce, for example, has been kept at 0%. Other food products have been grouped in the lowest tax bracket, thus keeping revised tax rate under GST similar or lower than the previous tax structure.

Purging India's agriculture and agro-logistics sector of the complexities of the multi-layered tax regime will increase transparency and promote competition amongst private players and states alike.

Although the central government has never brought farm produce within the tax ambit, state governments and local authorities had imposed multiple cess charges, levies and VAT, thus creating a revenue generation opportunity for them. With the introduction of GST, taxes levied by other stakeholders will be subsumed and trade distortions will be removed.

Effectively, GST will do away with taxation aberrations in some states, creating a multiplier effect across the agriculture value-chain. It will further act as a fillip to organised food processing, thus enabling increased investment through larger market participation by private players.

One nation-one market: A leg up for farmer income

A unified tax system will be critical to a unified agricultural market: e-NAM, the National Agricultural Market (NAM) portal, aimed at unification of formal and informal agricultural produce markets across states, offers a platform for farmers to gain access to multiple buyers across participating states. It also intends to remove bureaucratic licensing and multiple taxation hurdles affecting private trade.

GST will help to create a transparent supply chain that will empower farmers, provide them wider access to markets and enable free trade across the country.

The implementation of GST will help facilitate NAM by boosting investment in logistics, thus improving marketing efficiency and promoting interstate trade. GST will help to create a transparent supply chain that will empower farmers, provide them wider access to markets and enable free trade across the country. All this will help boost farmer income.

Higher processing, lower wastage

It is increasingly being recognised that encouraging food processing will boost India's horticultural production, generate significant farm revenue and lead to savings for stakeholders across the value chain. The food processing sector will particularly benefit from the interstate logistics enablement as well as the regulatory and fiscal boost provided by GST. However, the decided rates for some processed product categories may require reconsideration in line with the government's own stated agenda of reducing farm losses and food wastage.

Enhancing export competitiveness

Standardisation and rationalisation of taxes will incentivise agricultural and food exports. By directly linking farmers with exporters across the nation, GST will ensure fairness in farmer remuneration and bring domestic price stability. Improved market linkages will result in lower production and procurement costs thus help making Indian agricultural produce globally competitive. For instance, classifying poultry and seafood in low GST slabs is a good step to boost exports.

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Tax uniformity across states will enable framing and providing tax policy support for commodities. Tweaking of taxes at the Centre for commodities will translate into seamless input credit, eventually reducing end consumer prices. There may be initial teething problems but purging India's agriculture and agro-logistics sector of the complexities of the multi-layered tax regime will increase transparency and promote competition amongst private players and states alike. GST will provide impetus to ease of doing business, attract higher private and public investment in agri-infrastructure and will be instrumental in reviving Indian agriculture. Barring initial birth pangs, GST is indeed a win-win for farmers, industry and consumers alike.

The opinions expressed in this post are the personal views of the author. They do not necessarily reflect the views of HuffPost India. Any omissions or errors are the author's and HuffPost India does not assume any liability or responsibility for them.

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