Which Farmer Are We Subsidizing? Poor or Billionaire? - The 5 Minute WrapUp by Equitymaster
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Which Farmer Are We Subsidizing? Poor or Billionaire?

Jul 11, 2016
In this issue:
» Places of worship trump education
» Market roundup
» ...and more!

00:00 Chart of The Day

Richa Agarwal, Research analyst

The Indian farmer...

The word once brought to mind a poor fellow in tattered rags ploughing fields under the hot sun and struggling to make ends meet. The coverage of farmer suicides furthers this image. How tragic that the person who feeds millions goes to bed hungry...worried he can't repay his debt.

Even as the national debate on subsidies has little support from the nation's intellectuals, it is unthinkable to question the subsidies offered to farmers. They seem to deserve all the help they can get.

If this is your impression of the Indian farmer, let me tell you, it's incomplete, a half-truth. The other side of the picture consists of millionaires and billionaires - rich landowners, masquerading as the poor old Indian farmer. The two sides are difficult to reconcile...the only commonality between them being subsidies- fertilizer subsidy, power subsidy, minimum support price, loan waivers, and tax relief. And even here, the rich enjoy the lion's share.

No wonder then the gap between these two classes of the farmer has grown.

Those who know how to game the system will tell you that fortunes are made at the bottom of the pyramid. The road to riches passes through barren land. People have been buying cheap uncultivable land, claiming it to be agricultural land to get the status of farmer and enjoy the tax exemption on 'income from farming'.

Agricultural income, being tax exempt, has become a channel for money laundering. The country is losing billions in revenues.

Agricultural Income - A Channel for Money Laundering?


Think of the opportunity cost. That money could be invested in better seeds, power supply, or irrigation facilities. Or it could have been used to bring down the fiscal deficit as income from direct taxes touches a decade low.

As the government makes noise about its drive against black money yielding results with the latest Swiss National Bank (SNB) data showing a sharp decline in Indian deposits in 2015, this is nothing more than marketing spin as per Vivek Kaul.

Amid the hue and cry over black money stashed abroad, we seem to have ignored the elephant in the room - the black money economy flourishing right under Government's nose. In fact, feeding on it.

As Vivek Kaul, writes in his Diary:

  • In the assessment year 2012-2013, around 2.87 crore individuals filed income tax returns. The total income tax collected from these individuals amounted to Rs 1,14,555 crore. In assessment year 2012-2013, income tax returns for the income earned in 2011-2012 had to be paid.

    The interesting thing nonetheless was that only 1.25 crore individuals paid any income tax. Data from the World Bank shows that in 2011 the population of India was 124.7 crore. This basically means that in assessment year 2012-2013 around 1% of India's population basically paid income tax.

    One explanation for this is straightforward that income from agriculture is untaxed. Close to 50% of the country's population still depends on agriculture for a living. Further, this also tells you that India is a poor country, where most people earn a taxable income of under Rs 2.5 lakh per year, above which one has to start paying income tax.

    What this tells also tells us among other things, is that a major part of the Indian economy continues to operate in the black zone. Hence, a tremendous amount of black money is generated, on which income tax does not get paid.

And we, as taxpayers, have to foot the bill for this growing black hole.

If you care about what happens to your tax money, you need to read Vivek Kaul's Diary every day. Vivek has the rare knack of explaining complex topics most simply, unravelling the mystery that the mainstream media weaves with their economic jargon and data. In his latest special report, The Crony Socialism of Narendra Modi, Vivek exposes the biggest black hole that's sucking your tax money. So grab your copy...as it's time you take note of where the country is headed and what it means for you.

Do you think agriculture income has become a channel for money laundering? Let us know your comments or share your views in the Equitymaster Club.

02:35

As India drives ahead on the path to growth and development, the Census of India study on the houses and the use to which they are put offers interesting insights. A census house is defined as a building or part of a building having a separate main entrance from the road or a common courtyard or staircase, and recognized as a separate unit.

There are more places of worship in India than there are schools or colleges, hotels or factories. The census data states that there are around 3.01 million places of worship while the number of schools/colleges are close to 2.1 million. The data varies across all the states. Goa has over five times the national average in usage of hotels, guest houses while in Himachal Pradesh less than 50% of census houses are used for residential purposes.

Disturbingly for India, a comparison of 2001 and 2011 census data reveals an increasing number of vacant houses. The residence category has witnessed a large decline. The data suggests affordable housing is far from reality. There are many people who own multiple properties and continue to buy houses as an investment which lie vacant.

