India Today|June 08, 2020
The announcements relating to fundamental reforms in India’s agricultural markets were a particular highlight of Union finance minister Nirmala Sitharaman’s recent stimulus-cum-reforms package, delivered in five instalments. Most commentators have received the agri reforms, three in particular, quite effusively: the decision to amend the Essential Commodities Act (ECA), 1955; a national law for agricultural markets; and a legal framework to enable contract farming.
Ever since India embarked on economic reforms in 1991, agricultural market reforms have been a vexatious issue. A big challenge is that both ‘agriculture’ and ‘market’ are state subjects, even though the Centre has overarching powers, via Article 301, to ensure that trade within the country is free of barriers. Thus, state-specific laws under the Agricultural Produce Marketing Committee (APMC) Acts regulate agricultural trade within states. These typically mandate purchase of ‘notified’ agricultural commodities through government-regulated markets (mandis), on payment of specified commissions and marketing fees. There is, however, substantial variation across states in the scope and stringency of these Acts, and this variation has led to fragmented markets that have impeded the emergence of a single national market. Consequently, on the journey from farmer to end-consumer, commodities change hands five to six times, and the farmer gets no more than 25-50 per cent of wholesale prices. Removing interstate barriers to trade, one estimate suggests, can increase farmer prices by 11 per cent.
The ECA, on the other hand, allows the Centre to impose restrictions on storage and movement of certain ‘essential’ commodities by private parties, mainly to protect consumers. Here too, states are free to set stocking limits based on the Centre’s notifications. The ECA is a hurdle to private investment in post-harvest storage, warehousing and processing, especially because these controls are not even predictable.
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June 08, 2020