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Wednesday 6 January 2021
AGRICULTURAL REFORMS-2020- MY QUIXOTIC THOUGHTS[1]
AGRICULTURAL
REFORMS-2020- MY QUIXOTIC THOUGHTS[1]
Under the Indian Constitution,
Agriculture is in the State list with a
rider that it is also in the Concurrent List giving Centre and the States to
control production, supply and distribution of agricultural products. For
example, while the Agricultural Produce Market Committees (APMC) are under the direct
control of respective States where the farmers are allowed to market their
produce, the Food Corporation of India (FCI), CWC etc., are under the control
of the GoI for procurement, storing and distribution of agri-produce.
End of 2020- the Agricultural
Reforms-2020 has been in the eye of a storm
of the people who either themselves feel affected by the measures of the Government
of India(GoI). The New Law is about the three Bills viz.,
i.
Farmers’ Produce Trade and Commerce (Promotion
and Facilitation) Bill, 2020,
ii.
Farmers (Empowerment and Protection)
Agreement of Price Assistance and Farm Services Bill, 2020 and,
iii.
The Essential Commodities (Amendment)
Bill, 2020.
The First Bill aims to promote seamless
inter-state and intra-state trade removing the hurdles in the present system, restricting
such movements. This is an important step that would improve the ease of doing
agri-business.
The Second Bill addresses
the issues relating to backward and forward integration of the entire
Agricultural Supply Chain which among other things includes, engaging
processors, aggregators, wholesalers, exporters, retailers and others.
The Third Bill is an improvement
of the existing Essential Commodities Act that would liberalise the regulatory
environment for farmers.
The reader should also
understand that there is a big elephant in the room which the government is
opining as the stumbling block for the ills of the farmers in the country. That
is the APMC which is under the control of the respective States.
Agricultural market
regulation is continuously evolving since the British Rule beginning with the
‘Bear Cotton and Grain Market Act of 1887’.[2] In the Post-Independence India, concern of the
government was to protect the interest of the farmers from the middlemen/Katcha
Adat/Pukka Adat/Trader/Processor etc. But, the value chain from the farmer to
the processor is quite long like an Anaconda with seven intermediaries. At
every stage, a farmer would have to suffer financial loss both directly and
indirectly. Directly, a small farmer will not have access to the Mandi.
Indirectly, the trader will tend to underestimate the quality of the produce
and pay a discounted price even assuming the Minimum Support Price (MSP) as a
bench-mark. At the Mandi level, loss due to poor weighing system, delay in
payment to the farmer etc., act against the farming community. Besides, payment of levies for various
services such as facilitation, auction, quality testing, brokerage between the
Pukka Adat and the Processor directly or indirectly paid by the farmer. The
charges, commission etc., in passing through the APMC, range from 0.5% to 6%.
In case, a buyer buys the produce from the farmer outside the APMC area, even
then, he will have to pay the commission as levied by it which is indirectly
collected from the farmer.
In the New dispensation,
the entire value chain has been reduced to two stages- Farmer to the APMC or
Farmer to the Trader/Processor. The whole machinery of collecting various
charges/brokerage/commission etc., has been done away with and to that extent, a
farmer would stand to gain a reasonable surplus over his cost of production.
Implementation of new Laws would help in price discovery for various agri-commodities.
MSP -What is it?
The MSP is a minimum
guaranteed price by the GoI that is expected to act as a safety net for the
farmers. At present, 23 agri-products are covered under the MSP with Wheat and
Rice dominating the list. The GoI by and
large intervene and provide support to the farmers by procuring the
agri-produce at MSP if the price for a particular commodity falls below the
price offered outside the APMC/ FCI areas. It also facilitates the farmers in
price discovery.
Role of Agriculture in
Indian Economy
From time to time,
economists and specialists in agriculture have debated the relative importance
of agriculture and industry in economic development of our country. The debates
were also on the relative merits and demerits of agriculture based economy for
our country. The reality is that while agricultural development is possible
without industry but not vice-versa.
a. Production and Productivity Challenge
Indian farmers are caught in a vicious circle of low risk taking ability-low investment-low productivity and weak market orientation. According to the GoI data, India's rice yield was 2191 kg/hectare, while the global average stood at 3026 kg/hectare, while wheat was 2750 kg/hectare as against the world average yield of 3289 kg/hectare.[3] The crop yields in India are lower than those in the US, Europe and China and the government is implementing several schemes to address this issue.
A close look at the State-wise production of major two food crops viz., Rice and Wheat, would give us a clear diversity in the area of cultivation and their production. As far as production of rice is concerned, except Kerala and Rajasthan, it ranges in other States from 1973 (thousand tonnes) in Gujarat to 15,570 in West Bengal. As far as production of wheat, UP tops the list with production of 32,587 thousand tonnes followed by MP with 19,607. The Punjab ranks third and Haryana and Rajasthan closely following.[4] This analysis is significant in the context of the agitation of the farmers who are toilers in the soil.
c.