But what explains the such high number of places of worship, exceeding the number of schools? Are we more religious? The answer lies somewhere in the middle. A place of worship is associated as a symbolism of a religion's existence or presence at a place. While there is no harm in an increased number of religious places, our priority must always be imparting people with education and skills which will help build a more skilled workforce, and lead to better employability and reduced unemployment.

04:40

After opening the day firmly in the green, the Indian stock markets continued to hold on to the days gain and were trading strongly at the time of writing. The BSE-Sensex was trading higher by about 460 points (up 1.70%), while the NSE Nifty is trading up by 131 points (up 1.6%). Most sectoral indices were trading on a strong note with the midcap index trading at a record high.

04:50 Today's Investing Mantra

"Usually a very long list of securities is not a sign of brilliant investor, but one who is unsure of himself." - Philip Fisher.

This edition of The 5 Minute WrapUp is authored by Richa Agarwal (Research Analyst) and Rohan Pinto (Research Analyst).

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11 Responses to "Which Farmer Are We Subsidizing? Poor or Billionaire?"

K C SARANGI

Jul 16, 2016

Agriculture income has not become a channel now for money laundering,it is there since Nehru regime.

Like 

Bhavin Gala

Jul 12, 2016

Excellent serious effort , but if u throw light on more recent data , as government is trying to set up e- platform and curbing of gold buying , with more use of aadhar and pan card , will hope to see some good results ahead , about worship places I think it's black hole to hide black money .

Like 

M.C.Das

Jul 12, 2016

In a recent meeting held at Kolkata this issue was taken up with Dr,Hasmukh Adhia, Revenue Secretary citing those figures from TOI to which he replied that govt. is aware of it. But Indian constitution does not empower Centre to impose any income tax on agriculture being a State Subject.

Like 

Amit Abrol

Jul 12, 2016

it's sure shot affirmation that the rich farmers are politically backed, with part of profit being siphoned there. guidance value of land an eyewash, the excess from market value minus guidance is HONEY!! profit is politicised (irrespective of where it accrues from) - no other way to describe it. I mean, why should "these "poor guys" ward off the allure of foreign travel/ education, fancy cars et al??

So many of elected representatives come from a farming background. How come they get away by declaring assets/income of 3-4 cr avg? Really??

I do agree with many of you above that we need to start looking into our own backyard before going abroad to bring "it" back. Do it before this also flies abroad. Or is it a tactic to de-focus attention away from the so called "honest" elected representatives? All due respect to Mr Modi, who I feel needs to be allowed time to correct the mishaps of the last 50 years - mishaps of the same who make so much noise now about every little thing!!

Like 

Satyendra Sinha

Jul 12, 2016

Appreciate if you cut the contents of this daily wrap up and make it shorter. Also, it seems these writeups are more political rather than related to markets. From Equitymaster I expect positive contents that fill energy in investors, not fill negativity. Otherwise, why should I subscribe to Equitymaster?

Like 

vinod gupta

Jul 11, 2016

There are people who own land and use for non-agriculture purpose but show that they have earned income from agriculture and get the benefit of NIL TAX on AGRICULTURE INCOME. These people make different companies and do internal transaction and income tax officers can't go in deep of these types transactions.

Benefit should be given to the needy or poor villagers and not to the rich people who are making use of it and making fool to govt officials.

rest everyone knows

Like (1)

Gaurang Dalal

Jul 11, 2016

Agricultural income has been exempt from income tax right from the time of our independence. Why blame only Mody for that? It's quite unfair to an incumbent who has taken the reigns only two years back and has to tread such sensitive issues very cautiously before he establishes himself. Reading some of the views of Mr Kaul, it almost appears that he is hell bent in proving Mody wrong without any viable alternative in sight - a feast for the opponents.

Like (2)

tarun maheshwari

Jul 11, 2016

most of the millionaire farmers are either connected with political elite or high business.they know the loopholes of the system.They not only corner the goodies but also deprive the poor farmers to avail the same.The nation not only looses thousands of crore of tax income but also bear the subsidy burden on them.What is the way out.Will the govt. bell the cat. I do not know

Like (1)

Dr. K. S. Ananda Kumar

Jul 11, 2016

It was well known to me from a long time, that many rich farmers are earning huge amounts but put up false returns of low income from agriculture. It is not correct to blame the Govt. We have to point out how we can prevent this and and give our suggestions. Those who have good knowledge and proof can also supply data to the Dept. for perusal, confirmation, and to take proper measures. Without examples,it is not possible for the Govt. to take any steps.

Like (1)

K. Natarajan

Jul 11, 2016

Yes. Agricultural income is back door entry for black money. I feel all states must tax big agriculturists because it seems to be a state subject.

Like (1)
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