Impact of GST on agricultural sector
Authors: Palve Gajanand1, Ashokkumar2 and D.Karthik3
1,2, Ph.D. Scholars Division of Agricultural extension, National Dairy Research Institute (N.D.R.I), Karnal, Haryana,
3, Ph.D. Scholar Division of Agricultural extension,SRS, National Dairy Research Institute, (N.D.R.I) Adugodi, Bengaluru.
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GST is essential to improve the transparency, reliability, timeline of supply chain mechanism. A better supply chain mechanism would ensure the reduction in wastage and cost for the farmers/retailers. GST would also help in reducing the cost of heavy machinery required for producing agricultural commodities. Under the model GST law, dairy farming, poultry farming, and stock breeding are kept out of the definition of agriculture. Therefore these will be taxable under the GST.

The impact of GST on agricultural sector is foreseen to be positive. The agricultural sector is the largest contributing sector the overall Indian GDP. It covers around 16% of Indian GDP. The implementation of GST would have an impact on many sections of the society. One of the major issues faced by the agricultural sector is the transportation of agriculture products across state lines all over India. It is highly probable that GST shall resolve the issue of transportation. GST may provide India with its first National Market for the agricultural goods. There are a lot of clarifications which need to be provided for rates for agricultural products. Special reduced rates should be declared for items like tea, coffee, milk under the GST.


The impact of GST on the agricultural front, the biggest contributor (16%) to India’s GDP seems to be more or less brighter. The transportation, logistics, and preservation are the significant value additions for agricultural produces. The time factor of production centre to the consumer is cut down.

The impact on the food industry will affect people living in all sections of the society. However, taxing the food could hold more impact on the poor. But, the exception of food can shrink the tax base as well. As we know that Agriculture is the root of the Indian economy and government has always kept it as its top priority. Food includes various different items such as poultry, grains, cereals, dairy products and milk, confectionary, snacks, candy, etc. In India, many of the food items have been exempted from the CENVAT, while cereals and food grains are liable for the state VAT of 4 percent.

It is expected that after the implementation of the GST, the prices of the agricultural products and services will rise but the products will be able to reach places via trucks in a better way. The implementation of GST will also favour the National Agricultural Market on merging all the different taxations on agricultural products. The ease of transportation of the agricultural good will improve the marketing and improve the virtual market growth.

Most of raw agri-commodities including rice, wheat, milk, fresh fruits and vegetables, etc, are in the zero-tax slab and rightly so as they are consumed by masses.

Fertilisers an important element of agriculture was previously taxed at 6% (1% Excise + 5% VAT). In the GST regime, the tax on fertilisers has been increased to 12%. The same impact is on Tractors. Wavier on the manufacture of Tractors is removed and GST of 12% has been imposed. This is beneficial as now the manufacturers will be able to claim Input Tax Credit.

India’s milk production in 2015-16 was 160.35 million ton, increased from 146.31mt in 2014-15.Currently, only 2% VAT is charged on milk and certain milk products but under GST the rate of fresh milk is NIL and skimmed milk is kept under 5% bracket and condensed milk is going to be taxed at the rate of 18%. Tea is probably one of the most crucial items in an Indian household. The price of tea might also increase due to the tax rate of 5% under GST rate from the current average VAT rate of 4-5% with Assam and West Bengal with the exception of 0.5 and 1%.

The proposed GST regime differentiates Crop Protection from seeds, fertilisers, farm equipment, etc. Seeds (exempt), fertilisers (12%), tractors (12%), crop protection products remain taxable at 18%, depriving the industry of equal treatment vis-à-vis other agricultural inputs.

As the farm sector will remain largely exempt from GST, any input taxes suffered on inputs used in the farm sector such as seeds, fertilisers, pesticides, tractors etc, will remain blocked and contribute to increase in prices of farm output. Farm output prices are controlled by market forces and the farmer has little control. As the input price rises and output price remains stagnant, the farmer will have no option but to absorb the cost, thus increasing his burden. Indian farmer is already reeling under tremendous pressure from many ends and the increased burden of taxes will create a crater in his income. If somehow, the output prices increase, the nation will suffer as the food prices will go up, thus creating trouble for the common man. The way out will be that GST rate for crop protection products is reduced from 18% to the lowest slab possible. This will ensure parity across all agricultural inputs and reduce encumbrance on farmers.


An increase in the cost of few agricultural products is anticipated due to the rise in inflation index for a brief period. Though, 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. GST would ensure that farmers in India who contribute the most to GDP, will be able to sell their produce for the best available price.

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