How can next-generation GST reforms be designed to better serve the interests of poor and farmers in India?

The Goods and Services Tax (GST) is an indirect tax system aimed at creating a unified market in India. However, its design and implementation can have significant implications for the poor and farmers, who are often vulnerable to price changes and economic shocks. Next-generation GST reforms can be structured to ensure that these groups benefit more directly from the tax system.

• Zero-rating and Lower Tax Slabs for Essentials: Essential goods and services commonly consumed by the poor and farmers, such as basic food items, agricultural inputs, and medicines, can be kept at zero or lower GST rates. This reduces cost pressures on these groups.
• Input Tax Credit for Agricultural Inputs: Allowing seamless input tax credit for fertilizers, seeds, machinery, and other agri-inputs can reduce the overall cost of cultivation for farmers, making agriculture more viable and profitable.
• Exempting Small Farmers and Rural Enterprises: Raising the GST registration threshold for small farmers, cooperatives, and rural micro-enterprises can shield them from compliance burdens and costs associated with the tax.
• Direct Benefit Transfers (DBT) Linked to GST Revenue: A portion of GST revenue can be earmarked for targeted welfare schemes or DBT for poor households and farmers, ensuring that the benefits of increased tax collection reach the intended beneficiaries.
• Reducing Cascading Effects: Ensuring that all stages of the agricultural value chain, including storage, transport, and processing, are either exempt or taxed at low rates can prevent price escalation and benefit both producers and consumers.
• Special Provisions for Cooperative Societies: Designing GST rules to support farmer producer organizations (FPOs) and cooperatives can help them aggregate produce, access markets, and reduce tax-related hurdles.
• Improved Refund Mechanisms: Fast-tracking GST refunds for exporters of agri-produce and small rural businesses can improve cash flows and reduce working capital issues.
• Capacity Building and Digital Literacy: Providing training and support for GST compliance in rural areas can help small farmers and rural entrepreneurs participate more effectively in the formal economy.