Budget 2021: GST waiver, level-playing field; what agri sector expects from FM Nirmala Sitharaman?

Agriculture is the primary source of livelihood for about 60% of the country's population and Agri warehousing as well as Agri financing are an integral part of the Agri value chain.

The Agri warehousing and Agri-NBFC sectors have a lot of expectations from the upcoming budget as the growth of these two sectors is essential for the growth of agriculture in the country. The government has outlined its intention to make India a $5 trillion sized- economy and for achieving this target, the growth of the agriculture sector is of utmost importance, and Agri warehousing and Agri-NBFC sectors are hoping that the upcoming budget would give impetus by addressing the key issues of these two sectors.

Budget 2021

Here is the Budget wish list for the Agri warehousing and Agri NBFC sectors:

Wishlist for warehousing 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 attracts an 18% GST implication. On the contrary, output services are devoid of any GST. So, the 18% GST actually becomes a cost on the balance sheet of the warehouse company and increases its costing and the warehousing company is left with no other option but to pass that extra cost on to its customers.

This often leads to loss of business for the organised sector as customers move on to the unorganised players who often do not charge GST.

Thus, GST for such commercial leasing should be exempt as collateral management companies cannot get input credit for the GST they pay on rent because the commodities in which they deal are agri commodities, which do not attract GST. The waiver of 18% GST will motivate farmers to store their produce and prevent distress sales.

Availability of cheaper insurance to the warehousing sector. Off late, from last 3 years, the insurance premium to warehousing companies has jumped tremendously, thereby increasing the cost of storage, which inadvertently gets passed on to the consumer.

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Similarly, guidelines to be set up in the insurance industry governing finite timelines under which claims should be decided.

Wishlist for Agri-NBFC sector:

The government needs to pay attention to some of the prevalent anomalies enlisted below, that are hampering the growth of the sector:

• Despite the key role played by agriculture-focused NBFCs in transforming the agriculture sector in India, these firms are forced to offer higher-priced loans in comparison to banks.
• These NBFCs are also not eligible to seek protection of the Credit Guarantee Fund (GSF) set up under the Small Farmers' Agribusiness Consortium (SFAC) to provide comfort to lenders reaching out to FPOs.

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• For the upcoming budget, we have a small set of recommendations which, if implemented, will give the NBFC sector the much-needed fillip and will go a long way in making the sector more competitive.
• This calls for policy reforms to enable agricultural NBFCs to access low-cost capital to extend farm credit at competitive rates.
• Cheaper credit should be made available to the Agri-NBFC's just like the way it is given to NABARD.

Fast-track courts for agri cases as loan defaulters in such cases make agri credit even tougher as the recourses to NBFCs are normal court proceedings, which are a long-overdrawn battle leading to write-offs as per RBI rules and subsequently hurt the lending business as these write-offs hurt credit ratings and liability lines.

(The author is CEO, SLCM GROUP.)