Last week while announcing the stimulus package for the economy, Finance Minister Nirmala Sitharaman announced a long-pending agricultural reform – the centerpiece of the third tranche of the economic stimulus – a package to make farmers “Atmanirbhar”. This was announced with a view to provide a stimulus for enacting a central law to permit barrier-free inter-state trade of farm commodities and to ensure a legal framework to facilitate contract framing. Plans to invest Rs. 1.5 lakh crore to build farmgate infrastructure, support logistics needs of the fishing industry and extending the previously budgeted money.[i] The center also proposed to deregulate the sales of six types of agricultural products including cereals, edible oils, oilseeds, pulses, onions and potatoes by amending the Essential Commodities Act, 1955 (ECA). It is also moving towards dismantling the agricultural marketing committees.
Before COVID-19, the current, as well as previous governments, have tried to aid farmers by providing them with large subsidies and loan waivers. Meanwhile, legislations like the ECA that disincentivise investments in crop warehouses and cold storages so the power of controlling price and volume is not transferred to the executive, were never addressed. There, repealing this legisiation was of the utmost importance.
Agricultural marketing policies in India continue to be guided by state intervention in procurement and distribution of farm produce. Most states have enacted the Agricultural Produce Marketing Committee Acts (APMC) in order to regulate, control and monopolize the functioning of farm markets.
This history of ECA is very closely associated with the history of Famines in India before Independence, at a time when the world was nearing the end of World War II. Famines were a recurring aspect of life in India, causing the death of over 60 million people.[ii] The ECA then came into existence in a scarce economy. This was because the government wanted to protect consumers by imposing a ceiling on how much of various commodities one can stock. These limits, however, used to be lowered abruptly if there was a rise in prices. The government has invoked this Act numerous times in order to ensure that the suppliers don’t start hoarding essential commodities.
Developing countries around the world have recognized the importance of market liberalization programs and the need for legal reforms intended to improve the efficiency and effectiveness of the marketing system.[iii] An organized market in the country began in 1935 with the establishment of a central organization – the office of Agricultural Marketing Advisor to the Government of India now known as the Directorate of Marketing and Inspection in the Ministry of Agriculture, Government of India. Agricultural markets exist in all states except a handful few. APMCs are state legislations and, until now, 27 regulated Market Acts[iv] have been enacted in different States and Union Territories.
The ECA – a Draconian Law
The Economic survey[v] in January recommended jettisoning the “draconian and anachronistic” Act. ECA empowers the state as well as the central government under Section 3[vi] to regulate and control the price of goods mentioned under the list of commodities in the Schedule of the Act. The government is also empowered under Section 2A[vii] of ECA to add or remove any commodity from the list. The ECA under Section 3[viii] delegates the power to the executives at the Centre and the State to set prices via delegated legislation called Control Orders. Additionally, no deliberation is required under any legislation. The government can dictate the quantity of food that a trader can store or sell and at what price. The traders while purchasing the produce from farmers try to get into the purchase contract, but if they honor those contracts there is always a chance that he might exceed the holding limit.
Farming in India is seasonal and, consequently, there is variation in demand for various commodities. Therefore, it is required that large silos and cold storages be established to store the produce. When there is variation in price, certain commodities can be made available, thus maintaining market stability. But ECA became the tool of exploitation, and the silos, the prime target of raids. Additionally, under Section 7[ix] of ECA, the violators of certain provisions may be imprisoned for up to seven years. It is to be noted that building silos and cold storages is an expensive process with the revenue generated being low. This is the reason behind almost all of the cold storages in India being owned and/or controlled by the Food Corporation of India. Since the danger of raids persists over these big silos, it results in the formation of grey market intermediaries who demand a ‘risk premium’ from both ends.
The government sometimes tries to provide loans through public sector banks and capital subsidies to anyone willing to set up warehouse or storage facilities. However, the probable issue of defaulting on these due to control orders will convert these loans into non-performing assets for the bank.
Now, with the amendments to the ECA that deregulate the prices of commodities. will empower traders, which will by way of a domino effect, empower the farmers. The Acts that came into existence when India was experiencing a shortage of commodities need to be looked into for aid with the current scenario.
