GST cut on agri inputs to lower cultivation costs, boost farmers' incomes

The GST reduction on agricultural inputs and machinery could lower farmers' cultivation costs, boosting incomes, while also making seafood products more affordable for domestic consumers

With a host of key agriculture inputs – including bio-pesticides and farm machineries – now facing a much lower 5 per cent GST, the cost of cultivation for farmers is set to come down.

 

In case of fertilisers, the rate cut on raw materials that goes into making fertilisers would help in correcting the inverted duty structure and help companies lower their cost of finance, experts said.  

 

The GST council has taken a big load off the farmers’ shoulders by slashing the tax on agricultural machinery whose prices have spiralled over the past few years.

 

According to the latest data from Commission for Agriculture Costs and Prices (CACP), from May 2023 to November 2024, wholesale price index (WPI) in agriculture machinery saw a 2.1 per cent increase, while the overall index of farm inputs declined by 2.8 per cent.

   

Before that, from October 2022 to April 2023, WPI in agriculture machinery rose by 3.4 per cent while the overall index declined by 2.6 per cent (see chart).

 

 

Large tractor manufacturers such as Mahindra and Mahindra have said that there will be a ₹50,000- ₹60,000 drop in tractor prices due to the GST rate cut. Pushan Sharma, Director at CRISIL said that retail price of bio-pesticides will come down by 4-6 per cent while that of micro-nutrients will come down by 3-6 per cent.

 

Fishing profits

 

And, according to the ministry of animal husbandry, the GST on fish oils, fish extracts, and prepared or preserved fish and shrimp products has been reduced from 12 per cent to 5 per cent, making value-added seafood more affordable for domestic consumers and enhancing the competitiveness of India’s seafood exports.

 

While fishing nets, seafood products and aquaculture inputs will all be now taxed at 5 per cent which earlier used to attract tax at the rate of 12 to 18 per cent.

 

Sugary treat

 

Sugar sector meanwhile believes that the GST cut on confectionery and bakery from 18 per cent to 5 per cent will push up sugar demand.

 

But, flour millers say that GST cut on packaged rotis and parathas to zero will not make any material difference as packed atta, maida and sooji -- up to 25 kgs -- will continue to attract 5 per cent GST.

 

“Despite this tax reduction, families making rotis at home will still pay 5 per cent GST on staple ingredients such as atta, maida, suji (semolina), dalia, and besan when bought in small packs up to 25 kg. This creates a disparity for homemakers, as the GST waiver does not extend to those preparing bread at home, where most Indian rotis are still cooked,” Navneet Chitlangia of the Roller Flour Millers’ Federation of India said.

 

Missing the boat

 

Some experts, however, also felt that the broad based cut in GST for major farm equipment does miss out on some items.

 

“We have observed that for 2 HSN codes 8467 (brush cutter for weeding and harvesting, pit diggers for planting, chainsaws for pruning and cutting trees) and 8413 (water pumps), both of which are very critical to agriculture, GST rates have been maintained at 18 per cent. In our opinion, all goods essential for agriculture must be rationalised to 5 per cent to truly promote farm mechanisation in India,” Ankit Chitalia, Managing Director of KisanKraft Limited said.

 

He also sought more clarity on the input tax credit that has been accumulated at higher

 

GST rates, which will lead to cash flow being stuck, resulting in higher finance costs for the industry.

 

Inverted duty structure in fertilisers

 

On the correction in inverted duty structure in fertilisers, Rajib Chakraborty, national president, Soluble Fertiliser Industry Association said that for years, indigenous manufacturers, particularly MSMEs, struggled under the burden of a tax rate disparity of 18 per cent GST on raw materials versus just 5 per cent on finished fertilisers.

 

This imbalance created a severe working capital blockage. Compared to the earlier regime of 2 per cent CST or 5 per cent VAT, the straight 18 per cent GST on inputs hit small and medium manufacturers hard.

 

“For every unit produced, 13 per cent tax accumulation got locked in the system, draining liquidity over time,” Chakraborty said. He said the GST reduction to 5 per cent on these raw materials changes the landscape significantly.

 

“Manufacturers can now procure inputs at the same rate as finished goods, ensuring full utilisation of working capital, smoother cash flows, and lower cost of finance,” Chakraborty added.