Oct 24, 2017
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Impact of GST in India on agricultural sector

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Impact of GST in India :

Business is undergoing rapid transformation due to the globalization. Tax regime and policies of any country gaining high importance due to growing foreign trade between various countries. In the competitive world of business,GST is a significant topic which requires lot of deliberations from academia and industry to agriculture.

Despite the various impediments to the proposed transition, until the time GST implement, it would worthwhile to assess its positive impacts. Its on such other various development areas viz. agriculture, manufacturing industry, MSME, housing, poverty reduction,etc.

Government has setup a body in order to make rules, regulation and to make amendment in case of GST which is known as GST council.

Impact of GST India on agricultural sector:

  1. The implementation of GST would boost the economic growth by the means of wider tax base, compliance in tax payment and by pushing balance of trade on favorable side.
  2. One of the most radical decisions taken is to  fix the applicable GST rate at zero per cent for most of the primary farm produce.
  3. The central government currently taxes neither production/sale of farm produce nor agricultural incomes. Under GST also, there will no VAT and the cess supposed to subsum within the zero per cent GST. Thus, there will be no impact of GST on the farming community.
  4. However, the rates on fruit and vegetable juices, jam, sauces, purees, mixes, concentrates and a host of processed foods have set at 12 to 18%.
  5. Taking into consideration food consumed by the poor, food grain and milk have exempt from taxes. Cereals will tax at 5%. Under the new GST law, dairy farming, poultry farming and stock breeding kept out of the definition of agriculture. Therefore, these will taxable under GST.
  6. The main impact of GST in agriculture would bring is the inflation with currently 4% VAT being increased to 8% on many food items. And which also includes cereals and grains as the exemption under VAT stated to limited to unprocessed food. The most affected from the inflation would be the consumers living below poverty line.
  7. Also, the incidence of taxation on agro processing industry would also help in reducing the cost of heavy machinery required for producing agricultural commodities.
  8. Implementation of GST is essential to improve the transparency, reliability, timeline of supply chain mechanism. Since most of the agricultural commodities are perishable in nature. An improved supply chain mechanism due to GST would reduce the time taken for inter-state transportation. And would ensure reduction in wastage and cost for the farmers/ retailers.
  9. GST system seeks to replace multiple taxes and tariffs and has set free the decisions on warehousing and distribution from tax  considerations. Under GST, the logistics and transportation will more cost and time efficient, thereby curtailing the wastage of precious food as well.
  10. Moreover, with the ease of availing tax credit under GST regime. And its expected to boost interstate trade leading to achieving the objectives of National Agricultural Market. Both CGST and SGST will levy on import of goods and services into the country.
  11. Exports, however, will zero-rate, meaning exporters of goods and services need not pay GST on their exports.
  12. About its implications on agricultural sector, it could conclude that though the overall tax burden on consumers will less in new tax regime. Thus certainly it would have inflationary pressure on the food articles especially processed one. This may lead to restoring the consumption towards fresh farm products.
  13. The implementation of GST is going to benefit a lot, the farmers/ distributors in the long run as there will a single unified national agriculture market which will help them to sell their produce for the best available prices.

GST and agriculture:

Through a comprehensive and wider coverage of input and service taxes setoff. By subsuming of several Central and State taxes in the GST and phasing out of CST.

However its also expected that the GST could increase the prices of agricultural produce. Which is between 0.61 and 1.18 per cent and this would a boon to millions of farmers in India. (Thirteenth Finance Commission, 2009).


To conclude, though the positive impacts referred above are dependent on a neutral and rational design of the GST. Thus, also includes balancing the conflicting interests of various stakeholders. Later, full political commitment for a fundamental tax reform with a constitutional amendment. Thus switch-over to a ‘flawless’ GST would be a big leap in the indirect taxation system. And also give a new impetus to India’s economic change.

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Renuka is a Final Year LL.B. student at Siddharth College of Law. She has done her Bachelors in Banking & Insurance and has also completed her Masters in Business Management . She likes to participate in legal workshops and Moot Courts. Besides her interest in law, she has a keen aptitude for legal research and is good at putting her analysis into words.

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