AGRICULTURAL REFORMS-2020 AND INCLUSIVE FINANCE

  MY QUIXOTIC THOUGHTS[1]

The New Year-2021 has started with the farmers’ agitation turning into a series of chilling events that culminated on the Republic day, the 26 January 2021. This day will be remembered for the vandalism witnessed in the premises of the Red Fort, Delhi where the huge crowd of people (I do not wish to classify them as agitating farmers) raised the flag of Punjab alongside the National Flag. A black day in the history of this great democracy called Bharat. Earlier, it was thought that the 12^th  January 2021 would be a day that will be remembered and discussed for some more time. Until then, only views and counter-views and the merits and demerits of the three Farm Laws as part of Agricultural Reforms-2020 occupied the media space. On that eventful day, the Supreme Court(SC) suspended implementation of these Laws. In addition, it went ahead by setting up a four-member expert committee to ‘negotiate’ between the farmers and the government. Even before the ink used for writing the SC judgement dried up, one of the committee members resigned from it. It has added further confusion to the way things are going to evolve in the near future. A few days back, the Reliance company, the leading corporate in a number of sectors, announced that it would enter into an agreement for purchase of paddy through a Farmers’ Producer Organisation (FPO) in Karnataka paying above the Minimum Support Price (MSP). As a gesture of goodwill, the Government of India have announced that it would keep implementation of the three Laws in abeyance for one to one and a half year.

These moves may or may not resolve the issue, as the agitating farmers appear to be having a single agenda, that is, total withdrawal of the three Laws by the government. 

Understanding the Issue

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  the respective States where the farmers are allowed to market their produce, the Food Corporation of India (FCI), Central Warehousing Corporation (CWC) etc., are under the control of the Government of India (GoI) for procurement, storing and distribution of agricultural 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 GoI or getting misguided by some of the vested interests who know only to oppose without offering any implementable solutions. 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.

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.

Production and Productivity Challenge

Food Crops

A close look at the State-wise production food crops including two major crops viz., Rice and Wheat, would give us a clear diversity in the area of cultivation and their production (Table-1).

 

Table-1: STATE-WISE PRODUCTION OF FOODGRAIN  CROPS (Thousand Tonnes)
State / Union Territory	Year	Rice	Wheat	Coarse Cereals	Pulses	Food Grains
ANDHRA PRADESH	2019-20	8638.1	0.0	2681.2	1185.3	12504.7
ASSAM	2019-20	5097.8	23.7	108.4	119.0	5348.8
BIHAR	2019-20	6053.1	5897.0	2036.3	400.9	14387.3
CHHATTISGARH	2019-20	6499.8	115.3	312.3	239.2	7266.6
GUJARAT	2019-20	1973.2	3211.8	1740.8	1060.8	7986.6
HARYANA	2019-20	4824.3	11876.4	1098.4	64.4	17863.5
JHARKHAND	2019-20	3190.7	444.8	530.7	815.4	4981.6
KARNATAKA	2019-20	3676.2	219.8	6450.5	2232.1	12578.6
KERALA	2019-20	614.2	0.0	0.7	2.2	617.1
MADHYA PRADESH	2019-20	4801.8	19607.1	4822.2	3799.3	33030.5
MAHARASHTRA	2019-20	3183.1	2076.0	4726.6	4028.7	14014.4
ORISSA	2019-20	8037.4	0.2	233.2	424.0	8694.7
PUNJAB	2019-20	11782.2	17568.1	629.1	10.8	29990.2
RAJASTHAN	2019-20	480.5	10916.1	7287.1	4494.8	23178.6
TAMIL NADU	2019-20	7181.4	-	3333.1	523.8	11038.4
UTTARAKHAND	2019-20	653.6	912.9	265.6	56.3	1888.5
UTTAR PRADESH	2019-20	15523.7	32586.8	4472.5	2445.5	55028.6
WEST BENGAL	2019-20	15569.7	583.8	1655.2	446.8	18255.5
ALL INDIA	2019-20	118425.8	107592.0	47477.8	23153.6	296649.2
ALL INDIA	1980-81	53631.4	36312.6	29018.0	10623.7	129585.7
TELANGANA	2019-20	7337.2	7.4	3119.4	556.7	11020.7

Source : Ministry of Agriculture & Farmers Welfare, Government of India

As far as production of rice is concerned, except Kerala and Rajasthan, it ranges in other States from 1973 (thousand tonnes) in Gujarat to 15,524 in the UP and 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 thousand tonnes. The Punjab ranks third and Haryana and Rajasthan closely following.[2] This analysis is significant in the context of the agitation of the farmers who are toilers in the soil.

