Context: In the recent reforms under the Aatma Nirbhar Bharat Mission, the Union Finance Ministry announcements to strengthen the Agriculture Sector in India, made many to draw its similarity with the 1991 reforms.
More on the news:
Out of these 11 measures, 8 measures are for improving agricultural infrastructure and 3 measures are for administrative and governance reforms, including removing restrictions on sale and stock limits of farm produce.
- The recent package is a part of the Special economic and comprehensive package of Rs 20 lakh crore - equivalent to 10% of India’s GDP, announced recently amid COVID-19 pandemic.
- Aatmanirbhar Bharat or Self-Reliant India Movement having five pillars - Economy, Infrastructure, System, Vibrant Demography and Demand, is what this special economic and comprehensive package called.
- Two significant Agriculture-related measures were also announced separately under the same package to support farmers -
- Additional Emergency Working Capital facility through NABARD to enable RRBs and Cooperative Banks extending farm loans for Rabi post-harvest and Kharif expenses and
- Credit boost to the farm sector by covering 2.5 crore PM-KISAN beneficiaries under Kisan Credit Card Scheme.
Measures announced for improving agricultural infrastructure:
- Rs 1 lakh crore Agri Infrastructure Fund for farm-gate infrastructure for farmers:
- Impetus for development of farm-gate & aggregation point, affordable and financially viable Post Harvest Management infrastructure. The fund will be created immediately.
- Formalisation of Micro Food Enterprises (MFE): Rs 10,000 crore scheme
- A Scheme promoting the government’s vision: ‘Vocal for Local with Global outreach’ will be launched to help 2 lakh MFEs who need technical upgradation to attain FSSAI food standards, build brands and marketing.
- The focus will be on women and SC/ST owned units and those in Aspirational districts and a Cluster based approach (e.g. Mango in UP, Tomato in Karnataka, Chilli in Andhra Pradesh, Orange in Maharashtra etc.) will be followed.
- Pradhan Mantri Matsya Sampada Yojana (PMMSY):
- The Government will launch the PMMSY for integrated, sustainable, inclusive development of marine and inland fisheries. The focus will be on Islands, Himalayan States, North-east and Aspirational Districts.
- Rs 11,000 crore for activities in Marine, Inland fisheries and Aquaculture and Rs. 9000 crore for Infrastructure - Fishing Harbours, Cold chain, Markets etc shall be provided.
- Impact: This will lead to Additional Fish Production of 70 lakh tonnes over 5 years, Employment to over 55 lakh persons and double the exports to Rs 1,00,000 crore.
- National Animal Disease Control Programme:
- National Animal Disease Control Programme for Foot and Mouth Disease (FMD) and Brucellosis launched with total outlay of Rs. 13,343 crore to ensure 100% vaccination of cattle, buffalo, sheep, goat and pig population for Foot and Mouth Disease (FMD) and for brucellosis.
- Animal Husbandry Infrastructure Development Fund: Rs. 15,000 crore
- The aim is to support private investment in Dairy Processing, value addition and cattle feed infrastructure. Incentives will be given for establishing plants for export of niche products.
- Promotion of Herbal Cultivation: Outlay of Rs. 4,000 crore
- The National Medicinal Plants Board (NMPB) has supported some amount of area under cultivation of medicinal plants.
- There will be a network of regional Mandis for Medicinal Plants.
- Beekeeping initiatives: Rs 500 crore
Government will implement a scheme for:
- Infrastructure development related to Integrated Beekeeping Development Centres, Collection, Marketing and Storage Centres, Post Harvest & value Addition facilities etc;
- Implementation of standards & Developing traceability system
- Capacity building with thrust on women;
- Development of quality nucleus stock and bee breeders.
Impact: This will lead to increase in income for 2 lakh beekeepers and quality honey to consumers.
- From ‘TOP’ to TOTAL - Rs 500 crore
- Operation Greens run by the Ministry of Food Processing Industries (MOFPI) will be extended from tomatoes, onion and potatoes to ALL fruit and vegetables.
- The Scheme would provide 50% subsidy on transportation from surplus to deficit markets, 50% subsidy on storage, including cold storages and will be launched as pilot for the next 6 months and will be extended and expanded.
- Impact: This will lead to better price realisation to farmers, reduced wastages, affordability of products for consumers.
Measures for Governance and Administrative Reforms for Agriculture Sector:
- Amendments to Essential Commodities Act: To enable better price realisation for farmers
- Under this, agriculture food stuffs including cereals, edible oils, oilseeds, pulses, onions and potato shall be deregulated.
- Stock limits will be imposed under very exceptional circumstances like national calamities, famine with surge in prices.
- Further, No such stock limit shall apply to processors or value chain participants, subject to their installed capacity or to any exporter subject to the export demand.
- Agriculture Marketing Reforms: To provide marketing choices to farmers
A Central law will be formulated to provide -
- adequate choices to the farmer to sell their produce at remunerative price;
- barrier free Inter-State Trade;
- a framework for e-trading of agriculture produce.
