Analysing the centre’s reforms in Indian agriculture sector

Date:10-06-2020

The Government of India had promulgated three ordinances that have a far-reaching effect in terms of structurally transforming Indian agriculture. The same were then replaced by Bills in Parliament that have been passed by both Houses. Voices of opposition have been building up against these legislations, with public agitations in the states of Punjab and Haryana; a minister from the Shiromani Akali Dal, a partner of the NDA government, quit as an act of protest against these measures. 

These reforms in the agricultural sector were being discussed for the last decade or so and both the NDA and UPA governments have been committed to bringing in these measures when they were in power. A model Agricultural Reforms Act was in circulation with more or less the same provisions, with a request for state governments to act on them. While some states have enacted these provisions, many haven’t. Though agriculture is a state subject, the Centre seems to have taken recourse to its power under the first schedule to regulate interstate trade and commerce to bring in these reforms.

The first legislation—the Farmers Produce Trade and Commerce Bill—provides for sale and purchase of agricultural commodities beyond the boundaries of the market yard without payment of market fee that is declared as a trade area. The main objectives sought to be achieved through this are freedom of choice of sale and purchase, and barrier-free trade. The second, Farmers Agreement on Price Assurance and Farm Services Bill, provides a broad framework for facilitating contract farming. An elaborate mechanism for dispute resolution is provided under both.

The third one, through which an amendment is made to the Essential Commodities Act, takes away powers to prescribe stock limits on agricultural commodities except under exceptional situations that are also defined in the legislation. Restricting the trade to agricultural market yards has not resulted in better trade practices or better price discovery mechanisms. The way market yards function differs from state to state. In some states, there are regular elections and an elected body supervises the functioning of the yards. But in most states, the bodies are nominated and carry high levels of administrative expenditure with indiscriminate hiring of personnel and have high establishment charges financed by the market fee.

Wherever transactions happen outside the market yard, a fee is collected at the yard check posts, which are often also centres of corruption. Market yards have failed to invest adequately to build up a strong warehousing and post-harvest facilities. To that extent, they functioned more as a drain than as an empowering platform that helped the farmer with better price discovery and better post-harvest facilities. The commission agent system prevalent in most of the markets is also not working to the advantage of farmers. A legislative measure that allows alternative systems to develop, which can provide competition to these market yards, should be something farmers should welcome.

But an impression that this can result in the Central government doing away with the present MSP system of procurement of food grains has been created and seems to be agitating the minds of the farmers. In a state like Punjab, the Centre, in addition to MSP to the farmers on wheat and rice, ends up paying 6% as market fee and another 2.5% as commission to commission agents, which approximately comes to Rs 3,000 crore per year. Thus, certain states from where maximum procurement of agricultural commodities is done are beneficiaries of a rent-seeking system with no additional value added.

It may be worthwhile for the government to come up with a system of sharing part of this cess and commission directly with the farmers when procurement is done outside the presently notified markets. An unequivocal assurance on MSPs with an incentive of sharing this cess and fee with the farmers will blunt the opposition to this particular piece of legislation from the farmers. After all, this legislation only aims at providing alternative channels of trade to farmers other than the present market yards while also facilitating the possibility of private investment coming into warehousing and post-harvest technology areas, where there is dearth of investment presently.

In the long run, this will benefit both farmers and consumers with better warehousing and post-harvest facilities. The second legislation is essentially a framework for contract farming. This I feel can be left to be legislated on by state governments instead of the Centre taking up the responsibility. Such frameworks already exist in some states. The introduction and scaling up of oil palm cultivation in the states of Andhra Pradesh and Telangana was done under a well-thought-out contract farming legislation in the erstwhile state of Andhra Pradesh. I was the commissioner of horticulture at that time, in the early 1990s. For successful implementation of contract farming, supervision and arbitration by the state government and its officers wherever required is essential. There is no way this can become a success just by a legislation at Central level without state involvement.

Already, corporates like Pepsi and Kellogg’s are working with farmers in certain states. Though a broader framework at the Centre may help it get picked up in different states, it is better to progress on this front slowly and steadily with the full involvement of state governments rather than with big bang reforms, given the suspicion with which corporates are viewed by the farmers. The third legislation is more in the domain of the consumers than that of the farmers. Relaxing restrictions on storage and price except under exceptional circumstances that are also defined within the Act should facilitate better investments in warehousing and food processing.

More important reforms in terms of better MSPs for edible oils and pulses, and facilitating change in the cropping pattern by substituting less water-intensive pulses and edible oil crops in place of cereals are the need of the hour. Similarly, introducing edible oils and pulses in greater proportion within the PDS system and supplying a balanced nutritional mix to the PDS beneficiaries will, in the long run, facilitate a change in the cropping pattern as well.