The Indian Agriculture Sector Has Scope for Massive Change, Time to Strike While the Iron Is Hot

The perpetual distress that the Agriculture Sector faces is seen by many as one of the most consistent problems we face as a country. A majority (more than 50%) of the country’s labour is employed in agriculture, however, its contribution to the GDP is only at 18%. This discrepancy can be seen as positive as it indicates a huge potential for growth and betterment. The upcoming Union Budget presented by Honourable Prime Minister Narendra Modi’s government is one such situation where we can, as a country, put agriculture back in the hands of the farmer. By implementing grass-root level changes in the industry, the progress ensuing will drastically improve the lives of the Indian Farmer.

A few alarming stats:

• 85% of farmers in India fall in ‘small and marginal’ (read small plots and even smaller earnings)
• The average farmer earns below the minimum wage
• Mechanization in agriculture only at 40%
• India’s Agriculture RnD spend is only 0.6% of GDP (US 2.8%, South Korea 4.3 %, Israel 4.2 %)

Taxation:

A GST reduction on all agricultural machines to 5% needs to be implemented. The current high rates of GST are counter-productive towards the government’s goal of mechanizing farmers. This reduction will go on to encourage manufacturers to invest in the space along with a reduction of expenses faced by the farmer.

Further, the industry strongly needs a change in the current situation of availing GST tax credit. The buyer is currently not allowed to take input credit on the purchase unless the seller has filed their returns. The buyer must be discharged of their liability and the offender needs to be held accountable.

The concept of cross charge is not in favour of ease of doing business in India. The government should use pragmatic approach to recognise an employee as an employee of an organisation as a whole and not of any particular location. The activities performed by an office of an organisation to another office of same organisation should be kept outside the purview of taxation under GST. The exercise of cross charge being revenue neutral to the government uses considerable amount of resources of the businesses to monitor cross charge activities. This exercise would rather increase the cost of doing business in India.

Subsidies:

The disbursal of subsidies is currently done at an annual or bi-annual rate. The fixed dates are not optimal and ideal for farmers. We suggest the releasing of subsidies according to the crop season. This ensures farmers receive the money in time of need. Moreover, we strongly recommend that the government fixes the amount of grants to be given to the farmer but refrains from setting the price of the machine. The open price system will ensure more players enter the market and the competition will result in reduced prices that benefit the farmer.

Another key issue in this sector is the testing and approving of machines for subsidies. The current government infrastructure to test machines is subpar and insufficient. Lab testing has proven to be the most difficult hurdle for the government and we propose that the government limit the testing to Functional tests only. Nullification of the high cost of lab testing will result in lower costs towards the farmers. This will further ensure a quicker approval process.

Research and Development:

Research and Development (R&D) is paramount to the development and growth of any sector, bar none. A weighted deduction in respect of expenditure incurred on scientific research in an in-house R&D facility approved by the Department of Scientific and Industrial Research for companies engaged in manufacturing or production of any article or thing was reduced from 200% from 2016-17 to 150% which will be phased out from 2020-21 leaving with no tax incentives for Research and Development activities.

RnD in agriculture is currently being held back by bureaucratic speed-bumps. Research on food crops should be hurdle free. The delay in approval coupled with the consent from various bodies to conduct research needs to be done away with to encourage more participation. To mitigate the effect of climate change, collaborative research programs involving public and private sectors should be encouraged.

Education and Infrastructure:

While the government has taken several positive steps towards the training and education of farmers, participation from the private sector is crucial to cater to the vast number of farmers. The high fees mandatory to be paid to the government for accreditation and assessment of farmers is discouraging. We believe that not-for-profit organizations or free-for-farmer training programmes should be exempt from these fees.

Investment on the continuous improvement of water reservoirs, dams, canal systems with a focus on implementing rain-water harvesting systems in every village. Lining of water canals should be made mandatory. Investments targeting advanced irrigation facilities like micro irrigation, sub-surface irrigation will be more effective. Supply-chain and storage infrastructure, roads and electricity need to be continually improved.

Forecast based farming reduces the impact of climatic disasters. More investments should be made on enhancing the weather data collection (AWS and ARGs), advanced radars and satellites.

Exports and Policy revamp:

The existing agricultural produce export policy is heavily regulated and hurts farmers greatly as long term contracts with buyers and sellers outside India cannot be undertaken. The unstable policy leads to price fluctuations that impact export. We strongly recommend lifting restrictions on export of agricultural produce. This will result in the improvement of net realization of the farmers along with an increase in reliability of the farmers. The short term effect will be an increase in retail prices, however, the resulting infrastructural and supply chain improvement will result in stability.

The government should allow commercial farming by businesses, which will help bring model farming practices all over the country. Voluntary sale/purchase of agricultural land should be unrestricted. This direction will help bring about modern cultivation practises whilst creating employment opportunities.

APMC act needs to be updated to remove fees, jurisdiction and commodity restrictions. Government may also consider allowing private parties to operate APMC yards, within the updated APMC framework, to reduce transport distance.