 

When we look at the area under cultivation of food crops for the years 2015-2020 and compare it with the situation in 1950-51, there was an appreciable increase in the area of cultivation of food crops. For Rice, it increased from 308 lakh hectares in 1950-51 to 438 lakh hectares in 2019-20. As for Wheat production is concerned, the area increased by over 3.21 times during the same period. The area of cultivation of food grains increased from 973 lakh hectares to 1276 lakh hectares during the same period, an increase of 1.31 times (Table-2). The credit goes to Dr M.S.Swaminathan, Indian Geneticist who saved India in the 1960s from the brink of poverty by introducing ‘Green Revolution’ and focussing on Rice and Wheat cultivation using improved seeds and modern cultivation techniques. As they say, rest is the history with India becoming self-sufficient in food production soon after.

 

Table-2: Area Under Cultivation- Food Grains (Lakh hectares)
Year	Cereals
	Rice	Wheat	Coarse Cereals	Total Cereals	Pulses	Total Foodgrains
2019-20	438	315	240	993	283	1276
2018-19	442	293	221	956	292	1248
2017-18	438	297	243	978	298	1275
2016-17	440	308	250	998	294	1292
2015-16	435	304	244	983	249	1232
1950-51	308	98	377	782	191	973

Source : Ministry of Agriculture & Farmers Welfare, Government of India

 

But, the Indian farmers are now 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.

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. However, a review of State-wise production of major commercial crops reveals that in 2019-20, the States like Gujarat, Madhya Pradesh and Rajasthan led in Oilseeds production (6786 -6572 thousand tonnes) – See Table-3 for State-wise presentation oilseeds production and Sugarcane production during 2019-20 and compared with 1980-81.  The Oilseeds production has gone up from 9373 thousand tonnes in 1980-81, it increased to 33,423 thousand tonnes in 2019-20, a jump of over 3.5 times in a span of forty  years. An impressive increase but far below our requirement. With the result, India is still a country deficit in Oilseeds production depending on huge imports from outside. When we look at the growth of Sugarcane production during the same period 1980-81 to 2019-20, the increase in production has gone up by 50 times (from 7010 thousand tonnes in 1980-81 to as high as 3,55,700 thousand tonnes). Sugarcane is a highly water-dependent crop and its cultivation has made a number of districts in Maharashtra, Uttar Pradesh, Bihar, Gujarat, Karnataka dry. There is need to sensitise the farmers to change from cultivation of Sugarcane to other more viable and water conserving Oilseeds crops and other crops.

Table-3: STATE-WISE PRODUCTION OF MAJOR COMMERCIAL CROPS
(Thousand Tonnes)
State / Union Territory	Year	Oilseeds	Sugarcane
ANDHRA PRADESH	2019-20	899.7	6769.9
ARUNACHAL PRADESH	2019-20	-	-
ASSAM	2019-20	201.4	1147.1
BIHAR	2019-20	120.5	12738.3
CHHATTISGARH	2019-20	159.0	1759.0
GOA	2019-20	-	-
GUJARAT	2019-20	6664.2	10743.7
HARYANA	2019-20	1168.3	7798.2
HIMACHAL PRADESH	2019-20	6.1	33.1
JAMMU & KASHMIR	2019-20	-	-
JHARKHAND	2019-20	282.6	0.0
KARNATAKA	2019-20	1206.2	31600.0
KERALA	2019-20	0.3	122.5
MADHYA PRADESH	2019-20	6571.8	7433.8
MAHARASHTRA	2019-20	4951.6	64666.0
MANIPUR	2019-20	-	-
MEGHALAYA	2019-20	-	-
MIZORAM	2019-20	-	-
NAGALAND	2019-20	-	-
ORISSA	2019-20	98.6	453.9
PUNJAB	2019-20	70.6	7633.4
RAJASTHAN	2019-20	6785.6	326.2
SIKKIM	2019-20	-	-
TAMIL NADU	2019-20	1024.3	12661.1
TRIPURA	2019-20	0.0	0.0
UTTARAKHAND	2019-20	21.1	6937.7
UTTAR PRADESH	2019-20	1142.0	178421.9
WEST BENGAL	2019-20	1166.0	1724.0
ALL STATES	2019-20	33422.8	355699.7
UNION TERRITORIES	2019-20	-	-
ALL INDIA	2019-20	33422.8	355699.7
ALL INDIA	1980-81	9373.1	7010.0
TELANGANA	2019-20	645.0	1951.2

Source : Ministry of Agriculture & Farmers Welfare, Government of India

 

Again, looking at the area under cultivation of major commercial crops, the total Oilseeds production has gone up from 107 lakh hectares in 1950-51 to 270 lakh hectares in 2019-20, an increase of over 2.5 times during the same period. While area under cultivation for crops like groundnut, Tea and Coffee remained almost at the same level as in 1950-51 when compared to 2019-20, the area under cultivation of Soyabean and Sugarcane have grown multiple times. Cultivation of Soyabean was almost unknown in the country till about 1950-51. Since then, it has been growing at a steady pace and stood at 121 lakh hectares in 2019-20. As analysis of  the area under cultivation of various commercial crops (Table-4), the sugarcane cultivation has grown almost thrice from 17 lakh hectares to 46 lakh hectares during the same period. There is a strong case for the policy makers to look at the growing imbalance in production of commercial crops and remedy the situation.

