India’s food security begins not in the supermarket but in the soil, in the hands of millions of farmers who feed the nation. Yet, eight years after the Goods and Services Tax (GST) was rolled out as a unifying reform, agriculture, the backbone of our economy, continues to carry an uneven burden. Farmers do not pay GST on the produce they sell, but almost everything they rely on to grow, store and process that produce is taxed.
This leads to a silent erosion of farm incomes, distortions in supply chains and higher costs for every household’s food bill. This contradiction is significant. It undermines the very principle on which GST was built: neutrality of taxation. A tax intended to be non-distorting has ended up distorting agriculture, the most vital sector of all. As policymakers gather to review GST rates, it is time for a bold rethink. If GST is to unify India’s markets, it must first support India’s farmers.
The Tax That Enters Farm Gate but Can’t Exit
While farmers do not pay GST on their output, the list of what they pay on inputs is extensive. Seeds are exempt, fertilizers and basic tools have a 5% GST, tractors and pumps are taxed at 12% and pesticides, essential for crop protection, face an 18% tax. These costs are not minor; they are recurring and unavoidable expenses. For smallholders, who make up most of India’s farmers, these costs cannot be offset through input tax credit since their output is exempt.
This effectively halts the GST system, which should flow through the value chain, at the farm gate. The farmer bears the full tax on every input without relief. Over time, this leads to lower margins, less affordability for modern farming equipment and disincentives for mechanisation. It also makes Indian produce less competitive internationally because inefficiencies at the farm gate affect export pricing.
Zero-rate GST on essential farm inputs like fertilizers, pesticides, irrigation systems, implements and machinery would restore fairness and promote modernisation. It would not cause uncontrolled revenue loss if limited to items directly used in farming. Instead, it would lower food production costs, relieve inflationary pressures and enable farmers to invest resources in improving productivity sustainably.
Wasted Harvest, Hidden Costs
India’s biggest challenge in agriculture is not just low productivity; it is high wastage. Post-harvest losses are estimated at nearly 20% of total output, mainly due to inadequate storage and poor infrastructure. For a country where food inflation frequently influences monetary policy decisions, such losses are unacceptable. Scientific warehousing has the potential to change this situation. The Warehousing Development and Regulatory Authority (WDRA) has established a framework for registered warehouses that issue negotiable receipts, allowing farmers to store produce securely and access bank financing.
This is a reform worth expanding. However, under the GST regime, warehousing is treated like any other service. Services such as fumigation, grading, cold storage and testing are taxable, and in many cases, the credits cannot be passed along the chain. The result is counterproductive: a sector that India urgently needs to grow is burdened by an additional tax. Exempting WDRA-certified warehousing from GST is crucial. It would immediately improve the economics of storage, encourage much-needed private investment and reduce the wastage that decreases both farmer incomes and national food security. By making scientific warehousing more feasible, GST reform could do more to cut crop losses than any other measure or subsidy.
Storage is about preservation, but processing is about progress. Here, too, GST has mostly acted as a barrier rather than an enabler. India processes only about 10–12% of its agricultural output, compared to over 40% in Southeast Asia. This gap isn’t just about capacity; taxation plays a role as well. Most processed food items face a GST of 12–18%, making it tough for small and medium rural processors to compete. Processing is often seen as a luxury, but it is a vital tool for food security.
Why Reform Cannot Wait
The need for reform is not just moral; it is economic. Food inflation, farm distress and crop wastage impose costs on the economy that far exceed any potential revenue from taxing farm inputs and services. Whenever food inflation triggers monetary tightening, the broader economy suffers. When farmers hold back on investments because inputs are too costly, long-term productivity declines. When crops rot due to lack of storage, India’s food security weakens. The GST Council is already reviewing the slab structure, with the possibility of merging rates and simplifying categories. This presents an excellent opportunity to address agriculture specifically. Simplification should not ignore specific realities. It should recognise that agriculture, as both a state subject and a national priority, deserves its own tailored treatment.
Agriculture uniquely lies at the intersection of economics, society and politics, making GST reform a crucial investment in stability, resilience and fairness. Instead of a concession, it’s a strategic move to modernise the sector. Measures like a “zero GST basket” for farm inputs, complete exemptions for WDRA-certified warehousing and rationalised processing taxes are essential. Extending input tax credit to farmer collectives and cooperatives can empower smallholders, strengthen supply chains and enhance competitive exports. As India revises GST beyond mere simplification, it must show that agriculture will no longer bear a skewed tax burden, combining market unification with a commitment to securing food, empowering farmers and addressing climate uncertainties.
A tax system that penalises farmers for producing, storing and processing food is no longer acceptable. GST must be reconsidered as a tool for agricultural growth, not an obstacle. Zero GST on essential farm inputs, exemptions for WDRA-certified warehousing and streamlined processing taxes are not benefits; they are national priorities.
The GST Council’s upcoming review offers a unique chance to align policies with reality. More than just tax efficiency, it affects the resilience of Indian agriculture, food affordability and rural prosperity. The reform should go beyond rate adjustments. It must prioritise farmers. Only then will GST fulfill its role as a unifying force, and only then can India truly benefit from reform while protecting itself from global geopolitical issues.
The author is with ICAR-National Institute of Agricultural Economics & Policy Research (NIAP), Ministry of Agriculture & Farmers Welfare
