Agriculture Reforms for Making Indian Farmers Aatmnirbhar
MAKING
INDIAN FARMERS AATM-NIRMBHAR
Programme
and Policy Reforms Agenda for Agriculture
SUBHASH
CHANDRA GARG
Economy,
Finance and Fiscal Policy Strategist; Also, Former Finance and Economic Affairs
Secretary, Government of India
SUMMARY
India used more than
85% of its approximately 110 million hectares of cultivated area at the time of
independence to produce about 50 million tons of foodgrains. More than 70% of
the people employed worked in agriculture either as peasants or labourers. They
worked very small tracts of land, more often than not as unrecognised tenants.
Indian farmers typically converted their labour in food. Farmers’ lot was truly
miserable. At the stroke of independence in 1947, India was a massively poor
country. Indian agriculture was very traditional which did not even produce
enough foodgrains for feeding India’s teeming millions.
First three plans
(1951-1966) did not undertake any fundamental reform of agriculture system and
essentially continued with the pre-independence system of agriculture
production. During this first phase of Indian agriculture, India relied on
three strategic interventions to realise its goal of raising annual foodgrains
production to 100 million tons. First, bring in additional area under
cultivation. Second, increase irrigation. Third, expand availability of
fertilisers and improved seeds.
Only marginal gains
were made in agriculture and food situation of India during first 20 years,
which were also more than neutralised by increase in population. On the whole,
the first phase of agriculture development programmes and policy (1947-64) was
quite a failure. It did not contribute much to make India aatmnirbhar
(self-sufficient) even for food. Actually, 1965 turned out to be the year of worst
food disaster for India.
India changed the foodgrains
development strategy massively in the second phase (1967-2002). The new
strategy was based on three new principal planks- productivity, price and
ground water irrigation. This strategy based on wide adoption of semi-dwarf varieties
succeeded brilliantly.
The seeds of this
spectacular performance were sown in 1963 when celebrated agriculture scientist
Normal Borlaug visited India and agreed to supply seeds of Mexican semi-dwarf wheat
varieties to India. Indian scientists, actively supported by the government,
worked hard and successfully demonstrated the suitability of Mexican seeds for
high yield wheat in India. They also bred Indian varieties crossing Mexican
seeds with Indian varieties. Semi-dwarf varieties of rice came from the east.
India introduced these high yielding varieties at a big scale in 1968-69.
Foodgrains production
crossed 100 million tons in 1970-71 and 200 million tons in 1998-99. Foodgrains
yields, which were less than 700 kg per hectare in 1966-67, crossed 1000 kg per
hectare first time in 1978-79 and 1700 kg per hectare in 1999-2000. Foodgrains
yields more than tripled only in 50 years. India became aatmnirbhar in food and
agriculture by the end of 20th century.
Prior to 1965,
Government of India undertook no price support operations in India. The MSP
system got introduced in 1965 by implementing the recommendations L K Jha Committee.
Food Corporation of India was also established in 1965. The MSP system has got
fine-tuned over the years. The Government decided in 2017-18 to provide at
least 50% profit over cost of cultivation for all the MSP crops.
The foreign exchange
crisis of 1991 did not have its roots in agriculture. 1991 reforms were
essentially industrial sector reforms, though depreciation of rupee did benefit
agriculture exports as well. Reforms of 1990s literally ignored agriculture
sector.
Agriculture programmes
saw considerable consolidation and diversification in the last phase of
agriculture policy and programme development (2000 to continuing). However,
most agriculture development programmes of today are the repackaged versions of
the programmes initiated in the second phase (1965-2000).
Agriculture marketing
regulatory interventions in India were started for protection of consumers’
interests and streamlining supplies of agricultural raw materials to
industries. The first legislation to provide for regulation of agriculture markets
was the Berar Cotton and Grain Market Act 1887 became the model for enactment of
similar legislations in other parts of the country. Quite a few states enacted
such legislations in the sixty years period before the independence.
APMCs, which are
essentially spot wholesale marketplaces for agriculture produce, were designed
to serve three broad functions- a. to create a market place for agriculture
produce, b. to regulate the contracts, practices and intermediary payments to
create a fair and low-cost trading regime for farmers and c. to generate resources for the government to
invest in agriculture infrastructure. The APMCs development in the country in first
50 years seemed to serve all these objectives. A big structural mistake,
however, turned APMCs into a stranglehold around the farmers’ neck over this
period of five decades. This fundamental mistake was total monopolistic nature
of APMC system.
The APMC
reforms were initiated in 2003 did not address the principal flaw in the
agriculture produce marketing- absence of competitive markets, one size fit all
type of over regulation of markets implemented in a decentralised manner by
organised vested interests, lack of standardisation and aggregation of farmers’
produce, leasing of land not being legally permitted and exclusion of
processors and wholesalers on account of storage restrictions. These APMCs
reforms, consequently, did not make much difference.
Farmers’
Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020
promulgated on 5th June, 2020 strikes at the root of APMCs’ monopoly
over wholesale agriculture produce trading. This Ordinance also virtually
abolishes the system of mandi fees. The Ordinance is truly revolutionary in
respect of these two fundamental deformities of agriculture produce trading
system in the country. The Ordinance does not directly dismantle APMC system
(the APMCs continue to live as they are presently within the confines of their
physical market yards), but has the potential of massively disrupting them indirectly.
