Chapter 5: Agricultrure

AGRICULTURE 

• The agriculture sector registered an annual growth of 3.8 per cent in value added in the decade since 2004-05 on the back of increase in real prices (31 per cent during 2004-05 to 2011-12).
• The committee set up by the Ministry of Agriculture under the chairmanship of S. Mahendra Dev to come up with updated methodology to compute terms of trade between agriculture and non- agriculture has observed that, during 2004-05 and 2013-14, terms of trade have become favourable for agriculture. 
• A strategy of price-led growth in agriculture is, therefore, not sustainable due to a rise in high level of food inflation, seasonal and short- term price spikes in some commodities like onions, tomatoes, and potatoes.
• The room for increasing production through raising cropped area is virtually non-existent.
• Hence the strategy for growth in agriculture has to rely more on non-price factors, viz., yield and productivity.

OVERVIEW OF THE AGRICULTURAL SECTOR

AREA, PRODUCTION, AND YIELD

As compared to last year’s production of 265.57 million tonnes, current year’s production of foodgrains is lower by 8.5 million tonnes i.e 257.07 million tonnes. This decline has occurred on account of lower production of rice, coarse, cereals and pulses due to erratic rainfall conditions during the monsoon season-2014.

To improve resilience of the agricultural sector and bolster food security—including availability and affordable access—our strategy for agriculture has to focus on improving yield and productivity.

An inverse relationship is noticed between increase in yield over time and the average cost of production of various crops in real terms. This clearly points towards the fact that productivity increases, especially in low productivity states/regions, can significantly contribute towards reducing cost-push food inflation.

Yield is contingent upon several factors like variety and quality of seeds, soil quality, irrigation – including quality of water—fertilizers— including their proportion—pesticides, labour, and extension services. Prices received by farmers and the certainty or assurance of getting a particular price also incentivize farmers to take to a particular crop and use quality inputs in its cultivation. The status of some of these factors in India is described in the following paragraphs.

DRIVERS OF GROWTH

Agricultural Research and Education

The Indian Council of Agricultural Research (ICAR) is engaged in developing new crop varieties with specific traits that improve yield and nutritional quality along with tolerance / resistance to various biotic and abiotic stresses.

The paradigm shift in yield/productivity required for the second green revolution can be achieved, with greater outlay on basic research by creating research institutions on the pattern of Indian Institutes of Technology (IIT) and Indian Institutes of Sciences (IIS). It is imperative to make Indian agricultural growth science-led by shedding ‘technology fatigue’. Budget 2014-15 provided for the establishment of two institutes of excellence in Assam and Jharkhand with an initial sum of Rs 100 crore.

Agricultural Extension

To ensure last-mile connectivity, extension services need to be geared up to address emerging technological and information needs.

• The NSSO 70th round survey indicates that about 59 per cent of farmers do not get much technical assistance and know-how from government-funded farm research institutes or extension services.
• Effectiveness of the lab-to-farm programme can be improved by leveraging information technology and e- and mobile (m-) applications, participation of professional NGOs, etc.
• The Budget 2014-15 allocation of Rs 100 crore to Kisan TV for disseminating real- time information to farmers regarding new farming techniques, water conservation, organic farming, etc. will partly make up for the existing adverse ratio of one extension worker for every 800 to 1000 farmers and provide farmers a direct interface with agricultural experts.

Irrigation

Indian agriculture is still heavily rainfall dependent with just 35 per cent of total arable area being irrigated, and distribution of irrigation across states is highly skewed.

The wide gap between gross cropped area and gross irrigated area which has not improved much since the First Five Year Plan period needs to be bridged for increasing productivity, production, and resilience .

• Accelerated Irrigation Benefit Programme (AIBP) ,1996-97 : for the completion of incomplete irrigation schemes ; 85.03 lakh ha irrigation potential created under the AIBP
• The Command Area Development Programme : has also been amalgamated with the AIBP: the gap between irrigation potential that has been created and that is utilized.
• National Water Grid for transferring water from water surplus to water deficit areas have been made from time to time.
• Focus on micro-irrigation systems like drips and sprinklers would significantly increase water-use efficiency and productivity.

