Impact of GST on Agriculture & Farmers

GST is hailed as one of the most transformational reforms carried out in India since 1991. GST is perceived to have mixed impact on agriculture.

Impact on input-side

Fertilisers which were subjected to a 0% to 8% VAT will henceforth attract 12% tax under GST. This will increase the prices of fertilisers by 5% to 7% unless the government offers to increase subsidy.

Pesticides have been placed in 18% slab. This is an increase from the pre-GST 12% excise and VAT of 4-5% in some states.

While tractors are placed in 12% slab, several components and accessories of tractors are placed in the 28% slab. It is not clear what impact GST will have on the prices of tractor. However, it is expected that there is a scope for reduction in tractor prices.

Overall, from the input side, the cost of cultivation is expected to increase marginally.

Impact on Output side

Highly used agri-commodities such as rice, wheat, milk, fresh fruits and vegetables are placed in the zero tax slab. This will help in avoiding tax, cess and arhatiya commission levied by some States.
The taxation structure for processed food is not very encouraging. The processed foods like fruit and vegetables juices under GST will be taxed at 12% up from 5%. Some items like fruit jams, jellies, marmalades etc will be taxed at even higher 18%. The higher tax rates are expected to discourage the development of food processing industry, especially for perishable fruits and vegetables. This may also affect the employment in food processing industry

Significance
GST will help to do away with mandi taxes and associated cess and levies which were distorting agricultural markets. It is one of the biggest gains for agriculture. Introduction of GST could also help in reinvigorating the interest of private sector in agriculture.

Challenges

Although, GST will help in reducing the food subsidy bill borne by the Food Corporation of India (FCI), it may also negatively affect the tax revenue of the states. Due to GST, it is estimated that FCI would save Rs 6,000-8,000 crore owing to smaller food subsidy bill. But the surplus grain producing states like Punjab, Haryana, Andhra Pradesh, Madhya Pradesh and Chhattisgarh may not get tax revenue from FCI or central government as they were getting before the roll out of GST. Although, there is a provision for providing compensation to the states for a period of five years by the union government, it is yet to be seen how these states will be compensated for their losses.