The State should amend the Agricultural Produce and Livestock Markets Act, 2017, to make payment to farmers actually direct and not through the commission agents
The issue of direct payments to farmers for their produce, as it happens in most other States, would be a non-issue to begin with, if it was not in the context of Punjab. Any buyer has the right to pay the way s/he wishes and the seller agrees, including the latter having the right to receive payment directly from the buyer. It is, in fact, laughable to learn that in Punjab, the payment for farm produce even by the Government agencies like the Food Corporation of India (FCI) has been made in the Agricultural Produce Market Committee (APMC) mandi system through the kacha arhatiya (commission agent). The Government of India (GOI) had been requesting the State to streamline its procurement and payment procedures in line with the Centre’s guidelines of direct online payment to farmers and in compliance with the Public Finance Management System (PFMS), since 2018. The State had time and again sought extensions for various reasons. The FCI would like to remove the arhatiya from the acquisition process to lower its costs of procurement. For instance, for the first time, the Cotton Corporation of India Limited (CCI) was able to make direct payments to cotton farmers during the last kharif season without paying a commission to arhatiyas in Punjab, after the new farm Acts came into force, before being put on hold by the top court.
Even the Punjab Government had, until now, not allowed the central agencies to pay directly to farmers, irrespective of the party in power. The previous Government in Punjab, through the 2013 amendment to the APMC Act, had made it optional for growers to receive payments directly when farmer unions demanded it. But the farmer had to give this in writing at least 45 days before the start of the procurement season for paddy or wheat, if s/he wanted payment directly. However, this amendment did not deal with payments for other agri produce and left it to the farmer giving an oral option at the time of auction. But in 2017, the State Government amended the APMC Act to provide for these farmer payments to be indirect, through the arhatiyas, wherein the agent gets the payment for the farmer’s produce and deposits it in the grower’s account.
Interlocking: The arhatiya associations claim that they lend without a collateral and recover their payments from sale proceeds paid by the FCI to them for the farmer’s produce. However, they realise that they would not be able to interlock the farm inputs, credit and produce markets anymore, as they have in the past, if payments for produce are made directly to the farmers. But, the arhatiyas only get a licence to facilitate purchase and sale of agricultural produce (called kacha arhatiya), and their other business i.e. money lending to farmers is informal and illegal. They interlock this credit market with produce payments when public agencies procure at the Minimum Support Prices (MSP) and recover their payments. They also charge interest ranging from 18-36 per cent on such loans, depending on the credit rating of the farmers. The arhatiya also charges interest on interest on the unpaid loan besides on the outstanding principal after every season. Thus, there are multiple methods of exploitation of the farmer by the arhatiya.
However, this interlinkage is problematic mainly for the small and marginal farmers, as large growers are able to avoid it. Though farmers have Kisan Credit Cards (KCCs) or Cash Credit Limit (CCL) from banks and the Primary Agricultural Credit Society (PACS), but when they are not able to repay the crop loans at the end of the season, it is the arhatiya who steps in and lends to farmers to prevent them from defaulting for the next season. The farmers then borrow again from the bank/PACS after the repayment to the bank/PACS and repay the loan to the arhatiya. Thus, the arhatiya helps farmers from turning into defaulters. The arhatiyas lend for even non-agricultural and social purposes and their cash credit limits for farmers is more open-ended unlike that of the banks.
Although there are arhatiyas in Punjab’s fruit and vegetable mandis too, and they get five per cent commission compared with 2.5 per cent in grain markets, there is no MSP or public procurement for the crop produce sold in these mandis. Therefore, interlocking is not that widely prevalent in these markets as the arhatiya’s risk in lending would be higher in the case of sales made without public purchase. The arhatiya associations in the past have asked their members not to lend to basmati paddy growers as that would be risky without the guarantee of repayment backed by public procurement at the MSP.
Leasee farmers: The grower unions, arhatiya unions and the State Government also claim that since there is large-scale leasing of land for farming for wheat and paddy (40-50 per cent land is leased informally), it would be difficult for leasee farmers to produce land records to sell at the MSP and claim payments. The State Government also argues that the payment for the produce through the arhatiya is a legal mechanism under the APMC Act of Punjab. The Centre suggested that the State could follow the model of neighbouring Haryana where the details of tenants/share croppers can be uploaded on a portal with the disclaimer that this would not be a legal document for claiming ownership through tenancy. One of the reasons, other than the timing of the decision, for farmers and their unions not wanting direct payments is that they fear the bank would deduct outstanding or defaulted loans from such payments.
The role of the State: This business of money lending is facilitated by the MSP and procurement of grain policy from the APMC markets. This enables the arhatiyas to lend without risk as their dues are recovered from the payments made by the buyers, including the FCI, to the arhatiyas and not the farmers. The norms for farm lending under priority sector lending (PSL) policies have been tweaked so that lending to agriculture is no longer about crops and farms alone; they include loans for agribusiness activities like cold storages, food processing and the like. Also, if banks can’t lend to meet the target of the PSL, they can deposit the money in the Rural Infrastructure Development Fund and also buy priority sector loan accounts from other banks that have exceeded their targets.
Since the State has not conducted elections to the APMC bodies for decades, the arhatiyas are able to dominate the APMCs as the elected representative appointments are made by nomination.
Solutions: If the arhatiya system is to end, Punjab needs to make arrangements for the direct purchase of produce from farmers and ensure payment to them through their own collective agencies, like PACS, co-operatives and producer companies as is being done in some of the other States like Uttar Pradesh, Bihar, Chhattisgarh and Odisha for public procurement of foodgrains. Haryana has given temporary APMC mandi commission agent licences to 380 FPOs and PDS ration depot holders this season in view of a strike by arhatiya in protest against the direct payment policy where 75 per cent of farmers have opted for it.
Unless small farmers are provided institutional finance access adequately and enabled to use the warehouse receipt system under which growers can obtain bank credit against their produce, they can’t avoid the interlocked transactions by the arhatiya.
To resolve the issue of lack of land records with a large number of leasee farmers, Punjab should finalise the draft pro-corporate land leasing Bill with adequate amendments for making it pro-small farmer and make it into a law. Further, the State should amend the Agricultural Produce and Livestock Markets Act, 2017, to make direct payment to farmers actually direct and, not direct through the arhatiya! For the time being, as is reported to have been agreed between the State and the Centre, a verification of seller farmer as a producer of the crop by a revenue clerk or sarpanch would suffice.
The writer is a professor at the Indian Institute of Management, Ahmedabad. The views expressed are personal.