 

	Table-4: AREA UNDER CULTIVATION -YEAR-WISE AND COMPARED WITH 1950-51- MAJOR COMMERCIAL CROPS
	(Lakh hectares)
	Year	Oliseeds
		Groundnut	Rapeseed & Mustard	Soyabean	Total Oilseeds	Sugarcane	Tea	Coffee
	2019-20	49	68	121	270	46	6	5
	2018-19	47	61	111	248	51	6	5
	2017-18	49	60	103	245	47	6	5
	2016-17	53	61	112	262	44	6	5
	2015-16	46	57	116	219	49	6	4
	1950-51	45	21	-	107	17	-	-

       Source : Ministry of Agriculture & Farmers Welfare, Government of India

 

Agricultural Supply Chain Challenges:  Seven Vs Two

Agricultural market regulation is continuously evolving since the British Rule beginning with the ‘Bear Cotton and Grain Market Act of 1887’.[4]  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 snake 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 agricultural 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, twenty three 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.

Concerns

In the light of the above, the issues of the farmers can be classified into two buckets. One, the real issues that can be discussed and suitable solutions found satisfying both the farming community and the government. Two, politics connected to the issue. This cannot be resolved through media discussions.

Food Grains Sufficient but Oilseeds Imported

Despite food sufficiency (cereals and to some extent pulses), India is a net importer of Oilseeds even after seventy years of  Independence. India have moved a long way since the days of living in poverty in the 1960s to the huge surplus in the 2020s. The same farming communities, mainly from Punjab and Haryana,  who found great opportunities in quickly adopting to the new way of cultivation of Rice and Wheat during 1960s are unable to shift to other crops in the 2020s. Immediate concern is for the Policy makers to look at the ways of modifying and reducing the area under Sugar cultivation, Paddy and Wheat.

 

 

 

 

Improve Farm Mechanisation

There is also a need to address the issue of lower farm mechanisation in India which is only about 40 per cent as compared to about 60 per cent in China and around 75 per cent in Brazil. Given the fact that the livestock sector has grown at a compound annual growth rate of nearly 8 per cent over the last five years, it assumes an important role in income, employment and nutritional security. Though, the food processing sector is growing at an average annual growth rate of more than 5 per cent over the last six years ending 2017-18, more focussed attention to the sector is required due to its significant role in reducing post-harvest losses and creation of additional market for farm outputs. A study by NABARD in 2018 on farm mechanization has identified that economies of operation due to small holdings, access to power, credit cost and procedures, uninsured markets and low awareness being some of the important reasons for lower rate of agricultural mechanization in India.[5]

 

Produce Crops for Value Addition & Improve Storage Facilities

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 products. For example, though the tomato production in India during 2019-2020, was over 20 Million Metric Tonnes, almost 99 per cent of the production were consumed as raw tomatoes with just 1.50 lakh tonnes getting processed.[6] 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%).[7] Beside the mind-set of the  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. It is very important to increase value addition to the agricultural products instead of bringing them to the market as raw end products. Examples are plenty.  In addition to tomato mentioned above, fruits like Pine-apple, Apple, Pomegranate,  Oranges, rare fruits of NE Region and vegetables like Gherkins (for pickling), Ginger etc., can be produced choosing specific varieties suited for processing.

 

Diversify Food Crops Production

A close look at the State-wise analysis about the production of food crops including two major crops viz., Rice and Wheat, clearly indicates the need for diversifying the food crop production from these two traditional crops to other crops particularly pulses and other vegetable crops.

 

Diversify Commercial Crops Production

As for the commercial crops, the farmers engaged in Sugarcane cultivation, particularly, Maharashtra and Uttar Pradesh and to some extent Punjab should view the harm they are doing to the Mother Earth as the ground water table is getting depleted making larger areas going dry year after year. The greater emphasis on micro-watershed farming in these states and other states tells us the sorry state of affairs on account of the misuse of agricultural lands for cultivation of crops that are not suited to the area. Perhaps, these farmers should be sensitised on the advantages of the theory of Comparative Advantage (David Ricardo-19^th Century Classical Economist).  

