In 1991, India saw an LPG blast — liberalisation, privatisation and globalisation that changed the face of the country permanently. After 25 years from 1991, a fortnight ago, we experienced another revolutionary reform — GST with the promise of “One country-One tax”. Like any other person, I started reading GST from the view point of how it affects me and our work with small farmers on providing climate-smart farming solutions such as greenhouses. It appears to me that the GST is good for our farmers.
Why is climate-smart farming critical? Climate change is one of the risks farmers can’t articulate enough, but they are large victims of that. The NSSO reports that on an average, small farmers lose money or just break away from agriculture and must depend on other forms of livelihood mainly due to environmental risks. Industry body Assocham estimates that farmers lose ₹50,000 crore yearly from pest attacks, which increase with increasing temperatures. A Nature study recently found yields dropping 10 per cent annually due to increasing heat. So it is important that India focus on climate-smart farming.
In the pre-GST era, for material purchases into Telangana, which we made from a company in Tamil Nadu, in addition to the excise duty of 12.5 per cent, we had to pay the Central Sales Tax (CST) of 5 per cent. When the same greenhouses are sold in Telangana, farmers had to pay VAT (local sales tax) to the State government at 5 per cent. This made the final landing price to the farmer 24 per cent more than the original cost without taxes. However, with GST, there will be an option to set off such inter-State taxes and, as a result, the final landing price to the farmer is just 12 per cent more than the original cost. Essentially, taxes paid by farmers in this regard now are just half of what was paid in the past.
Granted, GST is good. But is it good enough? Is this sufficient to attract the 75 per cent of farmers who are forced to quit farming? The answer seems to be ‘no’. Till we demonstrate viability for small farmers, our roads will see more and more farmer demonstrations. I really wish the Government thought more wisely about essential technology tools for climate-smart farming such as drip irrigation, greenhouses and shade nets. They should ideally be designated under the ‘Zero GST’ category along with food, milk, etc, as this will be essential for us to ensure farmer prosperity and achieve food security.
Tax reforms go a long way in giving a leg up to a sector and in getting some of the good brains to think about it more seriously. For instance, in the power sector, after 100-per cent deductions under section 80(IA) of the Income Tax Act 1961 was introduced soon after liberalisation, power generation tripled. This attracted many entrepreneurs and investors to enter the area. Similarly, I strongly wish we correct the gaps in the income tax to create a better ecosystem for agriculture as well.
The gaps in taxes
Imagine you are a farmer having two acres of land. It is difficult for you to make agriculture viable because you often buy inputs such as seeds and fertilisers on retail, but you sell the produce on wholesale. Your income (which will be negligible or negative mostly) will be tax free. On the other hand, the moment you mobilise a few other farmers together into a farmer producer company to get economies of scale and better bargaining power, your entire group/company has to pay tax on those operations. Farmers are not going from the category of rich to super rich in this process. They are attempting to move from poor to ‘not poor’. Isn’t this unfair and unjust? On the one hand, we complain that small-sized land holding is a problem for farming to be viable.
On the other, we discourage farmer groups and farmer producer companies by taxing them like other commercial enterprises. If we really want farmer incomes to double by 2022, farmer-producer companies need to have tax exemptions or tax deductions. Then vibrant professionals may also find it as a good opportunity to build the agri ecosystem and create positive change to the lives of farmers.
The US Federal Reserve estimates that GST will boost India’s GDP growth by 4 per cent in the next four to five years. To be fair, to the vast majority of Indian population that derives livelihood from agriculture sector, it will be interesting to see if India post- GST can clock an annual agricultural growth rate of 4 per cent. After all, reforms are worth only if they can transform the lives of millions of people who are under served and marginalised today.
The writer is the cofounder Kheyti