Virtual Dialogue on Goods and Services Tax Bill

Cross-posted from India Food Security Portal written by Jaspreet Aulakh

Onions. Source: Flickr, Bindaas Madhavi

The International Food Policy Research Institute held a virtual dialogue on the impact of the Goods and Services Tax (GST) on trade and agriculture in India on November 30.  The implementation of the GST is expected to significantly boost trade inside India (this topic has been previously discussed in a blog on the India Food Security Portal). The GST will eliminate the current multitude of taxes, duties, and surcharges that exist between states, thereby effectively creating a common Indian market. However, the taxes that will be imposed on the movement of goods are not clear. Experts that participated in the dialogue included the following:

  • Purushotham, Adjunct Professor, CESS
  • CA Sachin Sinha, Partner, Prakash Sachin & Co.
  • Amit Pujara, Assistant VP, NCDEX
  • Rahul Ganatra, NCDEX
  • PK Joshi, Director, IFPRI-South Asia
  • Devesh Roy, Research Fellow, IFPRI

A summary of the key questions that were discussed in the virtual dialogue are as follows and all of the comments for each question are available on the forum as well as a full summary.

How will the GST impact the production of and trade in agricultural commodities? How will the GST impact agricultural producers? 

The GST is expected to create a more seamless movement of agriculture produce between states and is expected that primary markets can respond quickly to the market signals avoiding local shortages and avoiding transportation costs of up to 3-5 percent depending upon the region and commodity. There is also the idea that this will help favor the e-National Agricultural Market (e-NAM) given that taxation on agricultural products will be simplified.  The e-NAM will help in avoiding mandi fees and taxes and link farmers with buyers and improving market efficiency, hence benefiting both farmers and buyers. Both the GST and the e-NAM have a common goal to create an integrated national commodities market with a uniform tax structure for uniform market fees across the nation.

The press release by the GST Council on November 3, 2016 noted that the GST will be levied at multiple rates ranging from 0 percent, 5, 12, 18 to 28 percent with food grains exempted from the tax. The lowest taxes will go to several food items such as meat products, milk and dairy, and other processed foods. Purchase taxes, market fees (mandi taxes), and infrastructure development taxes will be incorporated into GST. It is expected that better compliance will help in widening the tax base and hence lowering the tax burden on average dealer in agriculture trade.

Participants agreed that market competitiveness will be improved, helping export markets. It is expected that uniformity across states and the nation will help in compliance and the new GST tax structure, and is expected to help protect the interest of small traders and hence attract more traders, boosting competition.

The impacts on production are unclear as it might dis-incentivize the farming community.  The reduction in the number of tax-exempt products from 300 to 90 under GST may include some farm inputs that currently have tax exemptions and concessions; that might be increase in their price and hence impact the net income of the farming community. Seeds will continue to be exempted and IFPRI South Asia

How can farmers and agribusiness prepare for the new tax regime? 

Multiple participants in the dialogue noted that the GST may help facilitate and significantly increase the trade of goods and services within India. Bihar is the only state without the Agricultural Produce Marketing Committee (APMC) Act and has also welcomed the ratification of GST saying it will increase country-wide trade and state tax revenues since it has no organized market sector. The multiple layers of taxes with the supply chain will be clubbed into a single tax. The movement of goods and services will at ease across the states. For example, successful GST implementation is expected to eliminate the queues of trucks waiting at state boundaries. Indian businesses are generally supportive of the GST as it is expected to simplify their value chains.

Every supply chain will be affected by the new tax regime meaning that farmers will also be affected.  However, the effect is not clear yet since the laws in the act exempt agriculturalists but the allied services might be affected and hence can impact agriculture. To best understand the system, farmers need to understand the documentation, system compliance, and use of information technology along with the digital transactions. There can be some resistance due to initial new system adjustments.

The implementation of the GST along with demonetization may require farmers to increasingly use banking channels and appropriate banking policies may be required to waive feeds and help low-income farmers access the banks.

Which agricultural commodities should be labelled as ‘necessity commodities’ which fall under lower tax brackets? 

