Budget 2020: The government has outlined its intention to make India a $5 trillion sized-economy and for achieving this target, growth of agriculture sector is of utmost importance. Despite having a central role in India's economy, the poor state of agriculture in India is a point of concern for everyone.
Agriculture remains a significant contributor to the national GDP and the main employment provider for most developing economies but one problem which is common to almost all developing economies is the high level of agriculture wastage; a bulk of which takes place post-harvest at the storage and transportation stage.
There is a need for innovation in the agriculture sector and those innovations would be incomplete without incorporating the warehousing sector and agri finance. Steps like Inclusion of agri warehousing under priority sector lending, subsidy schemes, tax sops and the Warehousing Act have gone a long way in promoting the agriculture sector.
By incentivising private investments in warehousing and by introducing Private Entrepreneur Guarantee (PEG) Scheme, the government has ensured the growth of this sector but despite these initiatives, Indian Agri warehousing companies are fraught with challenges which range from the sourcing of funds to location specific challenges and policy shortcomings.
The government should pay attention to some of the prevalent anomalies enlisted below which are hampering the growth of the sector:
Rationalisation of indirect taxes on warehousing sector
One of the long outstanding demands of the agri warehousing industry has been the rationalisation of indirect taxes. When an organised player operating in the agri logistics and warehousing sector segment goes out to give agri-input services against a crop, it hires warehouses on lease and implements technology on it.
The leases of these warehouses are treated as a commercial lease and it has an 18% GST implication. On the contrary output services are devoid of any GST. So the 18% GST actually becomes a cost on the agri warehousing companies' balance sheet and which increases the overall costing. Under these circumstances, the operator is left with no other option but passing the fiscal burden to its customers.
This often leads to loss of business for the organised sector as the customers move to unorganised players who often do not charge them the GST. So one of the outstanding demands for the successive last three budgets has been that such leases should also be extended to commercial places which are actually used as agri-input place.
Agricultural finance is a subset of rural finance dedicated to financing agricultural-related activities such as input supply, production, distribution, wholesale, processing and marketing. The modern agriculture has increased the use of inputs especially for seed, fertilizers, irrigational water, machinery and equipment, which has increased the demand for agricultural credit.
Finance in agriculture acts as a key to farmers. But a farmer's money is always inadequate and he needs outside finance or credit. Because of inadequate financial resources and absence of timely credit facilities at reasonable rates, many of the farmers, are unable to go in for improved seeds and manures or introduce better methods or techniques.
In the given situation, the role of agricultural NBFCs becomes extremely important. By bringing farmers to the financial system these NBFCs (Non-Banking Financial Company) accelerate the process of financial inclusion in the country. We have seen in successive budgets that the government has made cheaper credit pools available to institutions such as NABARD who have further gone ahead and given those financing activities to agri-processing and agri-infrastructure but we have not such seen such cheaper pool of credit available to agri-NBFCs.
Agri-NBFCs play an important role in providing access to finance for small farmers and therefore if cheaper credit is made available to the agri-NBFCs just like the way it is given to NABARD. If that is done it is going to go a long way in doubling farmer income and also in facilitating an environment of inclusive agri-growth. Also if the government starts offering standard operating procedure (SOPs) to the agri-NBFC sector, it will go a long way in helping the sector to flourish and will also help in fulfilling the government's vision of doubling farmers' income.
Initiatives like e-NAM
Initiatives like e-NAM which talks about one mandi or one environment and one agri credit market as well as one output market are good initiatives but they need to be backed by good physical infrastructure. Agri companies which can provide end to end physical gambit of the agri-value chain should be encouraged for participating in this initiative.
The need of the hour is long-range agricultural policy and programmes which could remove the bottlenecks for agri-warehousing and facilitate easy credit for farmers. India has a huge untapped agri-warehousing potential and private sector agri-warehousing companies play a big role in bridging the gap in demand and supply of storage facilities.
As food habits are evolving the need for efficient warehousing and supply chain solutions for maintaining the changing demand and supply dynamics is at an all-time high. By developing innovative, scientific and efficient warehousing practices India can become a leader in innovative and scientific agri value chain solutions.
The same holds true for agri credit which is an important contributor to the agricultural production and if it reaches the farmers in a right way at the right time, the increase in agricultural production and the increased share of agricultural produce in the GDP can be well achieved.
(The author is CEO, SLCM Group)