Indian agriculture has suffered from lack of value addition and organised processing of raw produce enabling better integration from farm to fork. A major reason has been the multiplicity of taxes and state-level duties, cesses and surcharges. The latter levies have, thankfully, been subsumed under the unified Goods and Services Tax (GST) system since July 2017. That process has received a further fillip with the latest GST rate rationalisation exercise. Virtually every agricultural and processed food item will now attract either zero or 5 per cent duty. That includes ice cream, chocolates, biscuits, cookies, cakes, pastries, sugar confectioneries and corn flakes. These were all being taxed at 18 per cent in the mistaken belief that they are consumed by the better-off. The truth is, ice cream is a dairy product containing around 21 per cent milk solids. That’s more than the 15 per cent in full-cream milk. The primary ingredient in bakery products and cereal flakes is, likewise, wheat and maize grown by farmers.
However, rationalisation isn’t simply about lowering rates. The GST Council needs to also be lauded for doing away with the multiple duties on like or similarly-derived items. A good example is skimmed milk powder and butter fat. While both are directly processed from milk, the former attracted 5 per cent GST and the latter (including butter and ghee) 12 per cent. Furthermore, vegetable fats were taxed at 5 per cent, adding to the temptation to adulterate desi ghee with cheaper palm or hydrogenated oils. A uniform 5 per cent GST on all processed dairy products and nil on milk itself makes things simple. The same goes for removing distinctions between loose salted, savoury-flavoured and caramelised popcorn; all will henceforth be taxed at 5 per cent. Previously, chapati, roti and khakhra were leviable to 5 per cent GST, whereas it was 18 per cent on parathas. But now, all Indian breads — and also pizza bread — will see nil rates, thereby ending the scope for classification disputes and bureaucratic discretion.
But tax rate reductions and simplification — GST has also been cut to a uniform 5 per cent for tractors, harvesters, threshers and drip irrigation systems — is only one part. Equally important is the unfinished task of reforming Indian agriculture — specifically the dismantling of barriers to marketing, movement and stocking of farm produce. The Narendra Modi government had attempted these reforms through its three farm laws, only to repeal them under political pressure and subsequently violate their spirit by imposing export bans and stocking limits on wheat, rice, sugar and pulses. That stalled reform agenda needs re-energising. Agriculture is too important to be given a cavalier, do-nothing approach. The GST Council’s reform should be the start of something much bigger.
