Cure worse than the disease

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Cure worse than the disease

Saturday, 13 October 2018 | Uttam Gupta

The Maharashtra Government’s bid to ensure good crop price for farmers is laudable but this must not be done by excessively penalising errant traders. Other options must be explored

In August, the Devendra Fadnavis Government approved several amendments to the Maharashtra Agricultural Produce Marketing (Development & Regulation) Act, 1963, to bring it in line with the Centre’s model of Agricultural Produce and Livestock Marketing (Promotion & Facilitation) Act, 2017. As a result, the entire State was declared as a single market. Now, instead of the earlier rule, where traders would require separate licences for operating in each ‘notified’ APMC market, they will now need a single license that will enable them purchase agricultural produce from any mandi within the State. This is a good decision that will help the farmers realise better price from buyers.

In a contrarian decision, however, the Government made purchase of farm commodity below the official minimum support price (MSP) a punishable offence. With this, if a private trader buys farmers’ produce at a price lower than the MSP, he can be jailed for one year, and will have to pay a fine of Rs 50,000. This is a ‘draconian’ regulation and is out of sync with the Modi Government’s thrust on liberalisation and ease of doing business. To understand as to what led to such an extreme step, we must look at the underlying policy approach of the ruling dispensation to deal with low price realisation facing the farmers.

Faced with agrarian across the country and impending general election next year, in the Union Budget for 2018-19, Union Finance Minister Arun Jaitley had announced that the farmers would be assured MSP which is at least 1.5 times the cost of production. Mere assurance of a remunerative price is of no use unless the farmers are actually enabled to sell their entire produce at this price. To make it happen, the Government thought of three alternatives viz market assurance scheme (MAS), price deficiency payments and incentives to private sector to buy farmers’ produce at MSP — as was recommended by NITI Aayog.

Under MAS, State agencies buy the produce directly from farmers at MSP. Under the second option, the Government does not buy. Instead, it reimburses the shortfall in price realised from sale (albeit in the mandi) vis-à-vis the MSP. Under the third alternative, the private sector is incentivised to buy at MSP.

Historically, Governments have used the first option but without much success. This because state agencies, such as the Food Corporation of India, National Agricultural Cooperative Marketing Federation of India et al, do not have the infrastructure and wherewithal to carry out procurement operations on the required scale. As a result, even in the case of staple food, such as rice and wheat, agencies are able to purchase only up to one-third of the marketable surplus; and for others, such as pulses and oilseeds, the procurement is much less.

With respect of the second option (mostly used in developed countries to protect farmers income), there are issues with regard to price at mandi as also the quantum of produce that should be used to determine deficiency payments. Wide variation in price from market-to-market further complicates matters. This brings in discretion giving rise to ‘arbitrariness’ and ‘corruption’.

Under the third alternative, it is hard to fathom whether the incentive scheme would work. Fundamentally, a trader is driven by profit motive. He would be willing to pay only a price at which he hopes to earn a reasonable margin, taking into account the rate at which he can sell the produce to consumers and costs incurred by him. If in a depressed market, realisation from sales is low, an incentive howsoever high won’t enthuse him to buy from the farmer at MSP.

Policy-makers in Maharashtra must have realised that the incentive mechanism won’t work. So, the State is using the force of law to achieve the goal. Sending the trader to jail merely because he cannot pay a target price is an abhorrent idea. This will prompt traders not to buy at all, leaving the farmers in the lurch. It could be a classic case of the remedy being worse than the disease.

Apprehending that traders may shift their food procurement operations to other States, the Maharashtra Government has urged the Centre to consider implementing a similar move in other States. The latter should dismiss it outright and instead goad the former to withdraw its own order. The objective of ensuring a good price to farmers for his produce is laudable but this can’t be done through use of force. Giving monetary incentive won’t work either. The only way out is to give them more options to sell. Today, this is constrained by license-permit raj and over-regulated markets. This has to go and markets need to be de-regulated.

There is a dire need for major reforms such as abolition of APMCs (agriculture produce market committees), setting up of private marketing yard, electronic-National Agriculture Market (e-NAM) contract farming, removal of barriers to inter-state movement, opening up of exports, foreign direct investment (FDI) in retail besides investment in infrastructure, especially rural roads, storage, handling, transportation and food processing. The biggest obstacle in the way of these reforms — pending for long — is vested interests of a few who want status quo to continue. How Modi surmounts them, one can only wait and watch.

(The writer is a freelance journalist)

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