Our Expectations from Budget 2023

Budget for the financial year 2023-24 comes at a crucial juncture for India, when the world is going through unstable global headwinds, spiraling inflation and sluggish growth. The government has already indicated that the forthcoming budget would be aimed at sustaining the current economic growth trajectory of India. It would also preferably lay more emphasis on encouraging investments, bringing India closer to Aatmanirbharta in most sectors. As the apex body of the Indian dairy industry, it is our duty to voice our expectations from the government, policy makers and higher authorities of the nation, for the continued growth of dairying and animal husbandry in India.

Presently, 100 crore Indian households depend on Dairying and Animal husbandry for sustenance. The sector is of paramount importance not just domestically but also globally as India has remained the world's largest producer of milk for the past 25 years. Our target for the next 25 years is to grow India's current contribution of 23% to 45% with a mammoth milestone of 630 MMT of milk production.

At the very outset, it must be highlighted that India is not just the largest producer, it is also the largest consumer of milk and milk products. The growing population, increasing purchasing power and rising urbanization are factors that will lead to an augmented demand of milk products in the coming years. At an estimated CAGR of 14%, the sector is set to achieve a valuation of Rs. 9.5 lakh crores by 2030. Considering this much anticipated expansion of the sector, many calibrated measures must be introduced in the forthcoming budget to help boost the dairy industry in India.

Dairying and animal husbandry sector accounts to 30% of the total agricultural GDP in India and 5.2% of the National GDP. Notwithstanding it's significant contribution, the sector is yet to receive proportionate budgetary resources. To give an example, in the FY 2021-22, Ministry of Animal Husbandry and Dairy was allocated an amount of Rs. 3,102 cr out of a total budget of Rs. 34.83 lakh cr and an Agricultural budget of Rs. 2.02 lakh cr i.e., only 0.09% and 1.5% share in the total and agricultural budget respectively. One can only imagine the kind of growth that this sector can potentially achieve if it is allocated appropriate funds and resources every year.

The first step towards sectorial equality would be to include income from milk production under agricultural income and exempt marginal farmers from their tax liabilities. Including dairying under the gamut of Agricultural income would bring much needed relief for the dairy farmers and become a big boost for the government's objective of doubling farmers' income.

It is a well-established fact that dairying and animal husbandry is a sector that runs on "production by masses" rather than "mass production". Small and marginal farmers are the essence of co- operative mechanism. Dairy co-operatives work primarily on the 3-tier Amul model wherein the farmers are the producers as well as the owners. Nonetheless, there are several farmers who are still at an economical weaker stage and require cheap finances at different points in time. The loan taken by dairy farmers for purchase of cattle must be included in interest subvention schemes wherein the interest rates range from 2-4%.

Despite contributing more than 30% to India's agricultural GDP, dairy co-operatives are still considered beyond the ambit of priority sector lending by banks. Despite having a separate Ministry of Co-operation in the country, dairy co-operatives that were previously categorized under RBI's priority sector lending norms, are now bound by an upper borrowing limit of Rs. 5 cr. All things considered, a lending limit of Rs. 5cr is negligible as compared to the current scale of operations.

Section 80P of the Income Tax Act exempts all cooperative societies from payment of income tax. However, in 2019 under section 194N it was mandated that all cash withdrawals exceeding Rs. 1 cr would be taxed at 2%. The village co-operative societies would have to then claim a refund for the TDS. As mentioned earlier also, the dairy sector constitutes of marginal farmers residing in remote villages and limited access to banking facilities. Due to this, most of the payouts to the farmers are in cash and the owing to the scale of operations the bank withdrawals by any village cooperative society are bound to exceed the limit of Rs. 1cr. In addition to this, one can expect the TDS amount to be refunded after a minimum of 2 years only. Similarly, under section 194Q, the district co-operative become liable for a TDS reduction of 0.10% for purchasing milk from VMCS as the total value of purchases exceeds Rs. 10cr. The subsequent hardships of the farmer and the VMCS are impacting the rural economy negatively.

Furthermore, taxation laws suggest that a milk producer is exempted from his tax liabilities if he/she carries out packaging activity himself/herself. In all practicality, expecting each and every farmer to carry out milk processing on his own goes against the principles of economies of scale. The co- operative model in dairying was introduced with the aim of aggregating the produce and increasing profitability for the farmers. Currently the milk processed in third party plants even under the co- operative brands are taxed at 5% GST.

From the customer's perspective also, there are several modifications required in the laws of taxation. A product like ghee that holds tremendous importance in the Indian staple diet, is taxed at 12% as compared to vegetable oil that is taxed at 5%. At a time when analogues and vegetable oil- based substitutes are posing a great threat to the dairy industry and strong lobbies trying to enter the Indian market, it is imperative for the government to reduce the GST rate applicable on ghee. Lowering the GST rates would consequently make ghee more affordable for the consumers and increase its consumption substantially. Needless to mention the reduction in the government's import burden from vegetable oil import. Similarly, the classification of flavoured milk that contains 90% of pure milk along with small portions of other components must be classified under the HSN 0402 and not HSN 2202 (Beverage containing milk). Chapter 4, HSN code 0402 is for - "Milk and Cream, concentrated or containing added sugar or other sweetening matter, including skimmed milk powder, milk food for babies (other than condensed milk)". Children and youth are among the primary consumers of the product along with beneficiaries of mid-day meal schemes and Doodh Sanjivini.

Peripherally, there are various other issues that need to be addressed in the upcoming budget. For example, in case of a disputed GST rate, the final decision is applicable retrospectively. In such a case all the entities part of the distribution channel become liable to pay the differential amount of tax. Allowing the manufacturer or marketer to settle the tax liability in lump sum and providing facilities for availing ITC later would not only increase administrative ease of collection but also increase the amount of tax collected. Correspondingly, large FMCGs and dairy co-operatives having a large volume of transactions annually, must be allowed to modify the Monthly or Quarterly GST1 report within 30 days of submission.

The measures suggested are for the development of dairy sector in India, but we do not propose permanency in any of the concessions. Unlike some recurring measures such as subsidies, we propose to invest in infrastructural growth at the grassroots level. What we expect from the government are steppingstones and not crutches. Dairying is the chariot shouldering the colossal weight of Bharat (Rural India) and as India marches towards global dairy supremacy, it is vitally important that the policy makers consider these suggestions for the rapid advancement of dairying and animal husbandry in the country.