Why Modi must now sow agri-marketing reforms

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Published: May 27, 2019 1:47:02 AM

If PM Modi can do this shift from price policy to income policy, and reform the current agri-marketing system, it will be a fundamental structural reform in agriculture with high pay-offs in the years to come.

To start with, a Agri-marketing Reforms Council, on the lines of the GST Council, must be set up for better coordination with states on implementing reforms.

Kudos to prime minister Narendra Modi, Amit Shah and their charged battery of karyakartas (party workers) for this historic victory in the parliamentary elections! This is the biggest feat of democracy on earth, convincingly won by the BJP/NDA. We should all feel proud of our democracy, despite some bitter speeches during election campaign by various parties.

Political pundits will remain busy analysing why economic factors ranging from demonetisation, teething problems of GST implementation, slow growth of industry with limited new jobs, and even rural distress, did not dampen the electoral showing of the BJP/NDA. But one thing seems clear, that Indians like a ‘strong’ prime minister and not a meek one. In some sense, it is more a victory of the Modi brand, as the whole election pitch of the BJP/NDA centred around Narendra Modi.
Now, with the historic win in the pocket, what is it that PM Modi can deliver to the nation? First and foremost, perhaps the need is for humility and going back to his 2014 election slogan of ‘sabka saath, sabka vikas’. In his ‘thank you’ speech, the PM did mention that he will forget the bitterness of the election campaign, and will work with all states and parties without any ill will and animosity. That is reassuring.

Second, he has to hit the ground running on the economy. The macro-economy is facing headwinds. Industry is getting deeper into the doldrums, and agriculture has been limping. He has no time to rest as expectations from him have soared even higher. We focus here on the agri-food sector. And within that, we discuss only agri-marketing, which is a low-hanging fruit. Later pieces will focus on other aspects of agriculture.

In 2016, PM Modi gave a clarion call to double farmers’ real incomes by 2022-23. At the time, the time-frame to do it was seven years and required rate of growth was 10.4% per annum. Three years have already passed by, and one does not see any acceleration in farmers’ incomes compared to its trend line of 3.7% during 2002-03 to 2015-16. So, in the remaining four years, PM Modi has to get farmers real incomes moving up by 13-15% per annum. To my professional understanding, this is almost impossible with the set of policies that he has followed in the last five years. Agri-marketing reforms, therefore, should be the top priority in reforming agriculture.

PM Modi has to ensure that his Model Agricultural Produce and Livestocks Marketing Act of 2017 is followed and implemented by all the states, in letter and spirit. Just sending a letter to states will not get it implemented. Such a letter was also sent by late PM Vajpayee in 2003, and it remained basically on paper. Recent attempts by chief minister Devendra Fadnavis to implement it in Mahrashtra showed how difficult it could be in the face of strong opposition by mandi commission agents and other vested interests.

If PM Modi is serious about reforming agriculture, he needs to quickly set up an Agri-Marketing Reforms Council (AMRC), on the lines of the GST Council, to carry out agri-marketing reforms in states in a synchronised manner. It is a low-hanging fruit and can be harvested in the next 6-12 months if he hits the ground running right now. This AMRC will also have to review and prune the Essential Commodities Act of 1955, the Livestock marketing, the Warehouse Receipt System, the Agri-Futures markets, etc. The agri-vision for New India should be based on building competitive and inclusive value-chains for several products, on the lines of the AMUL story for milk. Food processors, organised retailers, agri-exporters, need to be encouraged for direct buying from farmers’ groups bypassing the mandi system. Optimally, AMRC should be led by a strong agriculture minister at the Centre in association with some chief ministers of key agri-states, and the experience gained in GST reforms should be fully tapped. For that, PM Modi needs to have a heavy-weight agri-minister, who is well respected for his holistic understanding of these issues and can also carry his voice in the Cabinet. Whom he gives this responsibility will have to be seen when he announces his new Cabinet. The configuration of last Cabinet may not yield desired results.

It may be noted that the only sustainable and efficient way to get the remunerative prices for farmers is through these structural reforms in agri-marketing. The path of higher and higher MSPs, based on cost A2+FL as announced for 23 commodities has serious limitations as it bypasses the demand side of the equation. We can already see much higher stocks of grains in the government system, with Food Corporation of India and NAFED, than the buffer stock norms of those commodities. This only reflects that inefficiency will keep increasing. In this context, lessons from China may be of some use. China, after 2008, significantly increased MSPs for key commodities such as rice, wheat, corn and cotton. Its list of MSP commodities is much smaller than ours (we have 23 commodities under MSP). Its stocks of grains with government system touched almost 300 million tonnes, leading to massive inefficiency. From 2016 onwards, it set out to reform the agri-pricing support system. First, MSP support for corn was given up, then cotton procurement was reduced, and, now, even wheat MSP has been reduced. Interestingly—simultaneously—it moved from price support operations to direct income support on a per-acre basis. In 2016-17, China gave direct income support of $21 billion to its farmers. In that sense, PM Modi’s move toward PM-Kisan for direct income support is a step in the right direction.

If PM Modi can do this shift from price policy to income policy, and reform the current agri-marketing system, it will be a fundamental structural reform in agriculture with high pay-offs in the years to come.

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