Seeds

It is estimated that the quality of seed accounts for 20-25 per cent of agricultural productivity.

• During 2014-15, there has been shortfall in the availability of certified/quality gram, lentil, pea, soyabean, and potato seeds.
• Given our import dependence on oils and pulses and susceptibility of potato to inflation, steps are necessary to avoid shortages of certified seeds of these commodities. 

Fertilizers

The following major initiatives were taken in the fertilizer policy of the government in 2014- 15:

1. Notification of the Modified New Pricing Scheme (NPS-III) for existing urea units on 2 April 2014 in order to address the issue of under- recoveries of the existing urea units on account of freezing of fixed cost at the 2002-03 level. The modified policy has been implemented for a period of one year from the date of notification.
2. Further, the government had notified the New Investment Policy 2012 on 2 January 2013 to facilitate fresh investment in the urea sector to make India self-sufficient. The amendment to New Investment Policy – 2012 has been notified by the Department of Fertilizers on 7 October 2014.
3. As against the targets for domestic production of 89.68 lakh tonnes and 33.51 lakh tonnes for nitrogen and phosphate for April-November 2014,actual production was 82.86 lakh tonnes and 25.05 lakh tonnes respectively.

Credit

The following measures have been taken for improving agricultural credit flow and bringing down the rate of interest on farm loans:

1. Agricultural credit flow target for 2013-14 was fixed at Rs 7,00,000 crore and achievement was Rs 7,30,765 crore (Provisional), as against Rs 6,07,375 crore in 2012-13. Agricultural credit flow target for 2014-15 has been fixed at Rs 8,00,000 crore against which achievement has been Rs 3,70,828.60 crore (Provisional) up to 30 September, 2014.
2. Farmers have been availing of crop loans up to a principal amount of Rs 3,00,000 at 7 per cent rate of interest. The effective rate of interest for farmers who promptly repay their loans is 4 per cent per annum during 2014-15.
3. In order to discourage distress sale of crops by farmers, the benefit of interest subvention has been made available to small and marginal farmers having Kisan Credit Cards for a further period of up to six months (post- harvest) against negotiable warehouse receipts (NWRs) at the same rate as available to crop loan. Other farmers have been granted post-harvest loans against NWRs at the commercial rates.
4. From 2014-15, in order to provide relief to farmers on occurrence of natural calamities, interest subvention of 2 per cent will continued to be available to banks for the first year on the restructured loan amount on account of natural calamities and such restructured loans will attract normal rate of interest from the second year onwards as per the policy laid down by RBI.
5. The Interest Subvention Scheme for short- term production credit (crop loans) which was started by the Government of India in 2006-07 was extended to private-sector banks from 2013- 14.
   1. Presently the total number of loan accounts stands at 5.72 crore.
   2. RBI and National Bank for Agriculture and Rural Development (NABARD) study indicate that the crop loans are not reaching intended beneficiaries and there are no systems and procedures in place at several bank branches to monitor the end-use of funds.
   3. Although overall credit flow to the agriculture sector has increased over the years, the share of long-term credit in agriculture or investment credit declined from 55 per cent in 2006-07 to 39 per cent in 2011-12.
   4. As much as 40 per cent of the finances of farmers still comes from informal sources.
   5. Usurious moneylenders account for a 26 per cent share of total agricultural credit.

Inadequate targeting of beneficiaries and monitoring/supervision of the end-use of short- term crop loans for which interest subvention scheme is applicable and decline in long-term/ investment credit to agriculture are issues that need to be addressed on priority basis.

Mechanization

Agricultural mechanization increases productivity of land and labour by meeting timeliness of farm operations and increases work output per unit time. 

• Although India is one of the top countries in agricultural production, the current level of farm mechanization, which varies across states, averages around 40 per cent as against more than 90 per cent in developed countries.
• Farm mechanization in India has been growing at a rate of less than 5 per cent in the last two decades.

The main challenges to farm mechanization are,

1. a highly diverse agriculture with different soil and climatic zones, requiring customized farm machinery and equipment and,
2. largely small landholdings with limited resources.
3. Credit flow for farm mechanization is less than 3 per cent of the total credit flow to the agriculture sector.

