Farm Laws: Centre must not yield to ‘mandatory MSP’ demand & refrain from imposing levies on non-APMC sales

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Updated: Dec 09, 2020 9:48 AM

Mandatory MSP and Levies on non-APMC markets will be an assault on the reforms the Union government has ushered in with the new farm laws

Currently, under the APMC system, a farmer has to pay three levies on the produce she brings to the mandi, notified by the state government under its APMC Act.Currently, under the APMC system, a farmer has to pay three levies on the produce she brings to the mandi, notified by the state government under its APMC Act.

To address the concerns of agitating farmers over the three farm bills enacted in September, the Union minister for agriculture & farmers welfare, NS Tomar, has agreed to consider (i) strengthening the APMC (Agricultural Produce Market Committee) by imposing levies at ‘uniform’ rate on purchase at APMC and non-APMC platforms—latter now permitted under the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020; and (ii) giving legal status to the minimum support price (MSP), which should also apply to sales made at the non-APMC platforms. If taken on board, this will strike at the very foundation of agri-reforms brought about through these laws.

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Currently, under the APMC system, a farmer has to pay three levies on the produce she brings to the mandi, notified by the state government under its APMC Act. For instance, in Punjab, apart from commission @2.5% of the purchase price given to the ‘commission agent’ (arhatiya in local parlance), the state government levies a market fee and a rural development cess (RDC) at the rate of 3% each.

These levies add 8.5% to the purchaser’s cost, who recovers it by increasing the price to the consumer. This also leads to a corresponding increase in food subsidy bill on wheat or paddy purchased by central agencies, such as the Food Corporation of India (FCI), etc, for meeting the requirements of the public distribution system (PDS) and giving rice and wheat to beneficiaries at a subsidised price of Rs 3/kg and Rs 2/kg, respectively, under the National Food Security Act (NFSA).

Under the new central law, the farmer can take her produce to any place, to any corner of the country, or a buyer can come to her doorsteps (the non-APMC market). This is in addition to the APMC platform, the sanctity of which remains intact. No levies shall be charged on all such sales. So, the farmer could not have gotten a better deal. Yet, the central law is being portrayed as a ‘black law’ that will harm farmers’ interest. Nothing could be farther from the truth.

The harsh reality is that those who hitherto had a complete stranglehold over the APMC mandis, exploiting farmers for their unjust enrichment, viz the ‘commission agents’ and ‘licenced traders’, are the ones who will be hit by the new dispensation, especially as more and more farmers sell on non-APMC platforms. Indeed, they are the ones up in arms against the central laws and are masquerading as farmers and getting the tacit support of the state government that stands to lose revenue, as it can’t collect levies on sales made outside APMC.

If the motive is mala fide, the demands put up (albeit in the name of farmers) are bound to be flawed. Levies on sales at non-APMC markets, at the same rate as applicable to APMC sales, will deter the development of parallel/non-APMC markets. They will also become a breeding ground for inspector raj (think of a small farmer selling vegetables on roadside being harassed by the tax inspector to collect bribe money).

The demand for requiring purchasers at the non-APMC platform to pay MSP and give it legal status is no less abhorrent. At present, purchases by FCI et al are made at MSP. But, MSP has no legal sanction. They buy only about 33% of the total wheat and paddy offered for sale. For the other 21 agri-items for which the Centre notifies MSPs, the agencies procure much less. Moreover, of the 150 million farmer households, only 8% get to sell their produce to the agencies (albeit at MSP) even as the rest 92% are left at the mercy of licensed traders and commission agents at the APMC. They get lower-than-MSP rates.

The new central laws have opened up a plethora of opportunities for these 92%. They can go to a private market for selling their produce; enter a contract for selling to a company (processor, aggregator, large retailer, exporter, etc) at their doorsteps, form farmer producers organisations (FPO) and sell under its umbrella, etc. Their net realisation from the sale (price minus expenses incurred on cleaning, assaying, weighing, etc) will be much more than what they are getting today.

While a farmer will be too happy to get MSP, she needs to be realistic. If MSP is, say ‘X’, and, at present, she is getting only 0.25X (thanks to the non-availability of an APMC-mandi- alternative) and the availability of new options helps her realise 0.5X, this should be welcome. Simply because she is not assured of ‘X’ can’t be a valid ground for foregoing 0.5X. This is precisely what the farmers are craving for by seeking a repeal of the central law.

As if this was not enough, they are asking for legal status to MSP. This is bizarre. In a contract between two private entities, how can the government legislate that buyer pay MSP? Given the risk of going to jail in the case he pays a rate lower than MSP (how much can he pay, this is a function of market dynamics!), which trader will dare buy? What if a large number of them decide not to buy? The farmers will have stocks rotting in their fields and get nothing.

Then, will the government pick up at MSP every grain of what the farmers are offering? Does it have the wherewithal to buy, stock and dispose of the produce of all the 150 million farmers? Most crucially, does it have the resources?

Already, the food subsidy bill estimate for the FY21 Budget is Rs 2,53,000 crore (this does not include Rs 1,50,000 crore spent on supplying free food during April-November to address the impact of Covid-19 crisis). This is for procurement, handling and distribution of food at a subsidised price through PDS under NFSA plus the price support for pulses and oilseeds. On top of this, if it decides to guarantee MSP on every grain farmer offers for sale, one shudders to fathom what the subsidy payout will be. Against this backdrop, the government must not agree to mandatory MSP and also refrain from imposing levies on non-APMC sales as these decisions will be an assault on the very soul of reforms brought about through the three central laws. If the states want a level playing field for APMC mandis, then they should abolish levies on sales made on this platform, putting them on a par with non-APMC markets, apart from taking other measures to make the former efficient. Coexistence of both the markets and the resulting competition is the best foot forward for ensuring a fair deal to farmers.

The author is a policy analyst
Views are personal

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