Agri Machinery Manufacturers Hail GST
The dust has finally settled down on the GST brouhaha in India and the reactions have been mixed. The initial fears of consumers that there was to be an enormous increase in prices has been abated and even in the case of restaurant goers, the slight increase in taxes has not really been of great impact.
In the case of agriculture in general and farm mechanisation in particular, there were a number of causes for worry, mainly focused on the rate of GST to be levied. Based on intense representation from industry bodies, the Finance Minister and the GST council announced a last minute reduction of GST rates on tractor components and parts from 28 % to 18 %. The 28 % rate slab would have resulted in tractor prices going up and also adversely impacting tractor owning farmers who had been incurring only 17 % under the pre GST tax structure for components used for repair and maintenance of their tractors.
The tractor industry is grateful to the Minister and the GST council for acceding to their representations as otherwise, prices of tractors could have gone up by close to Rs. 35,000. Even now, as the industry awaits the detailed notifications, it is hoped that all exclusive tractor components would be covered in the 18 % slab. Further, the operational costs on the approximately 60,00,000 tractors in the country would have also increased significantly. Both these would have in turn affected the already fragile small farm sustainability. It is our belief that the impact on small farmers and the industry representations had a great deal of influence on the decision to reduce GST on components to 18 %.
Coming to the impact of GST on farm mechanisation, as manufacturers, we do not see any great impact on the manufacture and sale of tractors. However, in the case of implements and accessories, the small-scale industries who dominate this sector may find the going tough.
With GST defining “supply” as taxable, many of these manufacturers who were operating on an informal manner will now be included under the ambit of GST and it is possible that prices of basic implements may rise. The medium and large manufacturers may not be affected much by GST, subject, of course, to the understanding that the 18 % GST is applicable on components of such implements/farm machinery. Apart from tractors and implements, farmers need to procure accessories such as hitches, pto pulleys and loaders for use with tractors. As of now, it is not clear how GST will impact these products.
Custom hiring, which is increasing in popularity, may now be impacted due to GST, given that consequent to bank accounts being linked to Aadhar and also to PAN cards. In any case, a custom hiring hub will now be under the GST net and so hire charges may be impacted. However, one area that would greatly help this custom hiring sector is issuance of some form of a green permit by which high investment equipment such as combine harvesters or sugar cane harvesters could move easily across state boundaries and because of freer availability of services, offer customers a reduction in hire charges.
Most tractor manufacturers are located in the southern, northern or western parts of the country and finished goods have to be transported over long distances. Logistics cost is therefore an added burden that the customer bears. After GST, logistics delays in the case of tractors should reduce as check posts are removed, facilitating faster movement of goods and hence greater utilization of resources resulting in better returns for logistics providers, thereby allowing market forces to act on logistics costs and bring them down. This will also reduce final cost to customers.
In the final analysis, GST, as we know it, has had no or little impact on farm mechanisation and in the long run is expected to reduce input costs marginally.
(The author is the Chief Operating Officer (Products), Tractors and Farm equipment limited (TAFE). Views expressed are personal.)