A dedicated Sub-Mission on Agricultural Mechanization has been initiated in the Twelfth Plan, with focus on spreading farm mechanization to small and marginal farmers and regions that have low farm power availability.

GCF in Agriculture and Allied Sectors

The GCF in agriculture and allied sectors relative to agri-GDP in this sector has shown an improvement from 13.5 per cent in 2004-05 to 21.2 per cent in 2012-13 at 2004-05 prices . 

MAJOR SCHEMES OF THE GOVERNMENT

Rahtriya Krishi Vikas Yojana (RKVY)

• RKVY scheme continue during the Twelfth Plan whereby RKVY funding will be routed into three components, viz. production growth, infrastructure & assets, & sub-schemes and flexi-fund.
• The proposed allocation  during 2015-16 is Rs 18,000 crore.
• States are at liberty to spend up to 100 per cent of total outlay in the infrastructure and asset creation component.

The National Food Security Mission

1. New target of additional production of 25 million tonnes of foodgrains by the end of the Twelfth Five Year Plan (2016-17) comprising of
   1. 10 million tonnes rice.
   2. 8 million tonnes wheat.
   3. 4 million tonnes pulses.
   4. 3 million tonnes coarse cereals .
2. In addition to rice, wheat and pulses, crops like coarse cereals and commercial crops (sugarcane, cotton, and jute) have been included since 2014-15.
3. Promotion of farmer producer organizations (FPOs), value addition, dal mill, and assistance for custom hiring charges have also been undertaken under the Mission.
4. The pulses component has been allocated fifty per cent of total funds under the NFSM in order to increase their production.
5. To promote the use of bio-fertilizers, subsidy on bio-fertilizer has also been enhanced from Rs 100 per ha to Rs 300 per ha.

Mission for Integrated Development of Horticulture (MIDH)

With effect from 2014-15, the Mission for Integrated Development of Horticulture (MIDH) has been operationalized by bringing all ongoing schemes on horticulture under a single umbrella.

• Production and distribution of quality planting material, productivity improvement measures through protected cultivation, use of micro-irrigation, adoption of integrated pest management and integrated nutrient management along with creation of infrastructure for post-harvest management and marketing are focus areas of the MIDH.

SUSTAINABILITY AND ADAPTABILITY

The following initiatives announced in Budget 2014- 15 have brought the issue of sustainability and climate adaptation to the forefront:

1. The Pradhan Mantri Krishi Sinchayee Yojana with allocation of Rs 1000 crore.
2. 􏰀Neeranchal, a new programme with an initial outlay of Rs 2142 crore in 2014 to give additional impetus to watershed development in the country,
3. 􏰀 The National Adaptation Fund for Climate Change, with an initial sum of Rs 100 crore. 
   
4. 􏰀 A scheme to provide, in mission mode, a soil health card to every farmer, with an allocation of Rs 100 crore.
5. An additional amount of Rs 56 crore has been allocated to set up 100 mobile soil-testing laboratories across the country.
   

ALLIED SECTORS: ANIMAL HUSBANDRY, DAIRYING, AND FISHERIES

Indian agricultural system is predominantly a mixed crop-livestock farming system, with the livestock segment supplementing farm incomes by providing employment, draught animals, and manure.

Dairy

• India ranks first in milk production, accounting for 17 per cent of world production.
• The average year- on-year growth rate of milk, at 4.18 per cent vis- à-vis the world average of 2.2 per cent, shows sustained growth in availability of milk and milk products for the growing population. 

Poultry

• In the poultry segment, the government’s focus is on strengthening the family poultry system, which addresses livelihood issues.
• Egg production was around 73.89 billion in 2013-14, while poultry meat production was estimated at 2.68 MT.

Fisheries

• Fisheries constitute about 1 per cent of the GDP of the country and 4.75 per cent of agriculture GDP.
• The total fish production during 2013-14 was 9.58 MT, an increase of 5.96 per cent over 2012-13. 

National Livestock Mission

The National Livestock Mission has been launched in 2014-15 with an approved outlay of Rs 2,800 crore during the Twelfth Plan. This Mission is focusing on:-

• improving availability of quality feed and fodder,
• risk coverage,
• effective extension,
• improved flow of credit, and
• organization of livestock farmers / rearers.

