After more than a decade of intense discussion and debate, finally, GST is becoming a reality. Although, in its current form, it is not the perfect GST as originally envisaged, it is being lauded as one of the most transformational reforms since 1991. Finance Minister Arun Jaitley was humble and right in saying that the credit for this goes not just to this government but also to previous ones that conceived and steered it Agricultural Processing Equipment from time to time.
Here, we assess the likely impact of the new GST regime on agriculture and farmers. One can look at it from three angles: (1) is GST going to be inflation-neutral, given that food has 45% weight in the consumer price index (CPI); (2) is GST going to be revenue-neutral, especially which states may lose revenue and how they will be compensated; and (3) does it give some incentives to link farmers with food processing industry, which may help farmers reduce market risk, augment incomes, and create new jobs in rural areas?
Let us look at major inputs first. Fertilisers, which currently attract VAT varying between 0% and 8% (in several states), will now attract 12% tax under GST. That means the prices of fertilisers are likely to go up by 5-7%, unless the government decides to absorb this by increasing subsidy. Pesticides are put in the 18% slab, up from the 12% excise they attract today and VAT of 4-5% in some states. Tractor rates are tricky. Several components and accessories of it are put in the 28% slab, while tractors themselves are in the 12% slab, up from zero excise and VAT of 4-5%. It is not very clear yet whether the input credit claims to cover taxes already paid on components and accessories will exceed the final tax rate of 12% on tractors, and therefore there could be a scope for reduction in tractor prices; or the tax on components may be rationalised and the applicable rate brought down from 28% to 12%. There is quite a bit of confusion here.
