The third tranche of the economic package announced by Finance Minister Nirmala Sitharaman on Friday focused on agriculture and allied activities and had two sets of measures: First, steps aimed at boosting credit flow to parts of the agri-ecosystem, though not backed by substantial allocations. The second, and arguably the more substantive part of the announcements related to the government’s intention to amend the Essential Commodities Act, usher in agricultural marketing reforms, and put in place a legal framework to facilitate direct dealings between farmers and buyers — all of which, if implemented, could potentially deliver sizeable returns in the long term. While these reforms have been on the policy agenda for years, the NDA government must seize this opportunity to push them through.
Sitharaman announced the government’s intention to amend the Essential Commodities Act. The act, enacted in an era of scarcity, is ill-suited for times when the nation is faced with problems of plenty. It imposes restrictions on holding of stocks and has disincentivised private players from making investments in the farm sector in warehousing and storage. This has thwarted the creation of integrated value chains across the country. The government’s announcement of excluding food items such as cereals, edible oils, pulses, onions, and potatoes, and also doing away with stock limits, is very welcome. As is the move to initiate marketing reforms meant to provide more choice to farmers. This move by the Centre comes after states such as Punjab and Madhya Pradesh have recently moved to open up agricultural marketing. While these initiatives by the states may have been triggered by the need to relieve the pressure on mandis in order to maintain social distancing norms during the COVID pandemic, the Centre’s decision could permanently alter the dynamics. As the situation exists today, farmers are bound to sell their produce only to licencees in APMCs. The Centre’s move could end their stranglehold over agricultural trade. Put together, these two steps will enable farmers to sell their produce to anyone, and provide traders and organised retailers the flexibility to procure and stock food items. This could facilitate private investment in the sector, strengthening the farm-to-fork chain, and benefiting both producers and consumers. Other announcements such as the creation of a legal framework to enable farmers to engage with processors, aggregators, large retailers, suggest a push towards contract farming.
The policy discourse over the past several years has centred around the imperative to free Indian agriculture from the clutches of APMCs, amend the Essential Commodities Act, and encourage private investment in various parts of the food chain. While governments in the past have indicated their preference to carry out these much-needed reforms, they have shied away due to political compulsions. The NDA government should not let go of this moment to reform Indian agriculture.