There is significant debate across the political spectrum at what standard rate the GST should be set and which items to include and exclude. The opposition parties are advocating for a rate below the generally proposed 18 percent while some States are proposing to set it at 20 percent to ensure adequate revenue collection. A report for the government on how to ensure neutral revenue rates after GST implementation recommends a standard GST rate of 17- 19 percent for most goods and services, a 12 percent rate for some goods (including most agricultural goods) and a 40 percent rate for luxury goods.

The central government has clarified that all food grains and food commodities that go into the common food basket will be exempted from the tax and a few items will be taxed at the 5% percent level. It is not yet clear which items will be taxed and how that may affect nutrition.

How will an increase in agricultural trade in India support improvements in food security? 

The implementation of the GST is expected to significantly boost trade within India. As discussed above, the GST will eliminate the current multitude of taxes, duties, and surcharges that exist between states, thereby effectively creating a common Indian market. However, the taxes that will be imposed on the movement of goods are not clear. For instance, if goods move from producing states to consuming states, it is unclear which state will receive the tax benefits and how those benefits will be structured. However, ‘producing’ states are likely to experience a decrease in total tax revenues, and ‘consuming’ States an increase in total tax revenues, due to changes to where goods are taxed. It is hoped that the taxation of services by states will allow them to mitigate the expected shortfall in tax revenues.

The Central and State governments have joined hands to register for the new Goods and Services Tax Network (GSTN), a non-profit, non-governmental organization that will provide shared technological infrastructure. The key objectives of the GSTN are to provide a standard and uniform electronic interface to provide shared information technology infrastructure for all state government agencies.

It is expected that market signals will be clearer and food grains and other food commodities can move from surplus zones to deficit zones. This may help more traders participate and increase competition in the markets to respond to local food shortages. The GST system will help incorporate more accurate information on agricultural and food stock levels nationally and regionally, assisting with food security decisions. Perishables can move faster and cheaper due to less checks, paper work and taxes during transport.

The main concern in the application of GST to food is the impact it would have on those living at or below subsistence levels. It was noted that in the rural sector, the predominant distribution channel for unprocessed food would be either a direct sale by the farmer to final consumers or through small distributors and retailers. Even where food is within the scope of the GST, such sales would largely remain exempt because of the small business registration threshold. Further, the output of agricultural sector is mostly exempt from tax, and inputs in agricultural sector like power and fertilizer are heavily subsidized and will continue to be subsidized.

In effect, this means that ‘producing’ states are likely to experience a decrease in total tax revenues, and ‘consuming’ states an increase in total tax revenues, due to changes to where goods are taxed. However, it is hoped that the taxation of services by states will allow these states to mitigate the expected shortfall in tax revenues. Thus, the shorter-term and longer-term impacts of GST will be discovered in the near future. With the rollout planned to be next year on April 1, the important decisions rest on the shoulders of the GST council, regarding the GST rates. The capping of the GST at rate of 18 percent will not be favorable as it might lead to revenue deficits in some states.

A full summary is available here.




International Trade and Food Security: The Future of Indian Agriculture

Flickr, Michael Foley
Flickr, Michael Foley

Cross-posted from the FSP India website written by Bas Paris

As India undergoes rapid demographic, economic, and social changes, it is essential for policymakers and development practitioners to gain a deeper understanding of the current and future trends in the agricultural sector, upon which most Indians directly depend for their livelihoods. International Trade and Food Security: The Future of Indian Agriculture, edited by Floor Brouwer and P.K. Joshi, explores the future of Indian agriculture, specifically the expected structural changes in­ India's agrifood systems over the next ten to twenty years.

Chapter 2 covers the evolution of India’s agricultural and trade policies and highlights key challenges for the agricultural sector and opportunities to overcome the barriers to higher growth. Despite increased liberalization of the entire economy in recent decades and specific growth in the agricultural export sectors, India’s agricultural trade policies continue to be driven mainly by food security concerns. The chapter makes a number of important recommendations, broadly arguing that public investments in irrigation, infrastructure, research, and extension services are key to improving the country’s agricultural sector.

