Barely seven months after imposing limits on the maximum quantity of onion any wholesaler or retailer could keep, the Narendra Modi government on Friday announced what may turn out to be a defining “1991 moment” for Indian agriculture. The Centre, Finance Minister Nirmala Sitharaman said, will amend the Essential Commodities Act (ECA) to “deregulate” agricultural foodstuffs — including all cereals, pulses, oilseeds, onions and potatoes — and allow clamping of stock limits on these only under “very exceptional circumstances” like natural calamities and famines, which cause a “surge in prices”.
Sitharaman unveiled the third tranche of measures to cushion the impact of Covid-19 and the lockdown on the economy. As significant as the ECA amendment, was her proposed formulation of a Central law that will not bind farmers to sell their crop only to licensed traders in the APMC (Agricultural Produce Market Committee) mandis of their respective talukas or districts. The law once enacted will also remove all barriers to inter-state trade in farm produce.
The two reforms can potentially do for the farm sector what the 1991 liberalisation and de-licensing measures did for industry and services.
Not only can farmers sell to anyone and anywhere, but traders and processors, too, will be able to freely buy, stock and move any quantity of agri-produce within the country.
“The Modi government should be complimented for biting both bullets (the ECA and APMC) and converting the corona crisis into an opportunity,” said Ashok Gulati, former chairman of the Commission for Agricultural Costs and Prices.
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A third reform announcement, complementary to the first two, was the creation of a “facilitative legal framework” for contract farming.
This will, again, enable farmers to bypass APMC mandis and, instead, engage directly with processors, produce aggregators, large retailers and exports “in a fair and transparent manner”. That would, essentially, mean farmers and buyers entering into contracts, wherein the former is assured of a certain price at the time of sowing and latter procures the harvested produce at the pre-decided rate subject to its meeting agreed quality norms. Both parties are, thus, insulated from excessive market risk — in the event of prices falling (for farmers) or rising (for processors).
According to Sitharaman, the three major reform moves are aimed at improving price realisations for farmers, while pointing out that the ECA was enacted in the “days of scarcity”.
The Modi government, interestingly, had on September 29 imposed stock limits on onions at 500 quintals for wholesale traders and 100 quintal for retailers. These limits were further reduced to 250 quintals and 50 quintals, respectively, on December 3.
On top on these, exports were banned and Income Tax officials conducted raids on traders in Maharashtra, Delhi and Madhya Pradesh to probe any possible “hoarding” or holding of “unaccounted stocks”.
“We have to see the fine print of what the new laws eventually provide for. But the overall direction is encouraging and there is a recognition that India has moved from being a food-deficit nation to a net agricultural exporter. The ECA draws from the days of the Bengal famine and the Defence of India Rules of 1943, which have no relevance today,” said Gulati.
NITI Aayog member Ramesh Chand clarified that the amendment in the ECA will define clear triggers in terms of “price surges” for imposition of stocking limits.
“Such price increases will have to be at least 100% year-on-year at an all-India average retail level for vegetables (onion and potato) and 50% in the case of non-perishables (grains, oilseeds, etc). We will incorporate these provisions in the Act itself, so as to remove any scope for administrative ambiguity,” he told The Indian Express.
Retail prices of onions had, incidentally, crossed Rs 100 per kg towards December last year, more than doubling within a span of three months. Also, one of the Modi government’s first decisions in July 2014 was to bring potatoes and onions under the ECA after almost a decade.
Stockholding limits, along with curbs on exports, were further extended to pulses in 2015-16 and sugar in 2016-17, while being made applicable to ordinary traders as well as millers and large retailers. All these actions followed the adoption of the policy of “inflation-targeting”, with the Reserve Bank of India being given an explicit goal to contain annual inflation based on the consumer price index (which has a 45.86% weight for food items) within 6%.
In its second term, the Modi government has projected a more “pro-producer” approach (onions being an exception), while pushing state governments to undertake reforms to dismantle the monopoly of APMCs.
In the past few days alone, the BJP governments in Gujarat and Karnataka have promulgated ordinances to allow farmers to sell their produce outside of the APMC market yards, besides granting traders a unified licence to buy from any mandi across their states.
While agriculture is a state subject and state governments have accordingly enacted their own APMC Acts, the new Central law ostensibly relies on Article 301 of the Constitution along with entries in the Seventh Schedule. These give powers to the Centre to regulate all inter- and intra-state trade and commerce in “foodstuffs”, which can be used to create an integrated national market by removing restrictions placed by APMC laws. The response of states, especially those ruled by the Opposition, to the latest reforms remains to be seen.