GST Impact on Agricultural Sector

GST Impact on Agricultural Sector

Role of Agricultural Sector in Indian Economy

Basically GST Impact on Agricultural Sector will be Neither good nor Bad in current scenario. The agricultural sector is the largest contributing sector the overall Indian GDP.

In this Sector comes around 16% of Indian GDP. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled people to live in cities.

In the current scenario agricultural sector goes down and looking for government  subsidy. The implementation of GST would have an impact on many sections of the society as well as agriculture sector also.

GST may provide India with its first National Market for the agricultural products. There are number of clarifications which need to be provided for rates for agricultural products.


There were certain food items like flour, salt, wheat, rice, sugar which totally exempted from CENVAT. there was certain exemptions available from state VAT for certain unprocessed food products like meat, eggs, fruits, vegetables etc.

Under the state VAT, cereals and grains were taxed at the rate of 4%. Agricultural products go through a lot of licensing and a number of indirect taxes(VAT, excise duty, service tax) under the previous tax laws.


GST is mandatory to improve the reliability, transparency, timeline of supply chain mechanism. A healthy supply chain mechanism would ensure a 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.

Fertilizers an important part of agriculture was previously charged tax rate at 6% (1% Excise + 5% VAT). In the GST system, the tax on fertilizers has been increased up 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

The price of tea might also increase due to the tax rate of 5% under GST rate from the previous average VAT rate of 4-5% with Assam and West Bengal with the rate of 0.5 and 1%.

Previously, only 2% VAT is charged on milk and certain milk products but under GST the rate of fresh milk is Fully Exempted and skimmed milk is kept under rate of 5% bracket and condensed milk is going to be taxed at the rate of 18%.

GOODS Tax RATE Under GST Impect of GST
Fertilizers 12% Farming costs will increase
Pesticides 18% Farming costs will increase
Tractors 12% Tractor and its equipment will become
Rubber 28% If the tires are expensive, the tractor trolley prices will be affected, the goods will become expensive
Plastic Pipes 28% Plastic pipes to be expensive by irrigation, tube-well construction costly


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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