The
Ordinance- The Farmers (Empowerment and Protection) Agreement on Price Assurance
and Farm Services Ordinance 2020- promulgated on 15th June builds on
the Model APMC Act 2003 and Draft Model Contract Act 2018 to achieve mainstreaming
of contract farming. The Ordinance excludes APMCs' jurisdiction from contract
farming. The contract farming as
envisaged in the Ordinance is, in essence, continuation of same artificial
construct as has been the case for last 17 years. It also excessively regulates
contract farming. This law is likely to meet the same fate what the contract
farming provisions in the model APMC law of 2003 met with.
Essential Commodities
Act 1955 (ECA-1955) was founded in 1939 as part of the Defence of India Rules. Defence of India Rules were replaced by Essential Supplies (Temporary Powers) Act, 1946. The provisions of
ECA when enacted in 1955 were quite similar to the 1946 law. Continuing food-shortages provided
justification of food controls in independent India and in the planned economy
ushered in 1951.
Food has been
the main reason ECA-1955 was sustained over several decades. Hundreds of orders
were issued regulating, prohibiting, controlling prices, storage, distribution,
consumption and other matters affecting foodstuffs under ECA-1955 by the time
20th century drew to a close. At some point of time, an adjunct law-
Prevention of Black-marketing and Maintenance of Supplies of Essential
Commodities Act, 1980- was brought in to take preventive actions against violators
of control orders issued under ECA-1955.
When food position became
better, instead of eliminating controls over foodstuffs, India resorted to a
round-about way to defang the ECA-1955. A new Order called Removal of (Licencing
requirements, Stock limits and Movement Restrictions) on Specified Foodstuffs
Order 2002 was issued. This Order effectively nullified all controls on buying,
stocking, selling, transporting, distributing, disposing, acquiring, using or
consuming over a long list of foodstuffs- wheat, paddy/rice, coarse-grains,
sugar, edible oilseeds and edible oils issued under ECA-55. The 2002 Order was substantially
diluted during 2006-2014. The Government reissued 2002 Order in 2016 but kept
some of exemptions, including on onion and pulses, for most of time out of the
scope of 2016 Liberalising Order.
The
Essential Commodities (Amendment) Ordinance 2020 promulgated on 15th
June does not take foodstuffs out of the scope of ECA-1955 but only modifies
the regulatory and control regime in its application to foodstuffs. The
Ordinance only modifies the circumstances in which the regulatory and control
authority is exercised in case of foodstuffs and in particular while specifying
stock limits.
There is actually
no need for ECA-55 to remain on statute book any longer. Not only foodstuffs,
remaining 7 commodities in the ECA-55 Schedule need no control mechanism today.
Like industrial goods, all the five items of agriculture, including fertiliser
and hank yarn, need no protection of ECA-1955. To deal with any extraordinary
situation in case of disasters, if need be, provisions of Disaster Management
Act can be resorted to. Essential Commodities Act 1955 needs to be simply
scrapped.
Ever since
independence, India’s agriculture policy and programme strategy focused on
increasing production and productivity. Farmers’ income was not the real goal
of the policy. Only in 2014, the government specifically mentioned doubling the
farmers’ income by 2022 as a policy goal. It is imperative that the agriculture
policies and programmes are oriented completely towards increasing farmers’
income by at least five times over next ten years. This requires a
multi-pronged strategy built on five critical planks of the policy and
programmes:
First, an average
farmer’s operational land holding need to become five times than what he
cultivates today to raise his turnover to generate five times the
profit/income. Second, the farmers need to get stable and predictable prices
for his produce, including practically locking-in output prices before he
cultivates. Third, the farmers should be able to choose right amount and
quality of inputs to economise/reduce his cost of cultivation. Fourth, he should
be completely free to get the best out of his land-asset. Fifth, skill-set of
farmers is quite limited. There is need for a large-scale skilling required to
make farmers earn income from non-farm businesses.
This would require a
complete recast of today’s agriculture development programmes, input subsidy
regime and minimum support price regime. The expenditure governments incurs
under these programmes, which effectively exceeds 4 lakh crores need to be directly
delivered to farmers freeing up the input and output markets.
COMPLETE
BLOG
Food and clothing are
most essential agriculture goods for human survival and happiness. Agriculture is
the first organised industry created by human beings to produce food, clothing and
medicine, applying human labour and capital.
India has been a
pioneer throughout the history of development of agriculture over last 10
millennia, building on its tremendous natural advantages and innovative human
spirit and ability. India got reckoned as the most prosperous country for
centuries building its income and wealth mostly from agriculture.
Onset of industrial
revolution diminished the role of agriculture as producer of income and wealth.
India lost its pre-eminence and wealth as industry advanced in the west and
remained subdued in India. India had become a very poor country by the time
British left in 1947 with 80% of Indians living below poverty line.
Indian agriculture and farmers
who had provided all the resources for prosperous empires in India over two
millennia had become a pauper- a malnourished poor himself.
Indian Agriculture and Farmers at
Independence
India used more than
85% of its approximately 110 million hectares of cultivated area at the time of
independence to produce about 50 million tons of foodgrains. More than 70% of
the people employed worked in agriculture either as peasants or labourers. They
worked very small tracts of land, more often than not as unrecognised tenants.
Indian farmers typically converted their labour in food. Farmers’ lot was truly
miserable. At the stroke of independence in 1947, India was a massively poor
country. Indian agriculture was very traditional which did not even produce
enough foodgrains for feeding India’s teeming millions.
Food shortages had made
the British Government control food production, supply, trade and commerce.
Predecessor of Essential Commodities Act, 1955 had taken birth in 1939 as part
of the Defence of India Rules and later as Essential Supplies Act 1946. Fact of
food shortages had created and strengthened the mindset of control.
