Introduction to Indian Agriculture
Agriculture is the livelihood of 58% of India's population and should not be underestimated. It makes a significant contribution to the Gross Domestic Product (GDP) of India. India is one of the top 15 agricultural products exporters in the world. It ranks second in the world in agricultural output with a share of 8%. India's agricultural exports reached US $ 38.54 billion in FY19 and US $ 35.09 billion in FY20. From April to October 2020, agricultural exports totaled US $ 10.4 billion. The Gross Value Added (GVA) by forestry, fisheries and agriculture is estimated at Rs 19.48 lakh crore (US $ 276.37 billion) in FY20 (PE). In India at least two-thirds of the working population is directly engaged in the agriculture sector for their livelihood which makes this sector vital in generating employment. Since, agriculture happens to be the largest industry in India, it plays and must play the role of pushing up the rate of capital formation otherwise the whole economy may suffer from a setback. Food processing industries are dependent on agricultural sector for the raw materials. Both for the central and state governments, agriculture and its allied activities like animal husbandry, cattle rearing, poultry farming etc. are the prime source for revenue collection since the inception of the First Five Year Plan. Indian agriculture in the export sector has a cost advantage because of low labor costs and self-sufficiency in input supply which rightly makes the agriculture sector the backbone of Indian economy. This sector also serves as a source of food security to the expanding population as it is the only major source of food supply to a large part of population of this country. It has been estimated that about 60 percent of household consumption is met by agricultural products.
Due to the demand from the latest changes in the economics conditions of the country, there felt a need to review the agricultural market system and bring in changes for its development and growth. The central government passed 3 farms laws for promotion, facilitation, price assurance and amendment in the Essential Commodities Act. The latest reforms in agriculture markets will facilitate the creation of ‘One India One Market’ for agricultural products, create countless opportunities for farmers to move up the value chain in food processing.
The three farm laws
Farmers Produce Trade and Commerce (Promotion and Facilitation) Act 2020, enacted by the Central Government, gives the freedom to the farmers to buy and sell farm produce at any place in the country, inter-state or intra-state, within the APMC mandis or outside them, which will facilitate remunerative prices through competitive alternative trading channels. This act also promotes e-commerce in agriculture by allowing setting up of an electronic platform for the sale and/or purchase of farm produce. The act also has a provision to prescribe a way for the registration of traders and trade transactions in the trade areas. If the system does work properly as given in the act, then the government is given the power to intervene and regulate the whole system.
Farmers Empowerment and Protection Agreement on Price Assurance and Farm Services Act 2020 is the improved version of the Contract farming Act, it shifts the balance in the favor of the farmers by removing the old complicated system of registration/license and various things under contract act. This act provides a national framework on farming agreements to protest and empower the farmers to engage with wholesalers, agri-business firms, large retailers or exporters for farm services and sale of future farm produce at a mutually agreed price in a fair and transparent manner.
Essential Commodities (Amendment) Act 2020 is to modify the Essential Commodities Act 1955. Under this Act, the central government may regulate the supply of the agriculture and food stuff including cereals, pulses, potato, onion, edible oilseeds and oils only under special circumstances such as wars, famines, abnormal price rise and natural disasters. The modification in the act establishes transparent standards on implementing or regulating stock limit, that is, the retail price of horticultural products will increase by 100% or the retail price of non-perishable agri-food stuff will increase by 50% over the price prevailing in the preceding 12 months or average price of last 5 years, which appears to be low.
The central government has received several recommendations from various committees regarding these changes in the agricultural market sector. Some of the recommendations by the committees are discussed below.
Journey to the New Farm Laws
The journey to the 3 Farm laws began 20 Years ago from the Expert Committee on Strengthening and Developing of Agriculture Marketing 2001 under the Chairmanship of Shankerlal Guru. The committee was supposed to bring ideas in order to promote agriculture and ensure a greater share of price of the agriculture produce to farmers. Some of the recommendations of the committee included remodeling the APMCs, since they were affecting the agricultural market and taking away the share of farmers. On July 2001, the Report of the Task force on Employment Opportunities chaired by Montek Singh Ahluwalia made some observation around the Essential Commodities Act and APMCs. The Committee’s observation was that the ECA 1955 did not work in the times of genuine scarcity and was not needed in normal times, besides that it was misused by the lower levels of administration as an instrument for harassment and Corruption. So, the committee was in the view that ECA should be repealed. The other observation was that a monopoly situation got created in which a small group of traders and agents were extracting huge number of benefits in APMC mandis, so it was absolutely essential to liberalize the existing laws and allow competing markets to be set up.
On 4 July 2001, Inter Ministerial Task Force chaired by R.C.A Jain was constituted to look into the Guru Committee Recommendations. They recommended that the states governments should amend their respective APMC laws to enable private sector to establish and operate agricultural market infrastructure and supporting service. Model APMC Act was created on 9 September 2003, excerpts from it tell that the monopoly of the state governments regulated wholesale market; it had prevented development and provided no help to the farmers in direct marketing. They also said that the existing framework of APMC Act will have to undergo a change.
