Covid package: Centre bites the bullet, whittles down EC Act to ease inter-state farm trade

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May 16, 2020 3:30 AM

The government on Friday moved to unshackle the agriculture value-chains by deciding to deregulate essential commodity trade and introduce a Central law to ease inter-state farm trade, effectively overriding the APMC mandis that have shown imperviousness to change.

coronavirus, coronavirus lockdown, coronavirus lockdown impact, coronavirus lockdown impact on farmers, coronavirus farmers producer companies, coronavirus impact on maharashtra farmersThe proposed freeing inter-state trade will complement whatever limited APMC reforms that some states have undertaken in recent months.

Converting the crisis precipitated by the Covid-19 into a reform opportunity, the government on Friday moved to unshackle the agriculture value-chains by deciding to deregulate essential commodity trade and introduce a Central law to ease inter-state farm trade, effectively overriding the APMC mandis that have shown imperviousness to change. The proposed freeing inter-state trade will complement whatever limited APMC reforms that some states have undertaken in recent months.

The reforms will help evacuate the surpluses from production zones to demand zones seamlessly, to the advantage of farmer-producers and players across the agriculture value chain, who have also been promised solid support by way of schemes and outlays to build infrastructure and logistical chains from farm-gate to the retail trade, and even exports.

Scrapping the stock limits through the proposed amendment to the Essential Commodities Act of 1955 will enable free trade (including exports) of sensitive commodities like cereals, pulses, oilseeds, onion and potato and lend more predictability to even export policies, according to analysts. Periodic export curbs on items ranging from rice to cotton, especially during the UPA years, had stoked uncertainties, shifted buyers to competitors and dented India’s image as a reliable supplier. Of course, in recent years under the NDA, such policy restrictions on exports have been curtailed.

“The proposed Central law will help seamless movement of farm produce not only inter-state, but also within the states. Anyone having a central license can buy and sell anywhere,” Ashok Dalwai, chairman, Committee on Doubling Farmers’ Income, said.

Announcing the decisions on Friday, finance minister Nirmala Sitharaman said the Centre will also facilitate a legal framework to enable farmers to engage with processors, aggregators, large retailers, exporters etc., in a transparent manner, which will boost their incomes. After the EC Act is amended, stock limit will be imposed only under very exceptional circumstances like national calamities and when prices of perishables surge by 100% and non-perishables by 50%. However, no stock limit will be applicable to processors or value chain participants, subject to their installed capacity or to any trader subject to the export demand.

The move to bypass the APMC Act comes after the Centre’s efforts to weaken the old APMC structure, which has long strangled farm marketing and eroded farmers’ incomes by forcing them to sell their produce to only the relevant APMC licencees, met with only limited success. In 2018, Maharashtra did a U-turn within a month of removing all farm produce, including livestock, from the APMC purview through an ordinance.

Of course, in certain cases (such as Bihar), the attempt to abolish the APMC structure without creating alternative marketing infrastructure for farmers only compounded their woes, a point analysts say the government has to bear in mind when it comes up with the new legislation.

However, the proposed Central law, which also promises free inter-state movement of farm commodities without any barrier, could open up avenues of confrontations between the Centre and some states that currently administer the APMC Act. Commenting on the proposed law, the finance ministry said that inter-state movement of goods is a Central subject, hinting that it’s free to legislate on this issue. However, where the issue is in the concurrent list (farm marketing, for instance), the Centre’s law will have precedence over any state law, it added.

The Centre came out with a draft model APMC law in 2003 and has been pushing for its enactment by states. Around two dozen states have enacted the model APMC law, though with some modifications, but others are reluctant to replace their existing legislation. Even where the model APMC law is supposedly adopted, the old, archaic law still continues to govern the behaviour of market participants.

Ashok Gulati, chair professor of agriculture at ICRIER, had earlier pointed out, “The system kept suffering from highly fragmented markets with insufficient infrastructure; levies and intermediation fees remained high and uneven across states; APMC licencees monopolised trade, leading to rent-seeking and lower share of farmers in the selling price.”

According to the Dalwai Committee Report, there are close to 29,547 marketing points in the country. Of these, 22% or 6,615, are regulated markets under the APMC and 22,932 are regional periodical markets. “The package effects comprehensive reforms to the agriculture sector, and backs it up with capital investments at both production and post-production segments. The challenge of finding value for farmers’ surpluses is finally addressed by giving them alternative marketing channels to choose from,” Dalwai told FE on Friday.

After the Centre formulated a model law for the much-needed reforms in agriculture marketing and asked all states to emulate it, many have tried to toe the line, but comprehensive reforms have remained frustrated. Among the major states, Maharashtra, West Bengal, Odisha, Gujarat and Andhra Pradesh have complied with the four key reforms mooted in the Centre’s model law, namely deregulation of fruits and vegetables trade, facility for anyone to set up private market outside the purview of APMC mandis, single trading licence to enable inter-mandi trade and single-point levy of market fee. However, even these states haven’t taken all the follow-up actions required to actually meet the reform objectives — for example, even as the state’s APMC law provides for it, Maharashtra is yet to issue unified (all-mandi) licence for traders, whereas less than 1% of licences in Uttar Pradesh and Gujarat are unified ones. Rajasthan, Telangana and Uttarakhand are the only three states that have issued unified licences to all traders.

The absence of credible structure reforms in farm marketing has long been blamed for stunted growth in the agriculture sector. The farm sector has witnessed a roller-coaster ride in recent years, with GVA growth ranging from 0.2% in FY15 to 6.8% in FY17. The GVA in the sector was assumed to have grown 3.7% in FY20, according to the second advance estimate of the economic growth announced by the government in February.

Mohit Singla, chairman of the Trade Promotion Council of India, said the amendment to the EC Act will help insulate the farmers from price manipulation by different forces. “The prices will now be governed by market demand only and in the long term bring better value to the farmer,” he added.

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