Regulated markets had
made their appearance in 1880s. The first regulated market legislation- Berar
Cotton and Grain Market Act- was passed in 1887. Seven States had agriculture
produce marketing laws in 1950 yet not more than 10% of foodgrains got traded
in regulated markets.
AGRICULTURE PRODUCTION
POLICY AND PROGRAMMES
India Followed a Policy
of Benign Agriculture Neglect (First Phase 1947-1964)
India targeted to
produce 100 million tons of foodgrains by the end of third five-year plan
(1961-66). Instead India faced its worst foodgrains crisis in the middle of
1960s- during the years 1964-1967.
Foodgrains production collapsed to only 77 million tons in 1965. Prime
Minister Shastri implored Indians to eat only once a day. About 10 million tons
of wheat- the largest food transshipment project ever undertaken - had to be
shipped from the US to India in 1965 to save Indians from starvation and repeat
of another famine.
First three plans
(1951-1966) did not undertake any fundamental reform of agriculture system and
essentially continued with the pre-independence system of agriculture
production. During this first phase of Indian agriculture, India relied on
three strategic interventions to realise its goal of raising annual foodgrains
production to 100 million tons.
First, bring in additional
area under cultivation.
Second, increase
irrigation.
Third, expand
availability of fertilisers and improved seeds.
Two years of droughts
in 1965-67 completely exposed weaknesses of India’s agriculture development
strategies. Land Reforms of abolition of
zamindaries and consequential elimination of intermediaries between the state
and the peasant and reforms of conferring permanent tenancy and ownership
status on the tiller of the land were carried out successfully in almost all
the states. Agriculture ceiling reforms did not succeed as only less than 2
million hectares of land ceiling surplus could be distributed in 50 years.
Area expansion strategy
also succeeded in its objectives. Almost entire area increase which India has
since in last 73 years occurred during this phase. Net area sown at the end of
third plan reached 140 million hectares. Even today, it is 140 million
hectares.
Irrigation was the
principal investment strategy of the first three plans. More than 2/3rd
of plan outlays on agriculture production programmes and irrigation during this
period went for irrigation investments. The dams and surface irrigation,
however, has a tendency to develop slowly. It is no surprise that, despite
massive irrigation outlays, irrigated areas increased at a snail’s pace of
average .4 million hectares per year. Net irrigated area slowly but steadily
increased form 21 million hectares to 27 million hectares in 1966-67.
India’s fertiliser and
new seeds was pathetically low at the time of independence. Indian farmers used
a total of 66 thousand tons of fertiliser nutrients in 1950-51. Fertiliser
consumption rose to 785 thousand tons in 1965-66- which was still minuscule.
Indians farmers put about 27 million tons of fertiliser nutrients in the soil
now. For seeds, the age of high yielding seeds had not arrived by the time the
third plan ended.
Marginal gains were
made in agriculture and food situation of India during first 20 years, which
were also more than neutralised by increase in population. On the whole, the
first phase of agriculture development programmes and policy (1947-64) was
quite a failure. It did not contribute much to make India aatmnirbhar
(self-sufficient) even for food.
India Faced its Worst Food Crisis in
1965-67
India imported 2.8 million
tons of foodgrains in 1948. In the next three years (1949-51), foodgrains
imported ranged between 2 to 5 million tons. Wheat was the real problem,
accentuated by good wheat producing areas going to Pakistan after partition.
Only about 10 million hectares of land was under wheat cultivation in 1950-51
producing only 6.5 million tons of wheat.
1965 turned out to be
the year of food disaster for India. Foodgrains production fell massively to only
72 million tons in 1965-66 and 74 million tons in 1966-67.
While India was facing
massive food shortages during 1950s and 1960s, on the other side of the globe,
Americans were wallowing in excess production of wheat. American Food Aid to
India, which later acquired very bad overtones, commenced in 1951. The US President
Truman approved a 2 million wheat loan as part of India Emergency Food Aid Bill
in June 1951. More food aid flowed from America under the Agriculture Trade
Development and Assistance Act, passed in 1954, widely known as Public Law 480
or PL-480.
It is estimated that
India received total food aid of about 50 million tons over 20-year period
(1951-1971) which was estimated to be worth $10 billion. This was the largest
food assistance programme ever undertaken for any country. India stopped
accepting food aid from America in early 1970s. It is estimated that America
provided, in 50 years of PL-480 (1954-2004), globally total food aid
aggregating $33 billion. India received 1/3rd of this total food
aid.
New Agriculture Policies and Programmes (Second
Phase 1965-2000) makes India Aatmnirbhar (Self-Reliant) in Food and Agriculture
You would ask for a set
of three conditions to be satisfied before you could call any country, India in
our case, aatmnirbhar or self-sufficient in food and agriculture. First, India
stops importing cereals primarily consumed as food by humans- wheat and rice.
Second, India produces more food in aggregate than it consumes. In other words,
India becomes net exporter of food- cereals, pulses and edible oils taken
together. Third, India becomes overall net exporter of agriculture products.
India changed its
foodgrains and agriculture development policy and strategy from the middle of
1960s. India imported maximum amount of wheat in a year in 1966- a whopping 8
million tons. From then on, the imports started declining. India imported 2.6
million tons of wheat only on an average per year during 1970s, despite three
awfully bad years of 1974-1976. In the year 1979, India did not import any
wheat. In 1980s, the average came to about 1 million tons a year. There have
been only one or two exceptional years every decade since then when India
imported wheat. India effectively stopped importing wheat sometime in the
middle of 1980s.