In the years 2004 and 2005, National Commission on Farmers chaired by MS Swaminathan submitted its several reports. First report was in favour of strengthening and expanding the horticulture revolution by focusing on post-harvest management, processing and marketing along with disconnection between production and profit. Second report suggested that the role of APMCs and State Agricultural Marketing Boards need to change from regulation to development in changed production and demand environment. Private sector investment should be encouraged for the development of agricultural market. Third report discussed about the ECA 1955 that was relevant and issued in the situation of demand exceeding the supply. But the economic environment has changed in the recent years, these restrictions and controls are affecting the efficient functioning of the marketing system and also the agricultural development in the country. The report also mentioned that the APMC mandis also failed to provide adequate infrastructure at the mandis and has not played any significant role in bringing better market information to the farmers. Forth report drafted a National Policy for Farmers recommending reviewing of the Essential Commodities Act and State Agricultural Produce Marketing Committee relating to marketing, storage and processing. The suggested the change in the role of the same. Fifth report came out in two volumes discussing faster and inclusive growth of farmers.
Economic Survey of 2011-12, Chapter 8, reported Mandi governance as an area of concern. It also suggested that the farmers should be allowed to sell their produce outside APMCs if they get better prices and terms. It also shared that the role of agriculture market is to deliver agriculture produce from the farmers to the consumers in the most efficient way, but the high incidence of commission charges on agriculture/horticulture produce renders their marking cost high, which becomes an undesirable outcome. As the APMC was created to protect the interests of farmers it will be in the fitness of things to give farmers the choice of going to the APMC or not. Along with this Economic Survey of 2012-13 suggested that it was necessary to make the market reforms as soon as possible to provide farmers an alternative competing market channel for transaction of their agricultural produce at remunerative prices.
Along with these, there are several other committee reports discussing the condition of the APMCs markets and the need for change, so as to bring the agriculture sector under development.
Why a need for change?
Looking at all the committee reports of over 20 years and suggestions from the Economic Survey’s, it seems clear that the old system of agricultural market was good enough earlier according to the needs of the time to give an impactful benefit to the farmers. But due to the changes in economic environment and conditions along with the corruption and disturbance in the APMC mandis over the years, which has led to farmers receiving less than what they deserve and bringing them under stress, some reforms were needed to bring back the farmers into the main chair and benefit them with reforms.
In the year 2019-20, due to the pandemic, agricultural sector came in the highlight among all the sectors and required attention, so as to bring in development and growth of the sector.
Pandemic and the Agricultural Sector
The outbreak of the Corona virus (COVID-19) which began in the city of Wuhan in December 2019, bought in severe challenges for the countries. India was also not an exception. In order to stop the spread of the virus, countries had to close their borders along with closure of inter-state and intra-state borders which lead to disruption of the supply chains. This affected almost every sector of the country, except the agricultural sector since this sector was a primary sector and it continued producing the farm produce and the same level and this sector contributed in keeping the economy from losing more than what it would have lost if even this sector would have fallen in the category of all the other sectors. The agriculture sector was largely insulated from the lockdowns in India as timely and proactive exemptions from COVID induced lockdowns to the sector facilitated uninterrupted harvesting of the rabi crops and sowing of the kharif crops. However, supply chain disruptions impacted the flow of agricultural goods leading to high food inflation and adverse initial impact on some major agricultural exports, but the situation in this sector continues being much better compared to other sectors.
Agriculture sector cushioned the shock of the COVID -19 pandemic on the Indian economy in 2020-21 with a growth of 3.4 per cent in both Q1 and Q2, resulting in an increase in its share in GDP to 19.9 percent in 2020-21 from 17.8 per cent in 2019-20. It is the only sector that has made a positive contribution to the overall Gross Value Added (GVA) in both Q1 and Q2 2020-21 indicating that agricultural activities or rabi harvesting and kharif sowing were largely unaffected by the COVID induced lockdowns.
Though, COVID-19 threw intimidating challenges to the economy, which could be addressed through bold and courageous policy decisions with the potential of converting challenges into opportunities.
Thousands of farmers mostly from Punjab, Haryana and western Uttar Pradesh have been protesting since 26 November last year, demanding a repeal of the three farm laws. They have also demanded a legal guarantee on Minimum Support Price (MSP) for their crops as they believe that the recent laws enacted will dismantle the MSP system. Along with that they believe that the law is in the favor of the corporates and over a big-time corporate will dictate terms and farmers will end up getting less for their crops. Farmers fear that the electronic system will take away the assured price for their crops and the ‘arthiyas’, commission agents will be out of business. The key demand is the withdrawal of the three laws which deregulate the sale of their crops. The farmer unions could also settle for a legal assurance that the MSP system will continue, ideally through an amendment to the laws.
A way forward
Central government has looked into the old structure of the farm sector through the committee reports that they have received, suggesting changes in the APMCs and Essential Commodities Act. There was also a need to bring the famers in a better position in the contract farming so that they aren’t exploited. The old system has bought in trouble and the people in the system have found loop holes leading to corruption and loss to the farmers. The introduction of these laws will help in development of the farmers and making them have the majority price stage of their produce which will strengthen their position. The farmers seem to be upset with the laws and are demanding few changes. The government needs to explain the farmers the reasons behind such changes and listen to the demands which can help the farmers get into a better position. If needed, some new laws should be passed in order to give relief to the farmers and bring them in confidence so that there produce doesn’t hamper. The government needs to take the necessary actions as soon as possible so that the development of the sector can begin at a better pace and the changes get visible soon.
Indian Agriculture and Allied Industries Report. Retrieved from https://www.ibef.org/industry/agriculture-india.aspx#:~:text=Agriculture%20is%20the%20prima