Low interest loans for custom hiring of farm machinery ...



Low interest loans for custom hiring of farm machinery, VAT & excise waiver for farm co-ops vital to boost farm output: FICCI-Yes Bank study

 

 

NEW DELHI, December 26, 2009. The need for higher agriculture yields and the imperative to grow agriculture at 4% (from the current level of under 2%) to sustain an overall growth of 9% plus over the long term requires acceleration of farm mechanization capacity and broadening its applicability to allied agriculture sectors on an urgent basis. This is because since the beginning of the 90s, significant changes in trends from the agriculture sector have been noticed, including stagnation in yields, changes in consumer preferences, scarcity of labour during peak agriculture seasons, rising cost of production, resource scarcity, and effects of climate change on farming, according to a FICCI-Yes Bank paper.

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The FICCI-Yes Bank paper states that contrary to the popular belief that the benefits of farm mechanisation can be availed by large farmers only, it has been found that small and marginal farmers have been quite open to adopting equipment for tillage, sowing, irrigation, plant protection and threshing etc, the development of which has gained prominence.

 

Unlike other agricultural sectors, farm mechanization sector has a far more complex structural composition and is majorly influenced by the interplay of a diverse set of factors ranging from financial to agricultural and market issues. It has been observed the sector needs considerable attention from the players in terms of research, development and testing of India specific farm machinery and equipment, standardization and quality control, and education, training and popularization.

 

The paper recommends the following policy interventions by the government:

•         Provision of special credit support at lower interest rates to rural individuals, venturing into entrepreneurial use of Farm Machinery through custom hiring

•         Provision of incentives and policy support for the development and promotion of farm mechanization technologies suitable for Dry Land Farming, Horticulture & Orchards.

•         Provision of incentives to support the development of mechanization technologies which helps to conserve resources such as water, soil fertility etc

•         VAT and excise duty exemptions for agricultural machinery and equipment purchased by farmers cooperatives, village level panchayats and agribusiness / clinic entrepreneurs

•         Promotion of Farm Service Centres

•         Government support for joint projects with Agricultural Universities for development of customized technologies suitable to Indian conditions and promotion of advanced farm machinery.

 

  

Provision of excise duty and VAT exemption for agricultural machinery and equipment purchased by farmers' cooperatives, village level panchayats and agribusiness / clinic entrepreneurs would reduce the cost of such implements auguring their acceptance among the farming community. It is recommended that VAT and excise duty be exempted for the agriculture machinery and equipment such as Rotavator, Root Crop Harvester, Zero Till Drill, Pneumatic Planter, Rota Till Drill, Multi Grain Harvester, Multi Crop Planter, Transplanters and Planting equipment, Aero blast Sprayer, Sugarcane Harvesters, Power Weeder, Sugarcane Planters, Reaper, Cotton Pickers, Multi Crop Thresher, Hay and Forage Management Equipment.

 

The FICCI-Yes Bank paper states that there is merit in the belief that custom hiring (also known as the taxi model) is best suited model for accelerating farm mechanization in India. While custom hiring is prevalent in India for some of the agriculture machinery, it is highly unorganized and sporadic. Severe labour shortages in crops such as sugarcane necessitates for the use of machines such as sugarcane harvesters and planters. How ever, the cost of these equipment makes them unviable even for large farmers in India. Most of these equipment would cost between 25 lakhs to 50 lakhs per unit. Further, they need a minimum number of 1200 to 1800 operating hours anually to be financially viable. One of the possible solutions to this issue is to promote the concept of organized custom hiring through farm service centers.

 

In order to make these centers viable, the following fiscal and tax incentives need to be considered:

•         50% capital subsidy on specific machinery and equipment depending upon the crops grown in the agro-climate zone, where the farm service center is located

•         Excise duty and VAT exemption for the machinery purchased for farm service center

•         Extending the tax benefits given under “Investment linked tax incentives” proposed in the last union budget

 

Some of the special schemes that need to be adopted to promote farm mechanization are:

•         Manufacturing units that are set-up in areas with lower mechanization need to be supported by extending tax and duty sops. This would result in easier reach of the equipment to farmers in those areas. Simultaneously the government needs to also design easier financing schemes to such farmers.

•         A higher rate of refinance needs to be extended to loans lent by banks in regions with low mechanization so as to increase the interest of banks to lend to this sector.

•         Banks need to develop hassle free loan procedures. To facilitate this process the government could offer to develop a loan origination and disbursement process.

 

 

 

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