 

Productivity- Adopt Technology Driven Solution

The 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.[8]  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. The government and the farmers alone can resolve this imbalance and through incentives they should be encouraged to  diversify to other crops. The 21^st Century has opened up opportunities for Agri-Startups in India. Technology has annihilated time and distance. Using appropriate technology for increasing productivity of various crops should be widely made known and encouraged with suitable incentives as generally provided for industrial development.

 

Rural Finance and Inclusive Finance in Agriculture

Perhaps, India is one of the countries which realised the need to look at the financial needs of the agricultural sector even before it got its Independence was achieved by creating a separate department called ‘Agriculture Credit Department (ACD)[9]’ under the Reserve Bank of India (RBI) umbrella. Over the years it grew and the Agricultural Refinance and Development Corporation (ARDC) was formed which in 1982 became the National Bank for Agriculture and Rural Development (NABARD), as one of the Development Financial Institutions (DFI) in the World. Since nationalisation of private banks as Public Sector Banks (PSBs) in 1969 provided impetus for the growth of rural credit. Priority Sector lending with specific proportion for agriculture and other untouched sector helped to push the directed credit to the targeted segment of the population. The formation of Self Help Groups (SHGs) in 1992 with support from the RBI and NABARD and the growth of  Micro-Finance Institutions (MFIs) have spurred the financing of  agricultural finance as part of MF. With the complex nature of financing the agriculture sector, the difficulties being faced by the PSBs in financing it, the role of MFIs needs to be relooked. The MFIs have been financing more of non-farm sector of rural and urban credit needs of unbanked people. Perhaps, a special category MFIs can be encouraged to provide the linkage between the farming community and the market. The FPOs are the new generation institutions targeting agricultural community. But, the composition of  members and ownership of the FPOs give an impression that the small and marginal farmers continue to get excluded as these institutions are dominated by the  big farmers. With the cooperative agricultural credit institutions are under the control of the State Governments  which have their inherent management and huge Non-Performing Assets (NPAs) and more politically controlled, a better option will be specialised Agri-MFIs.

 

The organisations such as Sa-Dhan, the Association of Community Development Finance Institutions, and MFIN are two RBI recognised Self- Regulatory Organisations(SROs). These two SROs and organisations such as ACCESS that focus on livelihood support organisations are pioneers in the area of Advocacy and functioning as a voice of the millions of voiceless people in the country and working with the governments both nationally and internationally. They are also functioning as Advocacy NGOs in the micro-finance sector. Their expertise should be used by the GoI for smooth implementation of  the Agri-Reforms measures in the country.

 

Way Forward

 

The perception of the States is that the action of the GoI would divest the ‘Agriculture’ from the States and make itself a ‘De-facto’ Administrator. But, someone will have to take the bull by the horn and the Policy makers have shown the determination to go ahead with the implementation of the three Laws with a Vision of making India an economically stronger country. As part of inclusiveness, the GoI may allow the States to adopt the Laws as suited to them. This might comfort the States who feel that they were not consulted.

 

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 governments themselves buy their food requirements from the market and supply to the needy absorbing the subsidy component under various schemes in operation. The announcement of the Reliance to buy Rice from the Karnataka farmers paying more than the MSP should create confidence among the farmers that action of the GoI is in their interest.

 

 

Create enabling environment for setting up of Farmer Producer Organisations (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 agricultural practices. Most of the areas in the NE Region are virgin lands and Organic Farming can be encouraged. As a corollary to the Organic Farming, the strict standards and regulation should be in place so that the huge health conscious Indian and people in other countries can buy our Organic Certified agricultural products.

 

Spread the message on the advantages of the Agricultural Reforms Package through media and in person through the people’s representatives.

 

Encourage setting up of AgriMFIs for providing exclusive attention to the small and marginal farmers’ credit needs.

 

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

C 1101, Springfields Apts

Sarjapur Road

Bengaluru 560 102

Mobile: 9422524254

 

 

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[1] Dr S Santhanam PhD(Eco), CAIIB, GM(Retd), NABARD, Bengaluru 560 102.

[2] https://dbie.rbi.org.in/DBIE/dbie.rbi?site=statistics

[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://en.wikipedia.org/wiki/Agricultural_produce_market_committee

[5] https://www.indiabudget.gov.in/economicsurvey/doc/vol2chapter/echap07_vol2.pdf

[6] http://www.tomatonews.com/en/india-the-sleeping-tiger--part-1_2_1213.html

[7] http://www.tomatonews.com/en/india-the-sleeping-tiger--part-2-_2_1214.html

[8] 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

 

[9] Later renamed as the Rural Planning and Credit Department -RPCD