The story so far: With mandi closures and supply chain disruptions causing havoc in agricultural marketing, the COVID-19 pandemic has put a spotlight on some of the critical infrastructure gaps and long-pending governance issues that plague the farm sector. The third tranche of the Atmanirbhar Bharat Abhiyan listed measures to deal with those gaps, though there has been no announcement on an immediate economic stimulus for the sector.
What are the reforms announced in the farm sector?
The third tranche announced on Friday focused on long-term issues in the agricultural sector, by promising financing to strengthen infrastructure, build better logistics and ramp up storage capacities, as well as proposing three major governance and administrative reforms that have been in the pipeline for many years.
Atmanirbhar Bharat Abhiyan | First tranche | Second tranche | Third tranche | Fourth tranche
Finance Minister Nirmala Sitharaman’s rationale for the third tranche was that improving farmers’ income needed such long-term investments and changes, rather than a focus on short-term crop loans. However, a number of farmers and activists said that in the light of the COVID-19 crisis, immediate support and relief in the form of cash transfers, loan waivers, and compensation for unsold produce should have come before long-term reforms.
How will they change the agriculture sector?
Taking the opportunity of a crisis situation, the Finance Minister has pushed through reforms that the Centre has been trying to implement for years.
For instance, the Essential Commodities Act, 1955 came into being at a time of food scarcity and famine; last year’s Economic Survey called it an “anachronistic legislation”. It allows the government to control price rise and inflation by imposing stock limits and movement restrictions on commodities, giving States the power to regulate dealer licensing, confiscate stock and even jail traders who fail to comply with restrictions. Earlier this year, it was used to control soaring onion prices.
Traders have long complained of harassment under the Act on the suspicion of hoarding, black marketing and speculation, while food processors and exporters have also pointed out that they may need to stock commodities for longer periods of time. The Act has disincentivised construction of storage capacity and hindered farm exports. Discussions about amending or repealing the Act have been going on for almost two decades. On Friday, the Finance Minister announced that the Act would be amended to deregulate six categories of agricultural foodstuffs: cereals, pulses, edible oils, oilseeds, potato and onion. Stock limits on these commodities will not be imposed except in times of a national calamity or a famine, and will not be imposed at all on food processors or value chain participants, which/who will be allowed to store as much as allowed by their installed capacity. Exporters will also be exempted.
It is hoped that the amendment will bring more private investment into warehouses and post-harvest agricultural infrastructure, including processors, mills and cold chain storage. It could help farmers sell their produce at more competitive rates if there is no fear of government intervention to artificially suppress market prices, and is likely to give a boost to farm exports.
What about the other planned reforms?
The Centre plans to bring in a new federal law to break the nearly half-century long monopoly of the Agricultural Produce Market Committee (APMC) mandis. It has already tried the route of trying to coax State governments into adopting its Model APMC Amendment Act which aims at developing unified State-level markets by offering a State-wide licence and single point levy of market fees while also allowing private markets, direct marketing, ad hoc wholesale buying and e-trading. However, only a few large States ruled by the Bharatiya Janata Party, including Gujarat and Madhya Pradesh, have amended their Acts. Now, the Centre proposes to bypass States altogether by bringing in a federal law to abolish inter-State trade barriers. The hope is that these reforms will bring in more options for the farmer, offering more competitive prices if there is a wider choice of buyers. The plan to bring in a legal framework for contract farming also aims to provide more certainty and choice for farmers, although some experts caution that recent drafts of contract farming law promote the interests of the large corporate player at the expense of safeguarding the small farmer.
How are infrastructure investments expected to help?
Reforming governance structures is of no use unless there is infrastructure on the ground to enable farmers to take advantages of the wider choices with which they are being provided. A ₹1-lakh crore agriculture infrastructure fund run by the National Bank for Agriculture and Rural Development will help create affordable and financially viable post-harvest management infrastructure at the farm gate and aggregation points. The Finance Minister emphasises that her announcements would also bring better infrastructure and logistics support to fish workers, dairy and other livestock farmers, beekeepers and vegetable and medicinal plant growers. She also offered support to lakhs of small informal food processors, mostly women, who need technical upgradation and marketing support in order to compete in a changing marketplace.
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