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Only genuine farm income must be exempt from tax
May, 08th 2017

Finding ways to stop the camouflaging of the income earned from sources other than agriculture as agricultural income is what NITI Aayog recommends in its Three-Year Action Agenda and ‘not’ levying personal income tax on farmers.

No sooner had Arvind Panagariya, Vice-Chairman, NITI Aayog, and his team begun public discussions of the ‘Three-Year Action Agenda – 2017-18 to 2019-20’ they found themselves embroiled in a controversy on the taxation of farm income.

Talking to BusinessLine, Panagariya said, “The issue that came up in the press was on the income tax on farmers. We are not recommending taxing agricultural income in any form. We are only looking to find ways to stop the camouflaging of the income earned from sources other than agriculture as agricultural income.”

Elaborating he said, “There are some individuals who mask their income from other sources as agricultural income to evade tax. The Action Agenda says that loopholes that allow this to happen must be closed.” But the Agenda does not spell out how this is to done. Panagariya says the government needs to work out the details.

Asked if a proposal to tax agriculture sector would be in conflict with the Action Agenda proposal of doubling farmers’ incomes, he said, “In the current scenario, where the income of farmers is very low, taxing it would send exactly the wrong message. Also, taxing income earned from growing wheat or rice would undermine the whole notion of promoting food security.”

Marketing reforms
On marketing reforms and the States’ vital role in this he said, “The key obstacle to reforming the APMC Act is the lobbying power of intermediaries in the government mandis.” “Why should farmers be held hostage to selling their produce in one specific mandi where the intermediaries are able to exercise monopoly power when buying produce from them as well as when selling it to wholesalers and retailers. After all, a manufacturer sells her product to whomsoever he or she wishes. Why should the farmer not have the same right?” said Panagariya.

On the other side, why should the government mandi be the only point where one can buy these products?

Allowing new competing mandis to open up would change the pricing dynamics, he said.

“This is happening in some States. Maharashtra has recently opened up to the idea of having multiple mandis for fruits and vegetables. There is some work to be done in terms of creating more mandis, but they are moving in that direction.

“Kerala never had an APMC Act so that farmers there have had the right to sell their produce to whomsoever they wish. Now a lot of awareness has been created and Chief Ministers are considering this option.”

Creating jobs
On job creation, Panagriya said, “That 10 million people are entering the work force every year is incorrect, though it has been quoted by many and perhaps I may have used it earlier too.” Elaborating he said, “What we are counting here is the number of people in the working age group being added. But, not everyone who enters this age group looks for a job. We have to take into account the labour participation rates. When we correct for the labour participation rates, the number turns out to be smaller. While we are still working on it, the actual number of additional job seekers annually is likely to be nearer to 6-7 million.”

Panagriya acknowledges that there is lack of good data on employment. “We need much more frequent surveys. Currently, the Labour Bureau does surveys on a limited scale but they do not cover all sectors. The Ministry of Statistics and Programme Implementation is working on introducing more comprehensive annual and quarterly surveys that will give us reliable employment numbers.”

Coastal Economic Zones
Coastal Economic Zones is an idea Panagariya has been pushing for, which he believes will help in creating formal-sector jobs and boosting exports.

“We have suggested to Finance Ministry to come up with some incentives for anchor investors. In parallel, there is work being done on detailed project reports.”

Panagariya remains confident that India’s economy will grow at 7.5 per cent or more in this fiscal.

“The WPI has finally aligned with consumer price index. There is a distinct improvement in the mood of the companies and the recent announcements to tackle NPAs would help too. We should be looking at an 8 per cent growth in the forthcoming years,” he added.

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