India soon turned an
exporter of wheat. India made notable exports of wheat first time in the year
1972 when .7 million tons of wheat was exported. From 1977, barring exceptional
years, India has been exporting wheat consistently. During the first five years
of new millennium (2000-2004), India exported in excess of 17 million tons of
wheat at an average of 3.5 million tons a year.
India could turn the
tables completely by the beginning of new millennium- a country which was
dependent on wheat food aid during 1960s had become an established exporter of
wheat. India indeed became aatmnirbhar in two principal cereals- rice and
wheat- by the turn of millennium. It was a massive transformation. First
condition was fully satisfied.
India has been a
consistent importer of pulses. India has also been importing more than 50% of
its consumption demand of edible oils. India has never been and possibly will
never be self-sufficient/aatmnirbhar in both pulses and edible oils. India need
not be self-sufficient in every food. India turned net food exporter sometime
in 1980s.
India also became net
agricultural exporter in 1980s. In 1990-91, agriculture exports exceeded 6
thousand crores whereas agriculture imports were only 1.2 thousand crores. In this
year of extraordinary external crisis, agriculture was no culprit. In fact, agriculture
exports have consistently exceeded imports since 1990-91.
India turned around
completely during 1965-2000 and became aatmnirbhar in food and agriculture
products. India has remained aatmnirbhar in food and agriculture ever since
1980s.
A Very Different Food
Production Strategy in Second Phase
India changed the foodgrains
development strategy massively in the second phase (1967-2002). The new
strategy was based on three new principal planks- productivity, price and
ground water irrigation.
High Yielding Varieties
(HYVs) and later hybrids, nourished by fertilisers, with agriculture fields
worked by increasing use of farm equipment helped raised the productivity.
Indian Government initiated the system of minimum support prices (MSP) in 1965,
which assured remunerative prices to the farmers, at least in parts of India where
the foodgrains cultivation became commercial agriculture. Expansion of
groundwater irrigation provided much needed assured water to foodgrains crops.
This well irrigation proved far more efficient than the surface irrigation,
which required massive investment, large displacements and water transportation
over long distances.
India produced 16.5
million tons of wheat in 1968, an increase of 45% over the previous year crop
of 11.4 million tons. This revolution was engendered by Indian cross bred
variety- Sonalika- which was released the year before and was grown massively
in India during 1967-68. India’s wheat production never looked back from then
on, increasing to more than 25 million tons in 1971-72 and reaching 50 million
tons in 1988-89. Today, India produces more than 100 million tons of wheat-
growing more than 15 times of the production at the time of independence in
about 40 years. India’s wheat production grew 5 times in 20 years since the
horrible crisis of 1966-67.
The seeds of 1967-68
spectacular performance of wheat production were sown in 1963 when celebrated
agriculture scientist Normal Borlaug visited India and agreed to supply seeds
of Mexican semi-dwarf wheat varieties to India. Indian scientists, actively
supported by the government, worked hard and successfully demonstrated the
suitability of Mexican seeds for high yield wheat in India. They also bred Indian
varieties crossing Mexican seeds with Indian varieties. Large scale
experimentation were done in 1966-67 and the entire crop was saved as seeds. This scripted the 1967-68 story.
Semi-dwarf varieties of
rice came from the east. India introduced these high yielding varieties at a
big scale in 1968-69. It spread much more slowly and less dramatically than
wheat. Rice production in 1968-69 at about 40 million tons was not majorly
different than the averages of 1963-65, but yields grew gradually but steadily
ever since 1968-69. Rice production crossed 50 million tons in 1977-78 and 100
million tons in 2011-12.
Foodgrains production
crossed 100 million tons in 1970-71 and 200 million tons in 1998-99. Foodgrains
yields, which were less than 700 kg per hectare in 1966-67, crossed 1000 kg per
hectare first time in 1978-79 and 1700 kg per hectare in 1999-2000. Foodgrains
yields more than tripled only in 50 years.
Minimum Support Price System Gets Established
Prior to 1965,
Government of India undertook no price support operations in India. Some states
took some sporadic measures at local levels. Government of India appointed a
Committee, under the chairmanship of L K Jha, Secretary to the Prime Minister,
on August 1, 1964 to determine farmers’ prices of rice and wheat for the
ensuing 1964-65 session. L K Jha Committee was also to provide the terms of
reference for setting up an agency which can provide such recommendations on a
standing basis. L K Jha Committee conceived of “the producers’ price as being
the minimum price or a support price at which Government should undertake the
responsibility for purchasing any quantities that are offered at approved
assembling points.” The Committee recommended not only producers’ prices but
also retail prices for 1964-65 rice season. As India was reeling under
foodgrains deficit, the Committee also recommended ‘rationing’ system for some
cities.
The MSP system has got
fine-tuned over the years. The cost of cultivation got more scientifically
determined and calculated. Organised formulae for building in farmers’ profit
margins got devised. Governments brought more and more crops under the MSP
system, though implementation of MSP for many crops could not take place on
account of several issues and problems. Margins over cost also kept increasing
over the years. The Government decided in 2017-18 to provide at least 50%
profit over cost of cultivation for all the MSP crops.
The MSP system
initiated in 1965 has got deeply entrenched in the system now, in some
respects, turning into a system of vested interests.
Agriculture Consolidates
but Farmers’ Income Stagnates (Third Phase – From 2000 & Continuing)
Once India overcame the
food problem, the policy makers lost the key anchor and driver of agriculture
development programmes and policy. The farmers and the landless farmers still
constituted a formidable force in 2000.
