India’s stressed farm sector is gasping for a new breath, which the center can facilitate by rationalizing the Goods and Services Tax (GST) on farm equipment in the 2022-23 fiscal year budget. Nowadays, GST slabs applied to agricultural implements are irrational. The GST rates applicable to tractors are 12 percent. It is worth noting that before July 1, 2017, there were no excise duties and VAT applied to tractors. The GST era has hit the farm mechanization sector as much as anything else. Farmers have to pay Rs 60,000 GST on tractor cost of Rs 5,000 at 12 per cent which was nothing four and a half years ago. The government should at least rationalize the GST on tractors to promote farm mechanization. A uniform GST rate of 5 percent on tractors, and their components instead of 12 percent, would 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 purported intent to empower farmers. Under the supervision of Rashtriya Krishi Vikas Yojana (RKVY) and the National Food Security Mission (NFSM), the government provides subsidies of up to 50 per cent of the cost of machinery such as tractors, combine harvesters, sugarcane harvesters and cotton pickers, to set up dedicated employment centers (CHCs) and also to individual farmers To purchase pump sets, tractor-mounted sprayers, and no-till seed diggers. On the other hand, there is a heavy GST on agricultural implements. Why is there a Goods and Services Tax (GST) board for fats for farm equipment when the government offers up to 50 percent subsidy benefits to farmers?
Likewise for the promotion of renewable energy, the GST rate of 5 percent applies to biogas, solar energy, windmill appliances, and electronic parts. Why can’t we get similar panels at affordable prices to promote mechanization among the small and marginal farmers? Given the Center’s commitment to a standardized and simplified tax process, there is a need to consider reassessing several HS codes for different categories of agricultural equipment and grouping them under a single tax slab to facilitate the use of agricultural equipment in the country.
The repercussions of rising steel prices have multiplied the agricultural implements industry. In the 2021-2022 budget, Finance Minister Nirmala Sitharaman eliminated anti-dumping (ADD) and countervailing duties (CVD) duties on some steel products with tariffs uniformly reduced to 7.5 percent from 10-12.5 percent levels, to be brought further down to the no thing. The import of second-class steel should be restored to provide more availability for a level playing field.
Mechanization of farms in India is still not enough. It requires a huge investment. Total agricultural mechanization in India was 40-45 percent lower than in other countries such as the United States (95 percent), Brazil (75 percent) and China (57 percent). With diminishing land, water and manpower resources, mechanization has become important for production and post-harvest operations.
In the past ten years, agricultural credit has increased by 350 percent. Despite the increase in agricultural credit, till today 90 per cent of tractors and other farm implements sold in the country are financed by NBFC (Non-Bank Finance Corporations) at 18 per cent interest rate while long-term loans to banks the purchase interest rate is 9 per cent, But the financing of agricultural tools is not given priority by the banks. There is a need to reform the agricultural credit system to bridge the gap to reach the maximum of small and marginal farmers for farm mechanization.
Domestic sales of tractors increased from 4.82 lakh units in the 2010-2011 fiscal year to 9.88 lakh units in the 2020-21 fiscal year, registering an impressive compound annual growth rate of 10 percent. Traditionally, tractors and tractor-driven devices have dominated the use of agricultural equipment, greatly aiding in land preparation, seeding and other activities that require mobility. Tractors dominate the agricultural equipment market in India. The rest of the agricultural equipments—seeders, tillers, reapers, etc., account for 15 to 20 percent of the market share. This is only due to lack of knowledge about the benefits of using additional equipment and mechanical practices in terms of productivity and yield, operational challenges, etc. The deployment of additional agricultural machinery is expected to increase in the coming years as a result of the increasing importance of mechanization, push by Government of India and multilateral agencies for mechanization based schemes.
The agricultural machinery industry is preparing at an inflection point as it is set to transition into a period of high growth and is expected to change the way the average Indian farmer works on the farm. However, the pace of this transformation will depend on how all stakeholders such as farmers, machine manufacturers and government work together to provide an appropriate policy framework, schemes, optimized GST, financing mechanism and appropriate technology for diverse climate and environmental challenges.
The “magical” character of farm mechanization needs a booster potion. Increasing spending on research and development on mechanization is not only a vital necessity to ensure national food security but is also important from a social and economic point of view. The burden is now on the central government to increase private financial allocations for research and development in farm mechanization.
Enabling factors such as a minimum GST on agricultural implements will be a big boost for manufacturers. This will also contribute to reducing the total cost of capital and providing sustainable automated 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 Agriculture Board along the functional lines of the GST Board. This council will explore a mechanism for the reimbursement of the GST paid by farmers while purchasing agricultural inputs including agricultural equipment.
To ensure a logical support support mechanism, a minimum single GST slab will be pivotal to the successful deployment of mechanization. Mechanization is still an expensive activity for farmers to do. For this, the GST Council should take a collective call for a uniform tax slab and minimum taxes in order to better accommodate farm mechanization in general.
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