Given the high contribution of protein items in inflation, the growth rate of this sector has to match the rising demand reflected in increasing share of these items in consumption expenditure.

Recommendations of High Level Committee on restructuring of FCI

High Level Committee (HCL) on restructuring of Food Corporation of India (FCI) has submitted its report to the Government. It was submitted by Shri Shanta Kumar, Chairman of the Committee .

The major issue before the Committee was how to make the entire food grain management system more efficient by reorienting the role of FCI in MSP operations, procurement, storage and distribution of grains under Targeted Public Distribution System (TPDS).

Issues with FCI and Food management in India

1. FCI was set up in 1965 (under the Food Corporation Act, 1964) against the backdrop of major shortage of grains, especially wheat, in the country. Imports of wheat under PL- 480 were as high as 6-7 MMT, when country’s wheat production hovered around 10-12 MMT, and country did not have enough foreign exchange to buy that much quantity of wheat from global markets. Self-sufficiency in grains was the most pressing objective, and keeping that in mind high yielding seeds of wheat were imported from Mexico. Agricultural Prices Commission was created in 1965 to recommend remunerative prices to farmers.
2. FCI  was mandated with three basic objectives:
   1. to provide effective price support to farmers;
   2. to procure and supply grains to PDS for distributing subsidized staples to economically vulnerable sections of society; and
   3. keep a strategic reserve to stabilize markets for basic foodgrains.

How far FCI has achieved these objectives and how far the nation has moved on food security front?

1.  The NSSO’s (70th round) data for 2012-13 reveals that of all the paddy farmers who reported sale of paddy during July-December 2012, only 13.5 percent farmers sold it to any procurement agency (during January-June 2013, this ratio for paddy farmers is only 10 percent), and in case of wheat farmers (January-June, 2013), only 16.2 percent farmers sold to any procurement agency.
2. Together, they account for only 6 percent of total farmers in the country, who have gained from selling wheat and paddy directly to any procurement agency. That diversions of grains from PDS amounted to 46.7 percent in 2011-12 (based on calculations of offtake from central pool and NSSO’s (68th round) consumption data from PDS); and that country had hugely surplus grain stocks, much above the buffer stock norms, even when cereal inflation was hovering between 8-12 percent in the last few years. This situation existed even after exporting more than 42 MMT of cereals during 2012-13 and 2013-14 combined, which India has presumably never done in its recorded history.
3. What all this indicates is that India has moved far away from the shortages of 1960s, into surpluses of cereals in post-2010 period, but somehow the food management system, of which FCI is an integral part, has not been able to deliver on its objectives very efficiently. The benefits of procurement have not gone to larger number of farmers beyond a few states, and leakages in TPDS remain unacceptably high. Needless to say, this necessitates a re-look at the very role and functions of FCI within the ambit of overall food management systems, and concerns of food security.

 Major Recommendations of HLC:

On procurement related issues

1.  HLC recommends that FCI hand over all procurement operations of wheat, paddy and rice to states that have gained sufficient experience in this regard and have created reasonable infrastructure for procurement. These states are Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab .
2. FCI will accept only the surplus (after deducting the needs of the states under NFSA) from these state governments (not millers) to be moved to deficit states.
3. FCI should move on to help those states where farmers suffer from distress sales at prices much below MSP, and which are dominated by small holdings, like Eastern Uttar Pradesh, Bihar, West Bengal, Assam etc. This is the belt from where second green revolution is expected, and where FCI needs to be pro-active, mobilizing state and other agencies to provide benefits of MSP and procurement to larger number of farmers, especially small and marginal ones.
4. DFPD/FCI at the Centre should enter into an agreement with states before every procurement season regarding costing norms and basic rules for procurement.
5. Three issues are critical to be streamlined to bring rationality in procurement operations and bringing back private sector in competition with state agencies in grain procurement:
   1. Centre should make it clear to states that in case of any bonus being given by them on top of MSP, Centre will not accept grains under the central pool beyond the quantity needed by the state for its own PDS and OWS;
   2. the statutory levies including commissions, which vary from less than 2 percent in Gujarat and West Bengal to 14.5 percent in Punjab, need to be brought down uniformly to 3 percent, or at most 4 percent of MSP, and this should be included in MSP itself (states losing revenue due to this rationalization of levies can be compensated through a diversification package for the next 3-5 years);
   3. quality checks in procurement have to be adhered to, and anything below the specified quality will not be acceptable under central pool. Quality checks can be done either by FCI and/or any third party accredited agency in a transparent manner with the help of mechanized processes of quality checking. HLC also recommends that levy on rice millers be done away with.  HLC notes and commends that some steps have been taken recently by DFPD in this direction, but they should be institutionalized for their logical conclusion.
6. Negotiable warehouse receipt system (NWRs) should be taken up on priority and scaled up quickly. Under this system, farmers can deposit their produce to the registered warehouses, and get say 80 percent advance from banks against their produce valued at MSP. They can sell later when they feel prices are good for them. This will bring back the private sector, reduce massively the costs of storage to the government, and be more compatible with a market economy.  GoI (through FCI and Warehousing Development Regulatory Authority (WDRA)) can encourage building of these warehouses with better technology, and keep an on-line track of grain stocks with them on daily/weekly basis. In due course, GoI can explore whether this system can be used to compensate the farmers in case of market prices falling below MSP without physically handling large quantities of grain.
7. GoI needs to revisit its MSP policy. Currently, MSPs are announced for 23 commodities, but effectively price support operates primarily in wheat and rice and that too in selected states. This creates highly skewed incentive structures in favour of wheat and rice. While country is short of pulses and oilseeds (edible oils), their prices often go below MSP without any effective price support.  Further, trade policy works independently of MSP policy, and many a times, imports of pulses come at prices much below their MSP. This hampers diversification. HLC recommends that pulses and oilseeds deserve priority and GoI must provide better price support operations for them, and dovetail their MSP policy with trade policy so that their landed costs are not below their MSP.

On PDS and NFSA related issues

1. HLC recommends that GoI has a second look at NFSA, its commitments and implementation. Given that leakages in PDS range from 40 to 50 percent, and in some states go as high as 60 to 70 percent, GoI should defer implementation of NFSA in states that have not done end to end computerization; have not put the list of beneficiaries online for anyone to verify, and have not set up vigilance committees to check pilferage from PDS.
2. HLC also recommends to have a relook at the current coverage of 67 percent of population; priority households getting only 5 kgs/person as allocation;  and central issue prices being frozen for three years at Rs 3/2/1/kg for rice/wheat/coarse cereals respectively. HLC’s examination of these issue reveals that 67 percent coverage of population is on much higher side, and should be brought down to around 40 percent, which will comfortably cover BPL families and some even above that; 5kg grain per person to priority households is actually making BPL households worse off, who used to get 7kg/person under the TPDS. So, HLC recommends that they be given 7kg/person. On central issue prices, HLC recommends while Antyodya households can be given grains at Rs 3/2/1/kg for the time being, but pricing for priority households must be linked to MSP, say 50 percent of MSP. Else, HLC feels that this NFSA will put undue financial burden on the exchequer, and investments in agriculture and food space may suffer. HLC would recommend greater investments in agriculture in stabilizing production and building efficient value chains to help the poor as well as farmers.
3. HLC recommends that targeted beneficiaries under NFSA or TPDS are given 6 months ration immediately after the procurement season ends. This will save the consumers from various hassles of monthly arrivals at FPS and also save on the storage costs of agencies. Consumers can be given well designed bins at highly subsidized rates to keep the rations safely in their homes.
4. HLC recommends gradual introduction of cash transfers in PDS, starting with large cities with more than 1 million population; extending it to grain surplus states, and then giving option to deficit states to opt for cash or physical grain distribution. This will be much more cost effective way to help the poor, without much distortion in the production basket, and in line with best international practices. HLC’s calculations reveal that it can save the exchequer more than Rs 30,000crores annually, and still giving better deal to consumers. Cash transfers can be indexed with overall price level to protect the amount of real income transfers, given in the name of lady of the house, and routed through Prime Minister’s Jan-DhanYojana (PMJDY) and dovetailing Aadhaar and Unique Identification (UID) number. This will empower the consumers, plug high leakages in PDS, save resources, and it can be rolled out over the next 2-3 years.