India had approximately
14 crore workers in 1951. About 70% of these workers were farmers and landless
agriculture labourers. Despite phenomenal development of agriculture in India,
dependence of rural workers on agriculture has not diminished much. In the year
2001, as many as 23.4 crore workers (58% of total workers) eked out their
livelihood from agriculture workers (about 13 crores as cultivators and 10.5
crore as labourers).
Indian economy has been
expanding rapidly in last 20 years, but agriculture is constantly losing ground.
Agriculture and allied sector make up only about 15% of India’s GDP. The share
of income accruing to about 60% of the population in 2000-01 dependent upon
agriculture had fallen to very low levels. No wonder farmers and agriculture
labourers lived a very poor existence.
Agriculture programmes
saw considerable consolidation and diversification in last twenty years. RKVY
brought all agricultural interventions, including in animal husbandry, marketing
and infrastructure under one umbrella with considerable choice and decision-making
left to States. Specialised missions and sub-missions on horticulture, food,
agriculture machinery, seeds, storage, animal diseases focused agriculture
systems and package of programme approach of the second phase into different
crop and component specific programmes.
Agriculture development
programmes of today are mostly the repackaged versions of the programmes
initiated in the second phase (1965-2000). High Yield Varieties (HYV) Programme
of 1960s-70s got re-organised as Mini kit Programme for Rice, Wheat and Coarse
grains and Integrated Cereals Development Programme- Rice/ Coarse cereals/
Wheat Based Cropping System and Third, Development of Pulses. These programmes
became part of RKVY and National Food Security Mission in 2007-08. Horticulture
Programmes got converted into National Horticulture Mission in 2003. In all,
the production and productivity enhancement programmes in the two decades of 21st
century are old vines in new bottles.
The agriculture
development programmes witnessed more differentiated approach to maximise
productivity gains during this period. Eastern India had much better water
regime but relatively poor productivity of foodgrains crops. The agriculture
development programmes were focussed more on eastern India. With cereals no
longer facing shortages, emphasis on pulses cultivation, horticulture,
proteins- milk, meat etc.- increased. India consolidated gains in these fields
and achieved 90% self-sufficiency in pulses as well. India became largest milk
producer and its production of fruits and vegetables also went up quite a lot.
Wells irrigation expanded
to about 60 million hectares (almost thrice the canal irrigation). Programmatic
interventions to popularise use of sprinklers and drips and use of water
efficient seeds and farming practices have been taken up. Likewise, increased
chemical residues in food, fruits and vegetables have led to programmatic
interventions being increased to grow organic agriculture.
Agriculture has been
growing at a reasonably good growth rate- in excess of 3% during last 20 years.
The demand and supply situation for most agriculture crops has changed for
better on account of population growth at much lesser rate than agriculture
growth rate. The farmers’ incomes have, however, stagnated.
Reforms of 1990s Bypassed Agriculture
The foreign exchange
crisis of 1991 did not have its roots in agriculture. 1991 reforms were
essentially industrial sector reforms, though depreciation of rupee did benefit
agriculture exports as well.
New Industrial Policy
was unveiled in 1991. New Trade Policy was announced. Considerable
liberalisation of licencing and control over industries took place in 1991. New
FDI policy was announced. No new Agriculture Policy was announced in 1990s.
Agriculture continued to be protected. No FDI was permitted in agriculture. We
negotiated largest protection for agriculture when WTO was set up in 1990s.
1991-92 Budget only promised continued protection of agriculture and rural
development outlays at 50 per cent of the plan resources.
All the programmes of
agriculture development were continued with some more or less emphasis during
the post 1991 reform period. Some minor upward adjustment on fertiliser prices
were done. Reforms of 1990s ignored agriculture sector.
Direct Income Transfers Makes Beginning
The government
initiated a number of programmes to protect the income from agriculture.
Different crop insurance programmes, disaster relief and rehabilitation assistance
programmes, minimum support prices etc. are all meant to ensure that farmers
income don’t fall below their normal incomes.
PM-KISAN started in the
financial year 2018-19 is the first direct benefit transfer scheme in
agriculture as a means to protect farmers’ incomes in the face of very deep
downfall in agriculture produce prices in 2018-19. The scheme provides Rs. 6000
per annum to about 9 crore farmers. The outlay of PM KISAN exceeds the total
outlay of all other schemes of the Department of Agriculture and Farmers
Welfare for the year 2020-21.
AGRICULTURE MARKETING
Farmers must get good
prices for their agriculture produce. Agriculture produce especially if sold as
fresh or unprocessed is, however, a very difficult commodity. Developing right kind
of market infrastructure, regulatory institutions and regulatory system for
agriculture produce is necessary but tough.
Indian agriculture is
small-holders’ agriculture. The farmer has no real pricing power. He sells mostly
in buyers’ market. At the time of sowing, generally the farmer has no idea of
overall demand supply situation likely to prevail when he harvests his crop.
Absence of developed futures market in India makes the whole thing quite dicey
for the farmer. It is not unusual to witness alternate bouts of increased and
reduced sowing by farmers depending upon the price prevailing at the time of
sowing and farmers making wrong bets.
Agriculture Marketing Regulation Started in 19th
Century
Agriculture marketing
regulatory interventions in India started from the other end- protection of
consumers’ interests and streamlining supplies of agricultural raw materials to
industries.
The first regulated
market, called Karanja, was established in 1886 in Hyderabad to ensure availability
of pure cotton at reasonable prices for the textile mills of Manchester. The
first legislation to provide for regulation of agriculture markets was the Berar
Cotton and Grain Market Act 1887 which empowered British Resident to declare
any place in the assigned district a market for sale and purchase of
agricultural produce and constitute a Committee to supervise the regulated
markets. This law seeded the agriculture produce mandis and the agriculture
produce mandi committees of today.