Chapters 3 and 9 examine the nutritional security and income distribution effects of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Chapter 3 finds that MGNREGA has contributed to increasing household food consumption, poverty reduction, dietary diversification, and food and nutritional security for poor rural households. Through an examination of the income distribution effects of MGNREGA, however, Chapter 9 finds that poorer households generally do not benefit from MGNREGA and that the program is likely to have a negative impact on the agricultural sector in the long term.

Chapter 4 makes projections for the demand and supply of key food commodities in India by 2020 and 2030. The chapter shows that based on current supply and demand trends, India will continue to meet the demand for wheat through domestic production by 2030. However, In the case of rice, the author estimates that the country may reach an annual deficit of 3-5 million tons per year. India is also likely to face a supply-demand gap for pulses, oilseeds, meats, fruits, and vegetables. The chapter argues that improvements in agricultural productivity will help mitigate these domestic shortages.

Chapter 5 argues that India is currently inadequately integrated with world trade but that trade agreements will assume considerable significance in coming decades. Broadly, the chapter predicts that agri-processing will grow and India will become a net exporter of industrial commodities, but that the country’s agricultural imports will also increase significantly. The author also presents economic scenarios under a bilateral Free Trade Agreement (FTA) with the EU and a multilateral trade agreement in the context of the World Trade Organization (WTO). The study finds that trade agreements in general are good for food security in India and are likely to benefit the poor.

Chapter 6 compares the impact of economic growth and income distribution in urban and rural areas, finding that India’s recent high growth rates have been concentrated in the industrial and service sectors. This has mainly benefitted high-income population groups in urban areas, rather than rural populations. The study estimates that the real income of rural households of the lowest 70 percent of income categories will decrease in coming years under a business-as-usual scenario and argues for supplementary socio-economic measures that benefit the rural poor.

Chapter 7 investigates India’s food safety and quality standards, highlighting that food safety concerns are on the rise and that the 2014 implementation of the Food Safety and Standards Act is likely to have profound effects on the Indian food sector. In the long run, the enforcement of food safety standards will benefit domestic consumers. Additionally, these standards are important to sustain and increase agricultural exports as they are crucial determinants of trade with high-income countries, as well as increasingly so for other developing countries.

Chapter 10 analyses the impact of global price spikes on India’s agricultural price policy. The study finds that through its Minimum Support Price (MSP) scheme and Public Distribution System (PDS), India successfully shielded its domestic market from the global food price spikes and volatility seen in 2007–2008 and 2011. However, these policies did not succeed in preventing price increases over the long run. On the other hand, due to India’s ban on exports, farmers could not profit from the higher global prices; this led them to lobby successfully for a higher MSP.

Chapter 11 examines the international trade implications of India’s biofuel commitments, as well as of biofuel policies in other parts of the world, and finds that external biofuel policies will not reduce poverty in India. While the urban poor will face higher food prices due to these policies, the effect for the rural poor will be dampened because they would benefit from increased agricultural wages. The overall welfare effects of the implementation of India’s national biofuel commitment are found to be negative.

Chapter 12 compares the importance of input subsidies and farm technology for agricultural development. The study observes that investments in irrigation, rural literacy, capacity building, research, and agricultural extension are crucial to increasing agricultural supply. Input subsidies have a positive effect on input use, crop supply, and farm income, while technology improvements have a positive and strong influence on commodity supply and a substantial negative effect on farmers’ incomes. The chapter emphasizes that the input subsidy for farmers and the price subsidy for consumers will not be feasible in the long run, as they demand an increasing share of public resources.

According to Chapter 13, India is the world’s largest producer of milk. In addition, livestock provides a source of income and employment for a large number of rural households (70 million in 2002). However, the chapter argues that livestock productivity remains low compared to other major dairy-producing countries. Thus, increasing dairy productivity can act as an engine of pro-poor growth in India. Similarly, c=Chapter 8 analyses India’s price competitiveness in poultry products with Brazil, the USA, Germany, France, and the Netherlands. The study finds that India has a clear comparative advantage in the case of egg exports but not poultry meat and argues that the removal of India’s poultry tariffs would be disastrous for the domestic poultry industry.

Chapter 14 focuses on modern retail in India and analyses whether the growth in supermarkets is associated with greater demand for specific product features, such as food safety standards. The study finds that the demand for such features remains low. However, a small market segment is interested in such attributes and looks for imported products to satisfy its demand.