Commercial Crops
As far as the commercial crops, the farmers market either through the cooperatives like Sugar Cooperatives of Maharashtra, through their network of Farmer Producer Organisations (FPOs) or directly to the corporates such as ITC through its e-Choupal platform.
d.
Concerns
Despite food sufficiency (cereals and to some extent pulses), India is a net importer of oilseeds even after seventy years of Independence. Another area of concern is limited storage facilities near the places of agricultural production, very limited processing of farm produce to bring value addition to the final product, not producing crops suited for converting them into a higher value product. For example, though the tomato production in India during 2019-2020, was over 21 Million Metric Tonnes, almost 99 per cent of the production were consumed as raw tomatoes with just 1.50 lakh tonnes getting processed. The tomatoes produced are mainly for table purposes. It is an irony that India is still importing finished tomato products (paste, canned and sauce) with 72 per cent of imports from China followed by the US (17%). Beside the mind-set of farmers in not changing the species of Tomatoes, non-availability of quality seeds, weak infrastructure by way of absence of refrigerated systems, absence of processing units nearby production points instead of those used for table purposes is one of the reasons for this state of affairs.
History tells us that Asia (mainly, India and China) was the birthplace of Almonds. Fast Forward 1980-2020, the California Almonds are the flavour of the Indians and other countries. It will be a great sight to watch huge almond orchards stretching from Sacramento Valley to the San Joaquin Valley in California. India lost its best healthy food to the US.
Before summarising the issues, a
brief flash
back.
i.
The 8th November 2016
announcement of demonetization, banning high-denomination currency notes
brought us hope of death of the Black Money. To put the long story short, the
demonetisation did not remove the Black Money. But the flip side of this move
was the paradigm shift towards
technology driven financial system. We are witnessing shift towards on-line
payment systems such as Paytm, Google Pay, Amazon Pay, Jio Pay etc., replacing
cash even at the level of roadside flower, vegetable vendors. This simple
mobile driven secured payment mode with QR or UPI system, has made a huge
impact in the ease of doing business even by the micro-entrepreneurs and it ushered
in a Tech-driven India.
ii.
The beginning of 2020, the COVID-19
pandemic shook the world touching almost every citizen. It is still refusing to
die. The direct impact was loss of millions of lives of people across the globe.
In India, the flip side is that it ensured better hygiene and improved health
(India is one of the countries with least COVID mortality),Virtual Meetings
(ZOOM), technology driven educational system annihilating time and distance and
a host of other benefits.
Where do we go from here?
The farmers’ agitation is mainly from the states (Punjab, Haryana, UP, MP, Bihar) which are the main suppliers of Rice and Wheat for the country. The farmers producing commercial crops and other cereals are not part of the agitation as they have little to gain out of this exercise.
While every farmer, economist, policy maker is accepting the need to bring agricultural reforms, the move by the GoI in divesting the ‘Agriculture’ from the States and making itself a ‘De-facto’ Administrator is resisted by the States which needs to be addressed.
Though, the GoI is assuring continuation of their policy on two major issues viz., MSP and the APMCs, the agitating farmers are refusing to buy the rationale offered. Perhaps, using the metaphor ‘Cutting the Gordian Knot’, the GoI may scrap both the APMCs and FCIs and make the government themselves buy their food requirements from the market and supply to the needy absorbing the subsidy component under various schemes in operation.
Another initiative needed is bringing the big farmers with an Annual Net Income above a threshold of say Rs.10 lakh in the ambit of the Income Tax. This will have strong resistance from the policy makers as it might tilt the polling results either way. But, it will bring better equity among the direct tax payers in the country.
Create enabling environment for setting up of FPOs with focus on rural clusters that would make the farmers feel proud of owning their agri-business.
Consider the NE region and other areas where agriculture is more at subsistence level and local conditions specific like Jhum Cultivation, Step-farming etc., and provide special assistance to the communities engaged in such practices.
Spread the message on the advantages of the Agricultural Reforms Package through media and in person through the people’s representatives.
Reiteration of the quote of Joseph Schumpeter will be more appropriate here, for the benefit of those who want agriculture to prosper in our country. He said that ‘through Creative destruction incessant product and process innovation mechanism by which new production units would replace outdated ones’.
These measures might appear quixotic. But, the remedial measures should be strong enough to benefit the farmers in the long run.
Dr S Santhanam PhD(Eco)
GM (Retd), NABARD
Bengaluru 560 102
Mobile: 9422524254
[1]
Dr S Santhanam PhD(Eco), CAIIB, GM(Retd), NABARD, Bengaluru 560 102.
[2]
https://en.wikipedia.org/wiki/Agricultural_produce_market_committee
[3] https://economictimes.indiatimes.com/news/economy/agriculture/indias-crop-yields-lower-than-us-europe-and-china/articleshow/55558872.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
[4]
https://dbie.rbi.org.in/DBIE/dbie.rbi?site=statistics
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