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APMC Act: View: Towards a land of milk and honey

APMC Act: View: Towards a land of milk and honey 2

The third episode of the stimulus serial unveils an idyll, a land where milk and honey flow, healthy, contented herds of milch animals waddle around fields of medicinal plants, with full udders waiting to be emptied into the coffers of farmers, if only they can tear themselves away from their shrimp and fish, growing by the bountiful tonne.

The finance minister was, however, silent on one major service the government has rendered farmers, at least for the current season: an influx of crores of migrants into rural areas, who would depress farm wages in the short run and lower the farmers’ cost of production. Strange that the government, normally loath to leave any benefit unclaimed, does not want to take credit for this tangible gain accruing to farmers. Or is it?

One consequence of sprinkling lakhs of rupees around with the gay abandon of a village lass sowing seeds while singing and dancing in a vintage Hindi film is that the brain grows numb to long strings of zeroes. So what remains the earnest list of good intentions to build post-harvest infrastructure, food processing clusters in rural areas, and link the farmer with the national and the global market.

What Indian agriculture needs is withdrawal of incentives that distort farming, tear crops away from agroclimatic zones that favour them (sugarcane in arid Maharashtra, not on the floodplains of Bihar), lock farmers into growing produce that is not in demand (surplus grain stocks spill out from state storage facilities), deplete ground water and spoil the land, and convert landlords into moneylenders (farm loans from banks at 3%, to be lent to hapless agricultural labour at 30% or more).

Building cold storages and food processing units is absolutely the right thing to do. The trouble with these things is not that they have been waiting for large dollops of subsidy but that they call for reliable power supply, particularly in the daytime, as far as agro-processing plants are concerned. However, politicians show little inclination to change the political culture that has crippled the power sector: patronage of theft and endless giveaways.

PM Kisan scheme is the right way to go, give farmers income support, end subsidies on inputs, invest in physical infrastructure such as irrigation and command area development, storage silos, cold chains. Give farmers marketing freedom. That does not simply mean removing the Agricultural Produce Marketing Committee (APMC) Act restrictions that bind farmers to sell their produce only to the APMC. It means letting their produce move across state borders, and be exported. The Centre clamps down on exports at the first sign of food price inflation, denying farmers of extra income and killing the incentive to produce more. This must change, too.

So long as these changes are not attempted, merely throwing yet more money into rural areas will not drastically change farming. But it would be good news for Hero, Bajaj and other two-wheeler makers.

More significant than the money allocated to the farm sector is the legal reform announced. Amendments to the Essential Commodities Act are long overdue. As the finance minister said, the law was meant for a shortage economy and now serves to choke efficient trade in farm produce.

The move to enact a law to give farmers price certainty sounds like Greek, sorry, Sanskrit, for a bar on the government banning forward markets in farm commodities. Futures and forwards in commodities provide price certainty to the farmer and link prices in India to global supply and demand. Since speculation is culturally a sin to most policymakers, its ability to take on the risk of price fluctuations and give farmers price certainty is routinely overlooked in Indian policy. If this will change, farmers will benefit.

The Centre cannot scrap the APMC Act. Agriculture is item number 14 on the State list of the Seventh Schedule of the Constitution, which means that the state government is authorised to make laws on the subject. But inter-state trade falls in the Union list in the Seventh Schedule. Therefore, if a farmer wants to sell his produce to a buyer outside the state, he would be free to, as per the new law promised by the Centre. This is welcome.

The APMC Act, too, was made for a different era. Regulated warehouses and warehouse receipts that are negotiable instruments (a farmer who gets a receipt from a regulated warehouse saying so many tonnes of a particular farm good of a particular quality have been kept in its custody can borrow from the bank on its strength, avoiding distress sales), formal credit from banks, climate controlled storage, active retail chains whose procurement arms reach the farm gate, a vibrant food processing industry — these render the APMC redundant.

These announcements will not quite transform Indian agriculture, but they highlight the right issues.

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