In Chapter 15, the editors present the way forward for India’s agricultural sector, including policies for changing business-as-usual scenarios focusing on measures for accelerating agricultural growth, reducing poverty, reforming policies for developing markets, and promoting agricultural trade.  Recommendations proposed in this conclusion include increasing public investments, rationalizing subsidies, developing and enforcing food safety standards, expanding the export of high-value commodities, and balancing price support mechanisms.

Options to access the full book can be found here.

Pulses for Sustainable Agriculture & Health

Cross-posted from the FSP India website written by Jaspreet Aulakh
Global demand for pulses is rapidly increasing. As noted in a recent editorial, filling the demand-supply gap will be critical.  For the South Asia region, pulses are traditionally importantPulses food commodities and cheap sources of protein. The region is now experiencing shortages of pulses which is causing an increase in imports.  In an effort to increase consumption of pulses, a number of states have included them in the Public Distribution System and a recent IFPRI discussion paper evaluates the opportunities and constraints for including pulses in the PDS.   Pulses are also emerging as the ‘future food’ in developed and many African countries. The challenge is to increase pulses production efficiently not only to meet the domestic requirement in the region but also supply for new consumers in developed and African countries.

On January 5, 2016, IFPRI held a roundtable discussion on “Enhancing Opportunities for Increasing Production and Consumption of Pulses.” This event highlighted the importance of increasing consumer awareness of the nutritious benefits of pulses, as well as integrating government efforts and filling research gaps to encourage pulse production and consumption. A second dialogue was organized on May 31 and June 1, 2016 and featured representatives from eight different countries, 48 discussions, and 104 poster presentations.

The main themes of this latest workshop touched on major aspects of the pulse sector - Global and Indian Perspective on Pulses; Pulses Production, Consumption and Environmental Services; Pulse Consumption Behaviors; Price Behavior of Pulses; Drivers of Pulses Production; Pulses, Climate Change and Eco-system Services; International Trade in Pulses; Aggregation Models for Pulses; Leveraging Markets to Increase Pulse Production; and Evidence for Market Integration in Pulses; and Value Addition for Pulses through Food Convergent Innovation. An additional session on Farmer Producer Organization for Pulses was attended by farmers from Bihar and Maharastra.

The main theme that emerged from the inaugural session was that focus should be placed improving India’s national pulse sector through the use of technology and increased government support. There is scope for India to become the world’s largest pulse-producing country, but to make this happen, research must identify ways to fit pulses into the country’s current cropping pattern and yield gaps must be addressed so that pulse price volatility can be better managed.

Shenggen Fan, Director General of IFPRI, launched the Global Food Policy Report 2016 at this event. Pulses receive special mention in the report, as they fall under stress-tolerant, environmentally friendly, and nutrient-rich protein options. Pulses also have high payoff potential if improved technologies are used (this is particularly true in the Indian states of Bihar and Odisha) they have high payoff potential with improved technologies.

Dr. Parthasarathy Rao, a former ICRISAT scientist provided an overview of pulse production, consumption, and demand, citing the Global Perspective of Pulses. According to the presentation, pulses account for 5.8 percent of the world’s arable land. In India, they account for 18 percent. Six pulse varieties contribute 80 percent of pulse production globally – drybeans (32 percent), chickpeas (17 percent), drypeas (15 percent), cowpeas (9 percent), and lentils and pigeonpeas combined (6 percent). Pulse production shows a rising trend in Asia and Africa; together, these regions account for about 67 percent of global pulse production. Global demand for pulses for use as both food and feed is also increasing for food and feed; 75 percent of pulses are consumed as food in developing countries, while 35 percent are consumed as food in developed countries. Pulses contribute 13 percent of India’s overall protein intake. In terms of production, Asia has not yet reached self-sufficiency. Canada, Myanmar, the US, Australia, and China account for 75 percent of all global pulse exports, and India is largest pulse-importing country in the world.

