Govt should ensure policy gains do not evaporate in opaque tractor markets

The government can ensure trade accountability by making it mandatory for dealers to display MRPs for all models along with prices under GST 1 (12-18 per cent) and GST 2 (5 per cent)

Modi government's decisive reduction in Goods and Services Tax (GST) on tractors and agricultural machinery from 12-18 per cent to 5 per cent under the GST 2.0 regime is a monumental stride toward empowering India's agrarian heartland. This farmer-centric reform, announced recently, alleviates the cost of essential equipment for over 140 million cultivators, many of whom are small and marginal landholders. PM Narendra Modi's administration deserves resounding applause for prioritising rural prosperity, aligning with the 'Atmanirbhar Bharat' ethos by making mechanisation accessible and spurring domestic production.

 

This move shall reduce tractor prices by thousands of rupees and foster sustainable farming amid pressing challenges like erratic monsoons and soil erosion. 

 

India's 5 per cent GST rate progressive and welcome

 

Globally, India's 5 per cent rate stands out as progressive. In the US, agricultural tractors often qualify for sales tax exemptions (0 per cent) in most states for verified farm use, enabling seamless adoption of modern tools. Canada zero-rates farm equipment like tractors under GST/HST (0 per cent), exempting them entirely to boost productivity.

 

Australia's GST applies at 10 per cent to such machinery, though farmers can claim input tax credits to offset costs. In the European Union, standard VAT rates range from 17 per cent to 27 per centbut reduced rates of 5-10 per cent are common for agricultural inputs in countries like Germany and France to support eco-friendly practices.

 

China imposes a 13 per cent VAT on tractors, with rebates up to 10-15 per cent for ag machinery to encourage rural development. Brazil's recent tax reforms introduce a zero rate on tractors and implements under the new VAT system, phasing out prior ICMS rates of 12-18 per cent. India's policy now rivals or betters these, potentially increasing tractor sales by 20-30 per cent and enhancing food security.

 

Indian agriculture is grappling with sustainability crises. Over 85 per cent of holdings are under two hectares, leading to inefficient resource use, groundwater depletion, and climate vulnerability. The GST relief is hugely welcome.

 

Lower GST will promote fuel-efficient tractors, cutting emissions and optimising operations. However, true impact hinges on ensuring that benefits trickle down to farmers, and they do not evaporate in opaque market practices. 

 

Government must address inconsistencies in tractor sales ecosystem

 

Inconsistencies in the tractor sales ecosystem have often undermined such reforms, leaving small farmers vulnerable to exploitation. Dealers and manufacturers frequently omit Maximum Retail Price (MRP) displays, allowing arbitrary pricing that inflates costs beyond manufacturer intent. Even when listed, prices rarely delineate pre-GST (under the old regime) and post-GST (new 5 per cent) components. This obscures savings and enables hidden price inflation.

 

It is sad to note that for tractors, precise information regarding engine power and other markers is not specified. This ambiguity is not seen in the product portfolio of the two-wheelers or four-wheelers sold by any automobile maker. But for tractors, this ambiguity has been normalised.

 

Pick up the product portfolio of most brands of tractors. Engine power is touted vaguely without specific standards like SAE horsepower (HP), brake horsepower (BHP), or cubic capacity (cc). The information shared with the prime buyers - the farmers - is often just a broad "50 HP category."

 

The more one studies the product specifications of tractors, the more one finds that vagueness in product detailing continues. Vital data like transmission details (manual vs automated), steering (mechanical vs hydraulic), hydraulic lift capacities, and gear ratios are glossed over. This makes comparisons impossible.

 

Can one think of buying a two-wheeler or a four-wheeler without these precise information inputs? 

 

Tractor makers must ensure post-purchase utility for farmers

 

Now comes the post-purchase utility. The utility of a two-wheeler or a four-wheeler begins the moment it is taken out of the showroom. Not so for a tractor.

 

Tractors are sold to remove drudgery from farming operations and make farming more comfortable for farmers. The tractor cannot achieve this task independently.

 

Tractors act as movers of specific and useful agricultural machinery. Keeping this in mind, tractor majors must provide information on compatible implements and attachments with variant-specific performance. These are crucial for farm operations, and are also the prime reason why the tractor has been purchased.

 

Since no such information is provided, farmers are in the dark about the compatible implements and attachments to be purchased, and their power range. This leads to mismatched purchases and a compounding loss for the farmers. Farmers end up with underpowered or overkill implements and attachments.

 

The result is idle investments, higher fuel bills, and over-capitalisation. The burden is felt also by the farmers’ families. Already debt-prone households are stressed further by this loss in investment and utilisation. 

 

Non-Banking Financial Companies (NBFCs), integral to rural financing, often overlook these gaps. Dealer networks are in a constant endeavour to maximise loan volumes. This does not at all suit the prime stakeholders, the farmer. That does not seem to be a consideration for those seeking profit maximisation.

 

Media advertisements issued by tractor majors inadvertently exacerbate the issue. The advertisements showcase glossy features without clear configurations, information on specific features or price breakdowns. Uninformed farmers are lured into suboptimal deals. If the inconsistencies in the tractor sales ecosystem are not removed, the lack of transparency shall continue to cheat farmers. They shall not be able to fully benefit from the savings promised by the cuts in GST introduced recently by the government.

 

The lack of transparency by the sellers also promotes bad farm economics, which ultimately impacts the nation. Smallholder farmers end up buying oversized tractors for tiny plots, wasting precious resources and harming sustainability.

 

Govt must enforce stringent measures to safeguard benefits of reforms

 

The Modi government has made bold interventions in the agriculture sector through e-NAM and Kisan Credit Cards. In keeping with this proactive approach, the government must now enforce stringent measures to safeguard the benefits of the GST reforms. The government can ensure higher accountability by making it mandatory for dealers to prominently display MRPs for all models and variants, alongside exact configurations (specific engine metrics in HP/BHP/cc, transmission/steering/hydraulics details, gear ratios). A side-by-side display of prices under GST 1 (12-18 per cent) and GST 2 (5 per cent) model & variant-wise shall make farmers more aware of the benefits provided to them and shall make them feel reassured.  

 

The government must ensure that tractor advertisements company websites provide mandatory disclosures on features, power-wise attachments, and implement compatibility.

 

Regulatory monitoring, perhaps via the Department of Agriculture, can audit compliance and penalise violations to prevent exploitation by dealers.

 

Such steps shall empower farmers to select right-sized machinery, avert over-indebtedness and promote eco-efficient farming.

 

The Modi government's 5 per cent GST cut is a visionary masterstroke, celebrating the farmer's toil and fortifying India's agricultural resilience. By clamping down on transparency deficits, it can transform policy intent into tangible gains, shielding smallholders from exploitative practices. Heartfelt congratulations to this proactive leadership. Let us strengthen this momentum and collectively build a fair, sustainable farm economy.

 

This article does not advocate for heavy handed government controls that stifle India's free-market economy. Instead it urges simple farmer focussed transparency to ensure that GST benefits reach the field.

 

The writer is an agri entrepreneur, environmental activist and a votary for affordable mechanisation 

(Disclaimer: These are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)