The Government would do well to concentrate as much on special farm zones as it is doing on special economic zones.
Economists of all persuasions in India are agreed on one thing: Agriculture contributing less than quarter of the GDP, even while being the avocation for as many as two-thirds of the population, bodes ill for the country's long-term health and prosperity. Having reformed our regulatory regimes governing the service and manufacturing sectors substantially, it is time we turned our attention to agriculture reforms because warning signs are there for all to see.
Farm sector woes
If State governments, by and large, could be successfully persuaded to embrace the concept of value-added tax (VAT), there is no reason why they cannot be similarly persuaded to usher in big-ticket farm reforms. The farm yield in India is amongst the lowest in the world. Improper use of fertilisers, wrong cropping patterns, fragmented land holdings and inadequate irrigation facilities have been rightly identified as the principal reasons for this malaise.
Corporate farming perhaps could be the one-stop solution for reviving our farm sector. In a country where there is considerable pride in owning land, it would be cruel to wrench it away from its owners even with the allurement of sizeable compensation. Instead, the long-term lease route may be adopted as a via media. Besides offering decent lease rentals to the landowners in rural areas, they can also be won over by making them partners in progress offer of shares as a part of compensation package in the agricultural company being floated.
Netting the income
The Government, therefore, would do well to concentrate as much on special farm zones as it is doing on Special Economic Zones (SEZ). True, agriculture is a State subject, but the Centre can always play the catalytic and persuasive role as it effectively did in ushering State VAT, overcoming initial hesitations and hiccups. While doing this, the States and all segments of the political mainstream should be brought round to the need for bringing at least the corporate farm income into the income-tax net. As it is, tea and coffee companies pay income-tax only on 40 per cent of their profits on the ground that the remaining 60 per cent is deemed to be agricultural income, which is outside the purview of central levy, that income-tax evidently is.
Tyre companies having their own rubber plantation pay tax only on 35 per cent of their profits with the remaining 65 per cent being once again deemed to be agricultural income. And there is a complex process of substituting the market price in lieu of actual cost of agricultural inputs cultivated in one's own farm for calculating the business profit from other products after eliminating the agricultural income, which is out of bounds for the Central Government.
But then it would be idle to assume that corporates can turn around the flagging agricultural sector easily. While they can definitely be relied upon to bring in international best practices with the resources at their command, including the best farming technology, irrigation investment in which successive governments at the Centre have scrimped would be a huge challenge.
Corporate farming indeed is the way forward. Come to think of it, a farmer who hitherto was ploughing a lonely furrow would get provident fund, leave travel concession and other accoutrements of office if only he agrees to join the agricultural company's ranks as an employee-farmer with the potential of being morphed into a gentleman-farmer!
S. Murlidharan (The author is a Delhi-based chartered accountant.)