  On stocking and movement related issues

1. HLC recommends that FCI should outsource its stocking operations to various agencies such as Central Warehousing Corporation, State Warehousing Corporation, Private Sector under Private Entrepreneur Guarantee (PEG) scheme, and even state governments that are building silos through private sector on state lands (as in Madhya Pradesh). It should be done on competitive bidding basis, inviting various stakeholders and creating competition to bring down costs of storage.
2. India needs more bulk handling facilities than it currently has. Many of FCI’s old conventional storages that have existed for long number of years can be converted to silos with the help of private sector and other stocking agencies. Better mechanization is needed in all silos as well as conventional storages.
3. Covered and plinth (CAP) storage should be gradually phased out with no grain stocks remaining in CAP for more than 3 months. Silo bag technology and conventional storages where ever possible should replace CAP.
4. Movement of grains needs to be gradually containerized which will help reduce transit losses, and have faster turn-around-time by having more mechanized facilities at railway sidings.

 On Buffer Stocking Operations and Liquidation Policy

1. One of the key challenges for FCI has been to carry buffer stocks way in excess of buffer stocking norms. During the last five years, on an average, buffer stocks with FCI have been more than double the buffer stocking norms costing the nation thousands of crores of rupees loss without any worthwhile purpose being served. The underlying reasons for this situation are many, starting with export bans to open ended procurement with distortions (through bonuses and high statutory levies), but the key factor is that there is no pro-active liquidation policy. DFPD/FCI have to work in tandem to liquidate stocks in OMSS or in export markets, whenever stocks go beyond the buffer stock norms. The current system is extremely ad-hoc, slow and costs the nation heavily. A transparent liquidation policy is the need of hour, which should automatically kick-in when FCI is faced with surplus stocks than buffer norms. Greater flexibility to FCI with business orientation to operate in OMSS and export markets is needed.

 On Labour Related Issues

1.  FCI engages large number of workers (loaders) to get the job of loading/unloading done smoothly and in time. Currently there are roughly 16,000 departmental workers, about 26,000 workers that operate under Direct Payment System (DPS), some under no work no pay, and about one lakh contract workers.
2. A departmental worker (loader) costs FCI about Rs 79,500/per month (April-Nov 2014 data) vis-a-vis DPS worker at Rs 26,000/per month and contract labour costs about Rs 10,000/per month. Some of the departmental labours (more than 300) have received wages (including arrears) even more than Rs 4 lakhs/per month in August 2014. This happens because of the incentive system in notified depots, and widely used proxy labour. This is a major aberration and must be fixed, either by de-notifying these depots, or handing them over to states or private sector on service contracts, and by fixing a maximum limit on the incentives per person that will not allow him to work for more than say 1.25 times the work agreed with him. These depots should be put on priority for mechanization so that reliance on departmental labour reduces. If need be, FCI should be allowed to hire people under DPS/NWNP system.
3. Further, HLC recommends that the condition of contract labour, which works the hardest and are the largest in number, should be improved by giving them better facilities.

On direct subsidy to farmers

1. Since the whole system of food management operates within the ambit of providing food security at a national as well as at household level, it must be realized that farmers need due incentives to raise productivity and overall food production in the country.  Most of the OECD countries as well as large emerging economies do support their farmers. India also gives large subsidy on fertilizers (more than Rs 72,000 crores in budget of FY 2015 plus pending bills of about Rs 30,000-35,000crores).  Urea prices are administered at a  very low level compared to prices of DAP and MOP, creating highly imbalanced use of N, P and K. HLC recommends that farmers be given direct cash subsidy (of about Rs 7000/ha) and fertilizer sector can then be deregulated. This would help plug diversion of urea to non-agricultural uses as well as to neighbouring countries, and help raise the efficiency of fertilizer use. It may be noted that this type of direct cash subsidy to farmers will go a long way to help those who take loans from money lenders at exorbitant interest rates to buy fertilizers or other inputs, thus relieving some distress in the agrarian sector.

On end to end computerization

1.  HLC recommends total end to end computerization of the entire food management system, starting from procurement from farmers, to stocking, movement and finally distribution through TPDS. It can be done on real time basis, and some states have done a commendable job on computerizing the procurement operations. But its dovetailing with movement and distribution in TPDS has been a weak link, and that is where much of the diversions take place.