- Agriculture Produce Pricing and Quality Assurance:
- The Government will finalise a facilitative legal framework to enable farmers to engage with processors, aggregators, large retailers, exporters etc. in a fair and transparent manner.
- Risk mitigation for farmers, assured returns and quality standardisation shall form an integral part of the framework.
Key takeaways from the measures announced:
- Amending the Essential Commodities Act (ECA) of 1955:
- Scarcity era legislation: The ECA of 1955 has its roots in the Defence of India Rules of 1943, when India was ravaged by famine and was facing the effects of World War II.
- Relevance today:
- Today, India is the largest exporter of rice in the world and the second-largest producer of both wheat and rice, after China.
- Hence, the legal framework discourages private sector investment in storage, as the ECA can put stock limits on any trader, processor or exporter.
- The amendment announced:
- If implemented in the right spirit, will remove this roadblock and help both farmers and consumers while bringing in relative price stability.
- It will also prevent wastage of agri-produce that happens due to lack of storage facilities.
- The proposed Central law to allow farmers to sell to anyone outside the APMC yard:
- Monopolistic markets: Indian farmers suffer more in marketing their produce than during the production process. APMC markets have become monopsonistic with high intermediation costs.
- The proposed law:
- Will bring greater competition amongst buyers, lower the mandi fee and the commission for arhatiyas (commission agents) and reduce other cesses that many state governments have been imposing on APMC markets.
- By removing barriers in inter-state trade and facilitating the movement of agri-goods, the law could lead to better spatial integration of prices, helping farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
- The proposed law is a step towards making India one common market for agri-produce.
- The legal environment for contract farming:
- Cropping decision based on forward prices: With the assurance of a price to the farmers at the time of sowing, will help them take cropping decisions based on forward prices.
- Minimize the market risk: Normally, our farmers look back at last year’s prices and take sowing decisions accordingly. The new system will minimise their market risks.
- The reforms in agricultural marketing are no more than reiterations of earlier pronouncements.
- The first comprehensive model act on APMC was proposed during 2003. Since then, similar efforts to push for more reforms have been proposed in 2007, 2013, and as late as 2017 by the present government.
APMCs reforms by States:
As many as 17 State governments have amended the APMC Act to make it more liberal. In fact, the regulations and the functioning of mandis vary a great deal across States. For example,
- Kerala does not have an APMC Act and Bihar repealed it in 2006.
- Many States have introduced direct marketing of farm produce, examples being the Uzhavar Sandhai (Tamil Nadu), the Rythu Bazaar (Andhra Pradesh and Telangana) etc.
Despite these reforms, APMC mandis continue to be vilified for all the ills plaguing marketing infrastructure and the low prices received by the farmers for their produce.
Real issue with the mandis:
- Political interference: The problem with mandis is not the regulation per se and the structure of mandis but the political interference in the functioning of the markets.
- The Bihar example: The general argument in favour of reforms is that it will allow private investment in marketing infrastructure as well as provide more choices to farmers, leading to better prices received by farmers.
- In the case of Bihar, while no investment came in building market infrastructure, the loss of revenue due to the repeal of the APMC also led to deterioration of existing infrastructure in the State.
- On the other hand, it has led to proliferation of private unregulated markets which charge a market fee from traders as well as farmers.
- Decline in demand: Even the argument that the only bottleneck for farmers not receiving remunerative prices is due to the APMC Act is flawed.
- More than 80% of farmers, most of whom are small and marginal farmers, do not sell their produce in the APMC mandis.
- A good example is the case of decline in milk prices. Despite the presence of cooperatives and private dairies, the collapse of milk prices reflects the decline in demand in the economy, not the distortions in private markets.
- Non favourable terms of trade:
- For much of the period during the last two years, terms of trade have moved against agriculture, with agricultural commodity price inflation actually being negative for a large part of the last two years.
- With underlying weakness in demand and obsession with inflation targeting through fiscal and monetary policies, most agricultural commodities have seen a sharp decline in demand and, consequently, prices received by farmers.
No amount of marketing reforms will lead to higher price realisation for farmers if the underlying macroeconomic conditions are unfavourable to agriculture and farmers.
- Increase fiscal spending: If the government wants to provide remunerative prices to farmers, it needs to increase fiscal spending to create demand in the economy.
- This has become even more necessary after the sharp decline in incomes, job losses and decline in demand following the lockdown and expected contraction in economic activity for the year ahead.
- With international prices also showing a declining trend, the urgency is to protect the farmers from the decline in commodity prices.
- Proper consultation with states: Reforms without proper consultation with States or other stakeholders will not help in achieving the desired goals.
- Building farmer producer organisations (FPOs) based on local commodity interests:
- Big buyers like processors, exporters, and organised retailers going to individual farmers is not a very efficient proposition.
- Hence, building FPOs based on local commodity interests will help ensure uniform quality, lower transaction costs, and also improve the bargaining power of farmers vis-à-vis large buyers.
The reforms announced could be a harbinger of major change, a 1991 moment of economic reforms for agriculture. But before one celebrates it, all checks on the implementation front should be made.