Pulse imports to India are mainly from Myanamar, Canada, and Africa. Raj Chandra of IFPRI showed evidence that imported pulses do have a cooling effect on the domestic prices of Indian pulses.  A unitary shock in the imports at first leads to a sustained increase in prices up till 20 weeks, after which price stabilizes. Import needs to be operationalized quickly as it takes some time to have effect on prices. Canada has started branding and promoting pulses via programs focusing on the crops’ nutritional and health benefits. Lack of availability of seed was reason for low production in 2016 due to high world pulse prices.  We can reduce non-renewable input use such as nitrogen phosphate and less water with the help of pulses. It was also pointed out that different pulses have very low elasticity of substitution. There should have pulse brand value instead of generic branding. Nutritional security is important in the long run.



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Must tabs in the BUDGET MENU

Farmer in Field, Bulandshare, Uttar Pradesh, India. Source: Pallavi Rajkhowa, IFPRI (flickr)
Farmer in Field, Bulandshahr, Uttar Pradesh, India. Source: Pallavi Rajkhowa, IFPRI (flickr)

Every year close to the budget dates in February, newspapers and magazines publish industry experts ideas and opinion on what to expect from the Budget and what not to expect from the Budget. This year IFPRI researchers have listed priorities to be included in the upcoming BUDGET 2015.

Dr. Devesh Roy, Research Fellow, IFPRI article in Economic Times on Money Where the Mouth Is puts food safety in the budget priority list. The authors explains the need to expand the budget portfolio towards food safety as it is integral part of food security. The author stresses

  1. Investment is needed in laboratories, information campaigns and certification systems
  2. Credible food certification system needs to be set up
  3. Develop better domestic production standards to facilitate trade and mitigate risks in the international markets

Dr. P K Joshi, Director South Asia, IFPRI article in Financial Express on Sowing Sustainable Agriculture list five priority area on climate smart agriculture. The areas of attention are

  1. Programs that can mitigate climate change risks for the framers especially the smallholder
  2. Need to promote solar energy for irrigation
  3. Micro irrigation in the form of drip and sprinkler irrigation
  4. Soil-test based nutrient management is critical to improve soil  health imbalance
  5. To improve soil and human health areas under pulses cultivation and increasing the production of these crops is necessary





Opportunities to Improve Agri-Food Systems

IGIDR-IFPRI Conference in New Delhi
IGIDR-IFPRI Conference in New Delhi

India has witnessed agricultural growth during the 11th plan of 4.1 percent, record production of food grains, increased private investment in agriculture, and technological advancement. Nevertheless, farmers still face challenges of limited access to markets, climate change, shrinking farm size, yield gaps, and increases in the cost of cultivation, resulting in a decline of farmers’ profitability.

Given this context, the Indira Gandhi Institute for Development Research (IGIDR) and the International Food Policy Research Institute (IFPRI) organized a two-day workshop on  24 and 25 July in New Delhi titled Harnessing Opportunities to Improve Agri-Food Systems in order to discuss the agricultural priorities of the Indian government and develop a road map to realize these priorities for improved agri-food systems.

The event addressed several major issues, among them: macro-level policy, ensuring sustainable food production, improving markets and trade, transforming agriculture, building resilience in agriculture and strengthening institutions and governance to promote healthy food systems. Participants included researchers, donors, think tanks and private sector representatives. The discussions concluded with key suggestions concerning areas of investment and policy implementation:

i. Exploit enormous spatial variations in India’s agri-food system through location-specific cropping pattern/output mix, irrigation expansion, fertilizer subsidy rationalization, market integration, diversification and removal of export barriers.  There is a need for a farmer friendly and enabling policy regime, with common but differentiated policies.

ii. There is a need for scale of production and compliance by encouraging more smallholders to adopt food safety practices. Increase public investment in livestock development; health services, and breed improvement/supply; agriculture, nutrition, and health linkages are needed for more research and policy;

iii. It is important to bring synergies and build interconnections so as not to duplicate efforts. There is a need to explore the role of the private sector in food grain procurement, storage, and distribution with a modern scientific warehousing system. It is necessary to recognize the long-term potential of agri-tourism to address common issues such as illiteracy, health and safety, connectivity and communications, etc;

iv.  Exploiting genetically modified crops in order to raise food production. On the other hand, science-based policy, dialogue and communication, and public awareness are to be strengthened;


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