On the new face of FCI

1. The new face of FCI will be akin to an agency for innovations in Food Management System with a primary focus to create competition in every segment of foograin supply chain, from procurement to stocking to movement and finally distribution in TPDS, so that overall costs of the system are substantially reduced, leakages plugged, and it serves larger number of farmers and consumers.
2. In this endeavour it will make itself much leaner and nimble (with scaled down/abolished zonal offices), focus on eastern states for procurement, upgrade the entire grain supply chain towards bulk handling and end to end computerization by bringing in investments, and technical and managerial expertise from the private sector.
3. It will be more business oriented with a pro-active liquidation policy to liquidate stocks in OMSS/export markets, whenever actual buffer stocks exceed the norms. This would be challenging, but HLC hopes that FCI can rise to this challenge and once again play its commendable role as it did during late 1960s and early 1970s.

Reference : PBI

For full text of the report of HLC , Click here.

Chapter 8: A National Market for Agricultural Commodities- Some Issues and the Way Forward

Presently, markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by State Governments. This Act notifies agricultural commodities produced in the region and provides that first sale in these commodities can be conducted only under the aegis of the APMC through the commission agents licensed by the APMCs setup under the Act. Various taxes, fees/charges and cess levied on the trades conducted in the Mandis are also notified under the Act.

 There are about 2477 principal regulated markets based on geography (the APMCs) and 4843 sub-market yards regulated by the respective APMCs in India. Effectively, India has not one, not 29 but thousands of agricultural markets.

Issues related to APMCs

A multiplicity of fees of varying magnitudes arising from the operation of the APMCs.

1. They charge a market fee of buyers, and licensing fee from the commissioning agents.
2. Commissioning agents charge commission fees on transactions between buyers and farmers.
3. They charge small licensing fees from a whole range of functionaries (warehousing agents, loading agents etc.).
4. The rate of commission charged by the licensed commission agents is exorbitant, because the commission is charged on the entire value of the produce sold.
5. The license fee charged from various market licensed operators is nominal, but the small number of licences granted creates a premium, which is believed to be paid in cash.
6. The levies and other market charges imposed by states vary widely and are a major source of market distortion.
7. APMC operations are not subjected to scrutiny because they do not require the approval of State legislature to utilize the funds collected.

Such high level of taxes at the first level of trading have significant cascading effects on the prices as the commodity passes through the supply- chain.

APMC levy multiple fees, of substantial magnitude, that are non– transparent, and hence a source of political power.

Even the model APMC Act  treats the APMC as an arm of the State, and, the market fee, as the tax levied by the State, rather than fee charged for providing services. This acts as a major impediment to creating national common market in agricultural commodities.

ESSENTIAL COMMODITIES ACT, 1955 VS APMC ACT

The scope of the Essential Commodities Act (EC Act) is much broader than the APMC Act. It empowers the central and state governments concurrently to control production, supply and distribution of certain commodities, including pricing, stock-holding and the period for which the stocks can be kept and to impose duties.

The APMC Act on the other hand, controls only the first sale of the agricultural produce.

Apart from food-stuffs which are covered under the APMC Act, the commodities covered under the EC Act generally are: drugs, fertilisers, and textiles and coal.

MODEL APMC ACT

Since these State Acts created fragment markets (2477) for agricultural commodities and curtailed the freedom of farmers to sell their produce other than through the commission agents and other functionaries licensed by the APMCs, the Ministry of Agriculture developed a model APMC Act, 2003 and has been pursuing the state governments for over a decade now to modify their respective Acts along the lines of the Model APMC Act, 2003.

The Model APMC Act:-

1. provides for direct sale of farm produce to contract farming sponsors;
2. provides for setting up “Special markets” for “specified agricultural commodities” – mostly perishables;
3. permits private persons, farmers and consumers to establish new markets for agricultural produce in any area;
4. requires a single levy of market fee on the sale of notified agricultural commodities in any market area;
5. replaces licensing with registrations of market functionaries which would allow them to operate in one or more different market areas;
6. provides for the establishment of consumers’ and farmers’ markets to facilitate direct sale of agricultural produce to consumers; and
7. provides for the creation of marketing infrastructure from the revenue earned by the APMC.