This Act became the
model for enactment of similar legislations in other parts of the country.
Quite a few states enacted such legislations in the sixty years period before
the independence.
India Adopts APMCs and Legislates for Regulation of
Forward Markets
Independent India liked
the approach of regulated APMCs.
First Plan promoted the
concept and encouraged more and more States to go in for such regulated
agriculture produce markets. Second Plan rued that not sufficient progress has
been made in this regard. The Second Plan, noting the rationale of the
regulated agricultural produce markets encouraged States to set up such markets
and laid targets for the expansion of such markets in the country.
Globally agriculture
produce is traded more in forwards than in spot. Spot markets do not eliminate
the price risk. Forward markets do provide a mechanism for income assurance.
This was the rationale for India to legislate the Forward Contracts
(Regulation) Act, 1952 or FCRA. For forward markets, India adopted a
diametrically opposite model than Agriculture Produce Markets Committee Acts. The
APMCs provided for hard-coded regulations by the State Governments and
implemented in a totally decentralised mode by Agriculture Produce Market
Committees (APMCs). FCRA provided for a centralised body- Forward Markets
Commission (FMC) to regulate forward markets.
APMCs Turns into a
Stranglehold Over Farmers
APMCs, which are
essentially spot wholesale marketplaces for agriculture produce, were designed
to serve three broad functions:
First, create a market
place for agriculture produce where sellers (the farmers) and buyers
(government organisations, industries and traders) can transact with the
assistance of market infrastructure and agents.
Second, regulate the
contracts, practices and intermediary payments to create a fair and low-cost
trading regime for farmers who, on account of being the weakling, were quite
vulnerable to market abuse.
Third, generate
resources for the government to invest in infrastructure to facilitate
packaging, transportation, storage and marketing of farmers’ produce.
The APMCs development in
first 50 years seemed to serve all these objectives. Thousands of market yards
got created all over the country over first five decades of independence. APMC
laws hard-coded contracts, commissions and other market practices to make these
quite predictable and known to the farmers. The fees levied (popularly known as
mandi fees) under the APMC laws generated substantial resources, which were
administered by Marketing Boards to create market infrastructure. Indian
farmers kept increasing marketable surplus which was then transacted in these
APMCs all over the country. The APMCs successfully converted a totally
disorganised wholesale agriculture produce marketing of 1950s into a largely
streamlined and organised agriculture produce marketing by the end of 20th
century all over the country.
A big structural policy mistake,
however, turned APMCs into a stranglehold around sellers (the farmers) neck
over this period of five decades. This fundamental mistake was total
monopolistic nature of APMC system.
Every APMC was legislated
to have a physical market-yard and a market catchment area under the APMC
laws. This resulted into only one
mandi/market for the agriculture produce of a defined market area. The agriculture
produce grown in the market area was to be brought only to the designated
market yard. The farmer got totally cornered over the years and was left with
no choice. He had to bring his produce to only the designated mandi in the
state.
The other law- Essential
Commodities Act- placed restrictions over industrial and wholesale buyers. They
were subjected to stock limits. Having a shop became an essential prerequisite
for traders and commission agents to buy the stuff in the mandi. This
restricted purchasers to a small band of buyers and agents which, more often
than not, colluded with each other to get better of the farmers. The farmer
literally was at the mercy of these small number of traders to sale his
produce. APMCs had become a total stranglehold around farmers’ neck. The reform
had turned into deform.
Some APMC Reforms
Initiated in 2003
Recognising
the problems in the APMC marketing system, the Government set up a Committee in
2001. A Task Force examined the recommendations in 2002. The labour of the
Committee and Task Force resulted into Model APMC Law 2003. Some states carried
out these recommendations over next decade. The progress was not considered
satisfactory. A Group of State Agriculture Ministers, appointed by the Union
Agriculture Ministry on direction of the Prime Minister, reviewed the progress
in 2011-2012. The Group made its recommendations as well. Their main
recommendation was that the Model APMC Act 2003 should be adopted by all States
in its entirety.
The Model
APMC Act 2003 and subsequent amendments in the model law diluted the monopoly
of APMCs only a little bit. Market area for each APMC was sought to be
increased to entire state. Traders licences were to be converted into pan-state
licences. These reforms were carried out by some states, but remained more in
paper. As the regulatory regime and the fee structure remained same in every
mandi, it made no difference for a farmer. The monopolistic character of APMCs
remained unaffected even in the states where the model APMC Act 2003 was
legislated.
Some more
choices were offered to the farmers. Farmers’ markets could be established in
addition to the APMCs. Contract farming was allowed to enable farmers to enter
into direct contracts with processors. It is difficult for farmers to set up
markets as they do not have resources, time and ability to set up markets.
Contract farming contracts were very highly regulated. Result was again not
very encouraging. Only a limited number of farmers’ markets got set up in 17
years of these market reforms. Almost negligible contracts were registered
under the contract farming facility.
Some
exemptions were provided in some of the states on horticulture products. Mandi
fee regime essentially remained intact. Mandi fees, in effect, generate small
resources these days to take care of market infrastructure. Most market
infrastructure in last two decades has been constructed under central schemes
like RKVY, Market Infrastructure Scheme, Warehousing Scheme of FCI and the
like.
The APMC
reforms of last two decades did not address the principal flaw in the
agriculture produce marketing- absence of competitive markets, one size fit all
type of over regulation of markets implemented in a decentralised manner by
organised vested interests, lack of standardisation and aggregation of farmers’
produce, leasing of land not being legally permitted and exclusion of
processors and wholesalers on account of storage restrictions. The APMC
reforms, consequently, did not make much difference.
