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Saturday July 2, 2022

Indian Agrarian Economic Reforms: Liberalisation, Privatisation, and Globalisation (Part 1)

Agriculture Bill and Indian Farmers
Agriculture Bill and Its impact on farmers
The agriculture sector needs to be treated with empathy and care. It cannot yet be treated at par with other sectors...

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In 1991, the Government of India reversed its earlier economic protection policies and embarked on “Liberalisation, Privatisation and Globalisation” of the economy to attract foreign investment, technology, and services, with a view to modernizing India. At that time, agriculture was not included in this change in policy direction.

Although the contribution of agriculture to the overall GDP is low, it deserves special attention as India ranks 94th in the Global Hunger Index (among 107 countries), and it employs more than 50% of the labour force in the country.

Agriculture Market Reforms (Agriculture Produce Marketing Committee (APMC) Act) in India was enacted in 2003 and released to the states, to make the agriculture marketing system more competitive and required registration of the contract farming. Marketing Reforms Act was further amended in 2017 and rules were published nationwide. The act provided for markets to be set up by private sector players, besides the existing Agricultural Produce Market Committee (APMC). Farmers were free to sell produce by their choice through the formation of Farmer Associations and Farmer-Producer Organisations (FPOs), bulk marketing, contract farming, pledge financing, and by instituting a system of negotiable warehouse receipts. In 2016, the electronic national agriculture market (e-NAM) was launched.

Indian Agriculture Reforms of 2020 (APMC)
Much needed modernization of the agricultural sector

Modernization of the agricultural sector

Agriculture is a state subject in India, however, as a result, 15 state governments amended the existing APMC Acts, 3 state Governments accepted the provisions partially, and 2 states have not accepted the APMC Acts. And in 11 states, fruits and vegetables are not under the APMC Acts. Even in those states that have amended the APMC Act, ground-level implementation is often found wanting. The present farm reforms (of 2020) were passed by the central government through an ordinance, and they established a trade zone for inter-and intra-state trade which is outside the APMC area of operation. Although the bills were initially introduced by Ordinance, they were later approved by the Parliament and signed by the President to become Acts. 

3 Indian Farmers’ Acts of 2020 are:

  1. The Farmers’ Produce Trade and Commerce (FPTC), Promotion and Facilitation Act of 2020
  2. The Essential Commodities (Amendment) Act 2020 (ECA)
  3. Farmers (Empowerment & Protection) Agreement of Price Assurance & Farm Services Act 2020 (FAPAFS)

The three Acts are interrelated and complementary: the first provides for a free market and permits competition; the second and third assure competition, and the third is aimed at safeguarding the legal rights and resolution of disputes. This is the “1991 moment” for Indian agriculture.

The current three farm reform acts could be considered as a landmark, which free farmers from restrictions on the sale of their produce, thus bringing in competition in the commodity value chain and enabling a single common market for agricultural produce. It has also opened the window for an inflow of private capital by allowing farmers to enter contracts with large buyers—such as processors, exporters, and retailers—and by promoting private sector investment in cold storages, warehouses, transport, and other logistics, as well as the removal of restrictions on stocking limits under the Essential Commodities Act (ECA) of 1955.

Modern post-harvest technologies need to be adopted so that the agriculture sector will attract youth and start-ups will result, using state of the art technologies.

Additionally, an Agriculture Infrastructure Fund (AIF) for developing marketing infrastructure, would facilitate other logistical activities aiding value addition—such as cleaning, grading, packaging, primary processing

To protect small-scale farmers and to improve the bargaining capacity of farmers, the government has initiated a process for the creation of 10, 000 farmer- producer organisations (FPOs), supported by the National Bank for Agriculture and Rural Development (NABARD) and state governments.

The three new Acts can jointly usher in a new market-related agricultural revolution in India. 

The way forward for the agrarian economy

No one can ensure sustainable profit other than consumers. Most consumers are paying higher than MSP for all crops., though it is not reaching the farmers. To ensure farmers get their rightful share, we need a direct farmer consumer interface. This was the demand from many farmers’ body since 1991.

The possible options to consider, 

  • To hand over all APMC markets to farmers. Farmer bodies should replace commission agents. This way, farmers will have full control of the market and pricing system in the APMC market and outside. Farmers can determine the price based on consumers’ capacity to pay. State governments could help the farmers by giving them control of APMCs? Farmers are managing Amul and many similar companies. They can manage APMCs as well. Direct interaction with consumers will provide an insight on which crops to grow.
  • There are lessons to learn from the global market. With increasing MSP, there will be more imports and prices will crash sharply in India.
  • India is a part of the global economy. With the rising cost of production, India will be further marginalized. Agricultural processing industries will also suffer because of rising costs. Exports will suffer, and imports will rise. So, the main issue is how to make agriculture profitable for farmers and competitive for trade. The agriculture sector needs better technologies, infrastructure, market intelligence, and guidance for farmers.
Indian farmer
Indian farmer and his options

Legally binding MSP will create more problems than solutions for all stakeholders, mainly farmers. Buyers have the choice of not buying expensive crops from Indian farmers when imported items are cheaper.

In conclusion, our governments at all levels need to change their role of providers and become enablers, if the reforms are to bring about the desired change in the agriculture sector. Adoption of improved crop and Natural Resource Management (NRM) technologies, along with the effective implementation of the proposed farm reforms, would improve land and labour productivity, enabling shifting of the excess labour force dependent on agriculture to off-farm activities, as well as to manufacturing and service sectors. Modern post-harvest technologies need to be adopted so that the agriculture sector will attract youth and start-ups will result, using state of the art technologies. The goal should be to make agriculture a means of livelihood, without resorting to dole-outs, except in the event of natural disasters. 

The consumer-farmer direct interface being facilitated by agriculture reforms is crucial. The goal is such that food and nutrition security is fully attained. The agriculture sector needs to be treated with empathy and care. It cannot yet be treated at par with other sectors, such as industries or services, as the nature of production and pricing is completely different.

Picture Courtesy: Unsplash, Rawpixel

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