As rural labour dwindles and food security demands rise, mechanisation is no longer optional — it’s imperative. Yet the very tools needed to modernise farming are taxed more than luxury items, placing an unjust burden on small and marginal farmers

India’s agricultural sector, the backbone of rural livelihoods, is at a critical juncture. The transition to modern and mechanised farming is no longer a choice but is necessary to ensure food security, optimise productivity, and improve farmers’ incomes. Yet, a significant bottleneck hampers this transition — the irrational Goods and Services Tax (GST) structure on tractors and other agri-implements.

Today, farm equipment is taxed at 12 per cent, more than a luxury watch is taxed at 5 per cent. For a small or marginal farmer purchasing a low-horsepower tractor costing Rs 5-7 lakh, this means paying Rs 60,000 to Rs 84,000 upfront as GST alone — a prohibitive cost for most. This, in turn, delays the mechanisation process in areas where it is needed the most.

Pre-GST Scenario Was More Farmer-Friendly

Before the implementation of GST on July 1, 2017, tractors and most agri-implements were exempt from excise duties and subject to only 4-6 per cent Value Added Tax (VAT), depending on the state. Fertilisers, an essential element of agriculture, were previously taxed at 6 per cent (1 per cent excise and 5  per cent VAT). In the GST regime, the introduction of a 12 per cent GST rate on fertilisers was reduced to 5 per cent. However, on agricultural machinery still, 12 per cent GST disrupted the affordability landscape, disproportionately impacting small and marginal farmers, who make up over 86 per cent of India’s total landholdings and are responsible for producing more than 60 per cent of the country’s food grains.

While GST has unified the country’s indirect tax system, it has also inadvertently penalised these vulnerable farmers by making essential farm tools more expensive. Rationalising GST to 5 per cent or even zero for tractors, their components, and agri-implements would significantly ease their financial burden and accelerate rural mechanisation.

Haryana’s Chief Minister Nayab Singh Saini has recently written to the Union Finance and Agriculture Minister seeking GST exemption on 10 essential farm implements like rotavators, zero-till drills, super-seeders, straw-balers, and tractor-mounted spray pumps — a move and other states CMs should also collectively endorse.

Policy Contradictions: Subsidise on One Hand, Tax on the Other

The contradiction is glaring. The Government’s flagship schemes, like the Rashtriya Krishi Vikas Yojana (RKVY) and the Sub-Mission on Agricultural Mechanisation (SMAM), offer subsidies of up to 50 per cent on machinery such as tractors, combine harvesters, sugarcane harvesters, cotton pickers, for establishing custom hiring centres (CHCs) and also to individual farmers for buying pump sets, tractor mounted sprayers, zero till and seed drills. Yet, these efforts are undermined when the same equipment attracts a steep GST rate.

A reduced GST rate on farm machinery will empower smallholder farmers and reduce the Government’s subsidy burden. Lowering upfront taxes means farmers can buy machines at more reasonable prices, translating into more minor subsidy requirements for the Government.

Inconsistencies in the Green Energy Push

The policy incongruities extend to the renewable energy sector as well. Renewable energy devices such as solar panels, biogas plants, and windmill components attract only 5 per cent GST to promote sustainability. Electric vehicles (EVs) also enjoy a 5 per cent GST and a 15 per cent discount on third-party insurance premiums. Yet, electric tractors — vital for reducing agriculture’s carbon footprint — are taxed at 12 per cent GST, the same as diesel tractors, and do not qualify for any insurance premium relief. According to a study by the International Council on Clean Transportation (ICCT), aligning electric tractors with EV incentives could reduce the price gap between electric and diesel tractors by nearly 40 per cent, helping India make a greener shift in agriculture.

The Urgency for Mechanisation

Mechanisation is the key to addressing India’s agricultural productivity paradox. Despite India being the world’s second-largest agricultural producer, only 47 per cent of its farming processes are mechanised, compared to 95 per cent in the United States, 75 per cent in Brazil, and 57 per cent in China. At this pace, India will need at least 25 more years to reach comparable levels.

Labour shortages due to rural-to-urban migration have further exacerbated the crisis. The share of the agricultural workforce has dropped from

59 per cent in 1991 to just 39 per cent in 2023. Mechanisation is essential to offset this shrinking labour force, increase yields, reduce drudgery, and make farming more attractive to rural youth.

Limited uptake

Tractors dominate India’s farm equipment market, while implements such as harvesters, seed drills, tillers, and planters account for only 15-20 per cent of the market share. This limited uptake is due to the prohibitive costs and a lack of awareness about the productivity benefits of modern equipment.

The Government and multilateral agencies are already focusing on mechanisation schemes. However, these interventions will not reach their full potential unless complemented by lower taxation.

Farm mechanisation is not merely about replacing manual labour; it is about optimising inputs, improving efficiency, and securing rural incomes in a challenging agrarian landscape. It is time for the GST Council to undertake an urgent review of agri-implement tax slabs. A uniform GST rate of 5 per cent or zero on all agricultural machinery and their components would make mechanisation affordable for small and marginal farmers, stimulate demand in under-mechanised regions, encourage the adoption of green technologies like electric tractors, and reduce Government subsidy outflows in the long run. The ‘magical’ character of farm mechanisation needs a booster dose. Rationalising GST will empower farmers, create rural entrepreneurship opportunities via CHCs, and help India achieve sustainable development goals. It will bridge the mechanisation gap and unlock the true potential of Indian agriculture. Mechanisation is the future, but affordability is the key.

India’s agricultural future hinges on widespread mechanisation, yet high GST rates on essential farm equipment act as a major roadblock. Small and marginal farmers — who form over 86 per cent of India’s agrarian base — are unfairly burdened by the 12 per cent GST on tractors and implements, a rate higher than that on luxury items. This policy contradiction undermines Government subsidies offered through schemes like RKVY and SMAM, inflating costs and stalling progress. Haryana’s call for GST exemption on key implements is a step in the right direction that other states must support. The mismatch extends to green technologies too — electric tractors face the same GST rate as diesel ones, with none of the incentives that electric vehicles enjoy. This hinders both affordability and sustainability goals.

Meanwhile, India’s mechanisation rate lags behind other major agricultural economies, slowed further by rural labour shortages and high upfront machinery costs. Rationalising GST to 5 per cent or zero for all agricultural equipment is critical. It would ease financial pressure on farmers, reduce Government subsidy burdens, and accelerate the adoption of both conventional and green technologies. Mechanisation is not a luxury — it’s a necessity. Affordability, enabled through fair taxation, is the key to unlocking a more productive, sustainable, and prosperous agricultural future.

(The writer is Chairman of ASSOCHAM Northern Region Development Council. Views are personal)