Mandis are rigged
The APMC markets in India have become increasingly monopolistic and opaque over time. The regulated markets formed under the APMC Acts do not allow exporters or processors to directly buy from the farmers. Under some of the state APMC Acts – for instance, West Bengal – it is illegal to approach the farmers directly to buy from. Due to this, there is an increased number of middlemen forming a virtual barrier between the producers and the farmers called commission agents. Thus, the processing and exporting of agricultural products is discouraged. The licensing of commission agents in the state-regulated markets has led to the monopoly of licensed traders who act as major barriers in the entry of new entrepreneurs. These commission agents charge varying amounts – from 1% to 2.5% – on food grains, and 4% to 8% in the case of fruits and vegetables.[x] It has been reported several times that the commission is being charged from both parties which is essentially ‘looting’ them. The commission, which is being charged by the agents, is also decided by the market committees who are in no way accountable for the figure quoted by them for ‘commission’.
Under the ECA, only the government was allowed to set up markets and no private player was allowed to invest and/or set up market infrastructure. Over time these government regulated markets have become the ‘Adda’ of cartels having caste and political backing resulting in variation of the prices. To add to this, they lack motive to promote the interest of farmers.
The Inter-Ministerial Task Force on agricultural reforms[xi] (2002) suggested an amendment to the APMC Act to allow direct marketing and establishment of agricultural markets by the private and co-operative sector for more efficient marketing. So, in response to the agricultural ministry at that time, a Model APMC Act 2003[xii] was formulated with the following salient features:
- Divided the state into several market areas administrated by separate APMCs.
- Anyone other than APMCs can establish new markets.
- No compulsion on the farmer to sell only at APMCs.
- Provisions of contract framing.
- Single point levy market fee on the sale.
- Provisions for dispute resolutions.
- Creation of market infrastructure.
It was left upon the states to make progress in this regard as APMC was under the state list. Now, the center has decided to bring about central legislations in order to dismantle the existing APMC structure and replace it with the e-NAM. The government is making use of Entry 41[xiii] of the Union List which talks about inter-state trade and commerce.
“The Government has no business to be in businessPM Narendra Modi
These steps are long overdue structural changes in the agricultural sector and can serve the farmers better. It is always important to remember that though agricultural activities contribute only 15 per cent[xiv] to India’s GDP, it employs a whopping 45% of the population. So, indirectly, around 70% of the population is dependent on agriculture and it can only be hoped that these structural reforms bring substantial changes in the lives of the farmers.
[i] Atmanirbhar Bharat Abhiyan | Nirmala Sitharaman announces new law for contract farming in third tranche of economic stimulus package – The Hindu, , https://www.thehindu.com/business/Economy/atmanirbhar-bharat-abhiyan-coronavirus-package-nirmala-sitharaman-announces-new-law-for-contract-farming-in-third-tranche-of-economic-stimulus-package/article31593785.ece (last visited May 20, 2020).
[ii] Naresh Chandra Sourabh & Timo Myllyntaus, Famines in Late Nineteenth-Century India: Politics, Culture, and Environmental Justice., Rachel Carson Cent. Environ. Soc. Munich, Ger. (2015), http://www.environmentandsociety.org/node/6812 (last visited May 20, 2020).
[vi] Section 3, Essential Commodities Act, 1955.
[vii] Section 2A, Essential Commodities Act, 1955.
[viii] Section 3, Essential Commodities Act, 1955.
[ix] Section 7, Essential Commodities Act, 1955.
[xi] Report of Task Force on Agricultural Marketing Reforms, , https://dmi.gov.in/Documents/ReportTaskForceAMR.pdf (last visited May 21, 2020).
[xiii] Entry 41, Seventh Schedule, Constitution of India, 1950.
[xiv] Why Indian farmers have stayed poor & how Modi govt’s latest initiatives can change that, , https://theprint.in/opinion/why-indian-farmers-have-stayed-poor-how-modi-govts-latest-initiatives-can-change-that/422846/ (last visited May 21, 2020).