The Farmers’
Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020
Farmers’
Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020
promulgated on 5th June, 2020 strikes at the root of APMCs’ monopoly
over wholesale agriculture produce trading. This Ordinance also virtually
abolishes the system of mandi fees. The Ordinance is truly revolutionary in
respect of these two fundamental deformities of agriculture produce trading
system in the country. The Ordinance does not directly dismantle APMC system
(the APMCs continue to live as they are presently within the confines of their
physical market yards), but has the potential of massively disrupting them indirectly.
The Ordinance
grants complete freedom to farmers to sell at the regulated market yards of AMPCs
or outside. It enfranchises almost every business (the person has been very
widely defined) to set up physical trading station outside the APMC market yard
or establish and electronic trading system. The farmers and traders can take
inter-state and intra-state transactions without any restrictions on them. As
there is distinct comparative advantage to set up shop outside the APMCs to
trade in agriculture produce- both in terms of trading freedom as well as
non-payment of mandi fees, it should be reasonable to expect that trading of the
agriculture produce will soon commence outside APMC market yards. If
counter-resistance does not come from state governments, trading in market
yards of APMCs should become defunct over a period of time. To make sure that
the APMCs do not become defunct, it is likely that the state governments would
amend their APMC laws to abolish or drastically reduce mandi fees and permit
the traders there to undertake intra-state and inter-state transactions as the
Ordinance permits non-APMC traders.
The
transition, however, will be extremely chaotic and may lead to undoing of the
reforms unleased by the Ordinance.
One of the
key objectives of establishing APMC system was to provide a fair and level
playing field to farmers in the matter of trading practices, charges and
payments. The Ordinance literally creates anarchy. There is no regulated
marketing regime applicable to trade transactions undertaken under the
Ordinance. There is no regulator either. The electronic trading platforms are
supposed to, on their own, ‘prepare and implement guidelines for fair trade
practices such as mode of trading, fees, technical parameters including
inter-interoperability with other platforms, logistics arrangements, quality
assessment, timely payment, dissemination of guidelines in local language of
the place of operation of the platform and such other matters’. Central
Government, if it is of the opinion, may frame some of these regulations.
For physical
trades, there is no requirement of such self-regulation as well. It can be
argued that traders of non-agriculture produce are also implicitly permitted to
do so. In respect of agriculture produce, there is quite an uneven relationship
between farmers and traders.
Quite a
chaotic ride lies ahead. In the long run, however, this reform is likely to do
lot of good.
The
Government of India may improve the Ordinance to make the disruptive process
more orderly. A market regulator is needed for the spot market to lay
regulations for trading, to register and supervise the traders and to resolve
the grievances. A unified regulatory system and a single regulator for spot and
derivative trading in agriculture produce and also other commodities is the
answer for ensuring that the big reform unleased by the Ordinance is
implemented in an orderly manner.
Farmers
(Empowerment and Protection) Agreement on Price Assurance and Farm Services
Ordinance 2020
Land revenue
and tenancy laws of most of the states do not permit leasing of agriculture
land. Legally, contract farming, which normally requires leasing of land, is
outlawed in the country. The leasing of land for farming however is widespread
in the country. The widespread arrangement of share-cropping/ contract farming,
based on leasing of land, is almost universally in India informal.
Processing
of agriculture produce necessitates growing of appropriate varieties in
conditions which can yield good quality processable produce at a scale which
can be processed in factories. In Indian conditions, this would require
production in several farms as our farm sizes are quite small. As leasing of
land is not permissible, a modified concept of contract farming has been
devised in India. The farmer undertakes production of desired kind of crop or
other agriculture produce mostly using the planting material provided by the
processor, called sponsor, under supervision of sponsor to be sold usually at
pre-determined/ assured prices. Sponsor has no right over land. Pioneered by
Pepsi chips and some other processors, such contract farming is quite minuscule.
2003 APMC
Model Act brought in the contract farming. The law required a Sponsor to
register him and the contract farming agreement with an APMC. The contract was
prescribed by the government. The model law also provided that no title,
rights, ownership or possession shall be transferred or alienated or vest in
the sponsor. Model law exempted contract farming from the mandi tax.
The contract
farming regime ushered into by the Model APMC law, 2003 did not make much
progress. Over the years, the APMCs came to be viewed as culprits rather than
facilitators. Central Government drafted a specialised Model Contract Act 2018
to exclude APMCs from the business of contract farming in the country. The
Ordinance promulgated builds on the Model APMC Act 2003 and Draft Model
Contract Act 2018 and intends to achieve what has not happened so far for mainstreaming
contract farming.
The
Ordinance envisages two types of farming agreements- trade and commerce
agreements for production and sales of farming produce and production agreement
for provision of farm services by the sponsor. The law provides for every
aspect of contract- period, terms and conditions, obligations, pricing and so
on which any contract production agreement would have and leaves these to be
determined by the parties concerned. Some obligations are set in directory
terms- a guaranteed price, delivery to be taken at farm gate and the like.
The
Ordinance excludes APMC’s jurisdiction from contract farming. It confers
authority on the central government to issue directions for effective
implementation of the provisions. It confers dispute settlement authority on
the sub-divisional magistrates.
The contract
farming as envisaged in the Ordinance is, in essence, continuation of same artificial
construct as has been the case for last 17 years. It is also excessively
regulated. The Ordinance unnecessarily provides for several things which are
part of any normal contract and no law is required to restate such terms. This
law is likely to meet the same fate what the contract farming provisions in the
model APMC law of 2003 met with.