Many of the States have partially adopted the provisions of model APMC Acts and amended their APMC Acts. Some of the states have not framed rules to implement the amended provisions, which indicate hesitancy on the part of state governments to liberalize the statutory compulsion on farmers to sell their produce through APMCs.

Why states are hesitating to amend APMCs?

There is a perception that the positions in the market committee (at the state level) and the market board – which supervises the market committee – are occupied by the politically influential. They enjoy a cosy relationship with the licensed commission agents who wield power by exercising monopoly power within the notified area, at times by forming cartels. The resistance to reforming APMCs is perceived to be emanating from these factors.

Some states —— such as Karnataka —— have however adopted changes to create greater competition within state.

KARNATAKA MODEL

In Karnataka, 51 of the 155 main market yards and 354 sub-yards have been integrated into a single licensing system.

Rashtriya e-market Servies Ltd. (ReMS), a joint venture created by the State government and NCDEX Spot Exchange, offers automated auction and post auction facilities (weighting, invoicing, market fee collection, accounting), assaying facilities in the markets, facilitate warehouse-based sale of produce, facilitate commodity funding, price dissemination by leveraging technology.

The wider geographical scope afforded by breaking up fragmented markets has enabled private sector investment in marketing infrastructure.

INADEQUACIES OF MODEL APMC ACT

Model APMC Act failed to create a national – or even state- level common market for agricultural commodities. The reason:

1. Model APMC Act retains the mandatory requirement of the buyers having to pay APMC charges even when the produce is sold directly outside the APMC area, say, to the contract sponsors or in a market set up by private individuals even though no facility provided by the APMC is used.
2. Though the model APMC Act bars the APMCs and commission agents from deducting the market fee/commission from the seller, the incidence of these fees/commission falls on the farmers since buyers would discount their bids to the extent of the fees/commission charged by the APMC and the Commission agents.
3. Though the model APMC Act provides for setting up of markets by private sector, this provision is not adequate to create competition for APMCs even within the State, since the owner of the private market will have to collect the APMC fees/taxes, for and on behalf of the APMC, from the buyers/sellers in addition to the fee that he wants to charge for providing trading platform and other services, such as loading, unloading, grading, weighing etc.

ALTERNATIVE WAYS OF CREATING NATIONAL MARKET FOR AGRICULTURAL COMMODITIES

• Central government will work closely with the state governments to reorient their respective APMC Acts to provide for the establishment of private market yards/private markets.
• The state governments will also be encouraged to develop farmers’ markets in towns to enable farmers to sell their produce directly.
• Incremental moves may need to be considered to get the states on board. For example, first, it may be possible to get all the states to drop fruits and vegetables from the APMC schedule of regulated commodities; this could be followed by cereals, pulse and oil seeds, and then all remaining commodities.
• State governments should provide policy support for setting up infrastructure, making available land etc. for alternative or special markets in private sector, since the players in the private sector cannot viably compete with the APMCs in which the initial investment was made by the government on land and other infrastructure.
• Liberalisation of FDI in retail could create the possibilities for filling in the massive investment and infrastructure deficit which results in supply-chain inefficiencies.

USING CONSTITUTIONAL PROVISIONS TO SET UP A COMMON MARKET

If persuasion fails (and it has been tried for a long time since 2003), it may be necessary to see what the center can do, taking account of the allocation of subjects under the Constitution of India.

There are provisions/entries in List III of the Seventh Schedule (Concurrent List) in the Constitution which can be used by the Union to enact legislation for setting up a national common market for specified agricultural commodities, viz., Entry 33 which covers trade and commerce and production, supply and distribution of foodstuffs, including edible oilseeds and oils raw cotton, raw jute etc. Entry 42 in the Union List, viz., ‘Inter- state Trade and Commerce’ also allows a role for the union.

Once a law is passed by the Parliament to regulate trading in the specified agricultural commodities, it will override the state APMC laws, paving the way for creating a national common market. But this approach could be seen as heavy- handed on the part of the center and contrary to the new spirit of cooperative federalism.