Credits: The Daily Guardian

Agriculture sector in India has suffered from the apathy, inaction and myopism of the government until 2020. The sector employs more than 50 percent of the workforce of the country; however, it contributes less than twenty percent to the country’s GDP.

For the first time in the history of India, efforts have been made by the current Government to create a liberal framework for agriculture. With the introduction of the farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, the government has taken a giant leap in reforming the sector. The Ordinance proposes to bring a paradigm shift by adopting truly market centric, liberal reforms.

There are several laudable changes brought by the aforesaid Ordinance. It provides for “barrier-free inter-state and intra-state trade” in agricultural produce and “eliminates intermediaries”. Further, it promotes “trade and commerce” outside the physical premises of markets covered by State Agricultural Produce Marketing legislation. It allows farmers to sell their produce outside the Agriculture Produce Market Committee (APMC) mandis. Farmers having permanent account numbers with the Income Tax Department may conduct “electronic trading” transaction platforms for agricultural commodities. Most importantly, it allows farmers to engage directly with processors, aggregators, wholesalers, large retailers and exporters. Farmers and buyers may also enter into future contracts. Through these changes, the government has ensured that each farmer can become “Atma Nirbhar” by reducing their dependency on agency, allowing them full realization of the price by having direct bargaining power.

Under the Ordinance, the power of the government to impose regulations on agricultural commodities is also limited to situations such as war, famine, extraordinary price rise and natural calamity.

Given that this Ordinance can best be valid for six month, there is a need to bring in a new set of legislations and amend some existing legislations to ensure that the liberalization of the agriculture sector is here to stay. There is a need to understand the laws that have contributed towards apathy of the agriculture sector. Some laws that need rethinking and “weeding” are land ceiling laws, APMC legislations and Essential Commodities Act.

The current land laws do not allow a person to hold land beyond a specified limit. For instance, an individual cannot hold more than 6 hectares in Manipur, 6.74 in Assam, and 7 in West Bengal. These agricultural land ceiling laws were enacted in the 1960s after the abolition of the zamindari system. The legislation puts a limit on how much land a family can possess. These laws act as an obstruction to the growth of farmers’ pay. Successful farmers who possess the land as per the ceiling limits can’t purchase more land and increase their profit. Those who can afford to take the risk to expand their produce are prevented by the laws.

Another law that requires amendment is APMC legislations. Interestingly, the Ordinance does not abolish the state APMCs. It is no secret that APMC legislations have resulted in restricting access to markets for the small farmers who were left at the bargain and mercy of strong representatives. Criminalization of settling up informal markets and dependence on license for access to Mandis (formal market) has forestalled competition, affecting the farmers’ odds of finding a better price for their produce.

This is contrary to the generally accepted models of price setting in agriculture.

With the changes introduced through the Ordinance, there is likelihood that APMCs will become competitive and effective, offering better negotiations to the farmers. But legislative amendments in the state APMC legislations need to be accordingly made, limiting the power of the state to institute any trade barriers against the spirit of liberalization.

 The Essential Commodities Act (ECA) is yet another law that imposes draconian restrictions on agricultural trade that have deterred investment in storage and processing of produce. Intention of ECA was to prevent hoarding and blackmarketing. The fact that Agriculture is a seasonal activity and it requires storage for “rainy days” of farmers, has been totally missed. The disincentives created by the ECA has led to irrational reactions from the market that includes not investing in warehousing and storage infrastructure. Alongside, various institutions such as the registry of land records, roads and transport, and storage, etc. need to be revamped. It is equally pertinent to focus on availability of easy credit for farmers, development of a sophisticated derivatives market for future trading and competitive insurance agricultural schemes.

It is important that the new agricultural policy and laws are not made under the shadow of old archaic laws and displaced economic incentives. There is a need to remove the “visible hand” form of state regulations that has an overarching power and over regulates the agriculture sector and allow the ‘invisible hand’ to take care of the activities and its output.

This piece was originally published in The Daily Guardian, Tarun Nangia’s Legally Speaking Page. Click here to read.

Read more on agriculture: Harmful Bans and Limited State Capacity: An Agricultural Example