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Govt may farm tax carrots to lure corporates to fields
May, 10th 2007
Call it Impact Retail. In a move that could provide a huge boost to backward linkage between industry and agriculture, certain agricultural zones may receive tax holidays on the lines of standard incentives available to industrial units.

The government is considering a proposal to grant 5- to 10-year tax holidays in semi-arid and arid regions of the country to attract corporate investments in the farm sector. The incentives will be available for companies investing in contract farming.

Proposed incentives include a weighted deduction of 150% for expenditure incurred in the development of farm lands in semi-arid regions and 200% for such expenditure in arid regions of Rajasthan and Gujarat. Besides, investment in the areas may also be considered for cheaper loans from banks as part of their priority sector lending scheme.

The proposed move is part of a long-term agricultural strategy being finalised by the government to increase the growth rate of the sector currently below 2% and achieve the targeted 4% growth during the 11th Five-Year Plan. The proposal is expected to be considered for approval by the National Development Council at its meeting on May 29.

Once approved, the move would encourage large companies such as ITC, Reliance and Bharti to increase their exposure to the agricultural sector. It would also encourage development of farming infrastructure in dry areas that contribute 40% of total food production at present.

About 60% of the countrys net cultivated area is rain-fed or dry area where increasing agricultural production is a challenge every year. Private investment through a public-private partnership (PPP) model is now being considered to augment resource flows in development of rain-fed areas and also for bringing more disused areas under cultivation, a source in the government said.

The idea is to offer sops to private sector investors for increasing production in cultivable arid and semi-arid areas and bringing degraded land under cultivation. As per government estimates, of the total land area, 43% is cultivable while 45% is degraded land.

Companies would also be encouraged to participate in decentralised models facilitating value addition at the farmers level and further processing at the industrial level, a source said. Appropriate models focusing on site, industry and location-specific considerations are to be developed for implementation by the private sector.
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