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Modi govt shows intent with agricultural reforms, but execution holds key for farmers

Govt needs to bring states on board, strengthen supply chain to end mandis’ monopoly, and sparingly use the escape clauses in the Essential Commodities Act.

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New Delhi: The economic package announced by Finance Minister Nirmala Sitharaman earlier this month featured a large number of reform announcements, the majority of which were for the agriculture sector.

The reforms are aimed at ensuring better prices for farmers, though most of them aren’t new in the sense they’ve been in the works for the last 20 years.

Farm experts say the main challenge of these agricultural reforms will be implementation and getting all the states on board, and that they still might not guarantee that the farmers get the best prices for their produce.

ThePrint emailed questions to the secretary and the information officer of the Ministry of Agriculture but there was no response until the time of publishing this report.

ThePrint takes a look at two of the biggest reforms, the current policies they are meant to alter, and the shortcomings and challenges they face.

Also read: 3 reasons why Modi govt pushed through economic reforms during coronavirus crisis

Amending Essential Commodities Act

Sitharaman announced that the government would bring in amendments to the Essential Commodities Act, 1955, to exclude commodities like cereals, edible oil, oilseeds, pulses, onions and potatoes from price controls and the imposition of stock limits.

Further, stock limits will not apply to food processing firms and other exporters.

Stock limits are placed to ensure that there is no hoarding of commodities and prices do not surge due to shortages.

Current status: The 65-year-old Essential Commodities Act is often invoked by the government to cap prices of commodities that are considered essential, ostensibly to protect customers. However, farmers have often borne the brunt.

It has been used in the past to cap prices of essential goods like onion, potatoes, salt and other items from time to time, and, in February 2020, was invoked to cap the price of masks and hand sanitisers until the end of June.

According to the fine-print of the Act, any person found in possession of the essential commodities above the imposed stock limit is liable for criminal proceedings. Even a vehicle carrying more than the permissible stock limit could be confiscated.

There are also imprisonment-related provisions under Section 7 of the Actfor those found guilty of controlling production, supply and distribution of essential commodities. The imprisonment carries a minimum sentence of three months, and a maximum of seven years.

Shortcomings/challenges: To operationalise the reforms, the government will have to bring in amendments to the 1955 Act through an ordinance. Provisions linked to stock limits, and punitive measures like detention and confiscation of vehicles, will have to be modified.

Experts say the government has chosen to carve out exemptions while removing the stock limits, thus diluting the intent behind moving the amendments. The government had said that the stock limits may be re-imposed in case of a natural calamity or a surge in prices. The price surge was capped at 100 per cent for perishable commodities and 50 per cent for non-perishable commodities, beyond which the limits may be imposed.

But a commodity like onion saw its retail prices surging from Rs 10-20 to more than Rs 100 last year. Similar price increases this year may mean that similar stock limits may be imposed again, defeating the very purpose of the act, the experts said.

In a series of tweets, Ajay Vir Jakhar, chairman of the Bharatiya Krishak Samaj (farmer’s forum), had pointed out that the caps on price rise defeated the purpose of bringing in the amendments, and advocated substantially higher trigger limits.

Himanshu, associate professor of economics at Jawaharlal Nehru University, said the Essential Commodities Act was supposed to be used sparingly, only in times of crisis. But he said the exemptions brought in by the government will mean that there will be no change in how it handles any price rise or shortage situation.

Also read: Is Modi govt trying to decongest Indian cities? Its economic package gives that impression

Ending mandi monopoly & enabling inter-state trade 

Sitharaman said the government would bring in an enabling central law that would allow farmers to directly sell their produce to buyers of their choice, and even undertake inter-state trade.

This is aimed at ensuring better price realisation for farmers and boosting their income.

Current status: Farmers sell their produce in Agriculture Produce Marketing Committees (APMCs) across the country. These are established and regulated under the State APMC Acts.

APMCs are marketing boards established by state governments to safeguard farmers from exploitation by large retailers, as well as to ensure the farm-to-retail price spread does not reach excessively high levels.

Under the APMC, state governments demarcate a geographical region into various ‘notified market areas’, better known as mandis. Once a particular area is declared a market area and falls under the jurisdiction of a market committee, no person or agency is allowed to carry on wholesale marketing activities freely.

Although APMCs were set up to provide a market to farmers, any purchase, sale, storage, and processing of agricultural produce outside of the yard set up by the committee is considered unlawful, thereby limiting the options for the farmers. So, effectively, farmers’ sale choice is restricted as they can sell only to those with APMC licences.

The monopoly of government-regulated wholesale markets has prevented the development of a competitive marketing system in the country, providing no help to farmers in direct marketing, organised retailing, a smooth raw material supply to agro-processing industries, and adoption of innovative marketing systems and technologies.

Local traders and politicians are often members of the APMCs, leading to a direct conflict of interest.

Many states like Maharashtra and Bihar have abolished APMCs.

Shortcomings/challenges: Agricultural produce trade and movement is part of the concurrent list in the Constitution, and so, both a state and central subject. The central government will have to pass an overarching legislation to enable free trade of agricultural produce. Although the central legislation should override state laws in case of any conflicts, experts pointed out that bringing all states on board on this politically sensitive issue may not be easy.

An agricultural ministry official said the Centre will use Entry 42 of the Union List, along with the Entry 33 of the Concurrent List, to frame legislation that will free up the inter-state trade in all agricultural commodities and intra-state trade in specific farm produces.

Entry 42 empowers the Centre to frame laws for inter-state trade, while the Entry 26 of the State List empowers states to frame rules and laws to regulate trade within their boundaries.

The Centre may also allow both APMC and private trade procurement at farm gate level to compete with each other to provide a better price for the farmer, according to the official, who did not wish to be identified.

Prof. Himanshu said the proposed changes will not be easy to implement, with different states confronting different challenges. He pointed out that different states specialise in different crops, which bring their own challenges.

“A one-size-fits-all approach will not work for farmers spread across the country. The APMCs have been riddled with political interference. However, farmers need a place to sell their produce. The state cannot leave the farmers’ fate to private sector firms because the balance of power favours the latter,” he said.

Himanshu pointed out that though APMCs were abolished by some states in the hope of attracting more investment, such as Bihar nearly 14-15 years ago, no private investment has yet come in.

Jakhar was also sceptical about the fine-print of the proposed changes in agricultural produce marketing, and said the announcements were in no way a ‘1991 moment’ for Indian agriculture. He pointed out that less than 1 per cent of the farmers will sell in other states.

However, Ashok Gulati, expert on agriculture at the Indian Council for Research on International Economic Relations and former head of the Agricultural Costs & Prices Commission, differed. Gulati said these agricultural reforms have the potential to unleash major private sector investments, adding that the reforms will offer the farmer more freedom to sell their produce.

“Farmers must have multiple choices. APMCs have become rent-seeking, non-transparent and monopsonistic,” Gulati told ThePrint, adding that there is a need for competition.

Also read: How to bring ‘Big Bang’ reforms in India? Wait for a crisis – even Modi had to


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