AGRICULTURE PRODUCE DISTRIBUTION AND
CONSUMPTION
Essential Commodities Act 1955- Relic of
Different Era
Essential Commodities
Act 1955 (ECA 1955) was founded in 1939 as part of the Defence of India Rules. Defence of India Rules were replaced by Essential Supplies (Temporary Powers) Act, 1946. The provisions of
ECA when enacted in 1955 were quite similar to the 1946 law.
Continuing food-shortages provided justification of food controls in
independent India and in the planned economy ushered in 1951. First Plan
document noted- “In a planned economy, food controls have thus certain positive
functions, such as safeguarding the minimum consumption standards of the poorer
classes, preventing excessive or ostentatious consumption by the well-to-do,
and facilitating the country's programme of direct utilisation of unemployed
manpower for investment.”
The ECA-1955
conferred powers on the central government to ‘regulate or prohibit’
‘production, supply and distribution’ of an ‘essential commodity’ and ‘trade
and commerce therein’. These powers were to be exercised for ‘maintaining or
increasing supplies of the commodity’, or for ‘securing their equitable
distribution’ and ‘availability at fair prices’.
ECA-1955
had an extensive list of essential commodities. The definition clause 2 (a) had
a long list including ‘foodstuffs, including edible oilseeds and oils’, cotton,
jute and cattle fodder from the agriculture commodities universe. It had a
number of industrial goods like iron and steel, petroleum products, parts of
automobiles, paper and drugs. There was also an omnibus clause which authorised
central government to declare product of any industry the control of which has
been declared expedient by the Parliament in the public interest as an
essential commodity. Quite a few products like cement, sugar etc. were brought
under the ECA-1955 using this power.
These powers
were exercised by issuing control orders, which specified specific regulations,
prohibitions, measures, penalties and other measures, including administration
thereof. The mischief and dread of the ECA-1955 was in these control orders. At
one point of time in 1980s, as many as 70 commodities were under these control
orders. It was a licence-permit-price control raj at its zenith.
As
Industrial economy expanded and shortages of industrial goods disappeared after
1980s, control orders for most of the industrial goods were rescinded. In 2006,
the ECA-1955 was amended to omit Section 2(a) which included the list of
essential commodities, to include a new Section 2A to define the essential
commodity as a ‘commodity specified in the Schedule’ and to confer power on the
central government to add or remove any commodity from the Schedule. In the
Schedule, all commodities, other than drugs and petroleum products, were from
the agriculture world- fertilisers, foodstuffs, hank-yarn, jute and seeds.
Cottonseed was added to the seeds list in 2009.
The latest
entry in the ECA-1955 Schedule is entry 8- masks (2ply and 3ply surgical masks,
N95 masks) and hand sanitizers- included on March 13 after Covid-19 virus hit
India (this has been included only for the period up to 30th June,
2020).
Food-stuffs Have Been Raison
d’etre of ECA-1955
Food has been
the main reason why ECA was brought in and sustained over several decades.
Chronic and major shortages of food in first 25 years of India’s independence
provided all the justification for the draconian ECA. At some point of time, an
adjunct law- Prevention of Black-marketing and Maintenance of Supplies of Essential
Commodities Act, 1980- was brought in to take preventive actions against violators
of control orders issued under ECA-1955.
Hundreds of
orders had been issued regulating, prohibiting, otherwise controlling prices,
storage, distribution, consumption and other matters affecting foodstuffs under
ECA-1955 by the time 20th century drew to a close. While the
production of agriculture commodities and supply of foodstuffs had increased
substantially by this time, still the system has not been prepared to junk the
law.
However, India
resorted to a round-about way to defang the ECA-1955 once food shortages had
become things of past, in general, and to prevent abuse of the draconian law, in
2002. A new Order called Removal of (Licencing requirements, Stock limits and
Movement Restrictions) on Specified Foodstuffs Order 2002 was issued. This
Order removed all controls on buying, stocking, selling, transporting,
distributing, disposing, acquiring, using or consuming over a long list of
foodstuffs- wheat, paddy/rice, coarse-grains, sugar, edible oilseeds and edible
oils. No person (dealer) engaged in the business of purchase, movement, sale,
supply, distribution and storage required any licence or permit under any order
to engage in any of these activities. All orders specifying anything, including
the orders issued by the state governments, contrary to this liberalising order
became infructuous. In November 2004, 1999 order declaring ‘onion’ as essential
commodity was rescinded as well.
However, there
is too much of vested interest in keeping foodstuffs under control. Any fall in
production provide excuse to reverse the gear. The process of unraveling 2002
Foodstuffs liberalisation Order started in 2006. This 2002 order was first
placed in abeyance as regards wheat and pulses for a period of six months on 29th
August 2006. Most of the commodities over which ECA-1955 was rendered
inapplicable by 2002 Order were brought back under control by issuing such
abeyance orders.
New
Government in 2014 soon again decided to bring liberalisation of 2002 back. The
Government consolidated all orders issued under the Foodstuffs Order 2002 and
issued a fresh Order- Foodstuffs Order 2016- superseding the 2002 Order in
September 2016. This 2016 Order is worded almost similarly to 2002 Order. Some
additional foodstuffs were included- wheat products (maida, rava, suji, atta,
resultant atta and bran), gur, and hydrogenated oils or vanaspati. As the
Government was not willing to go whole hog, the order was placed under abeyance
for varying periods of time for pulses, sugar, edible oilseeds and oils. Onion
was also taken out of the scope of 2016 Foodstuff Order in August 2017.
Quite a
complicated state of affairs was in play when the Finance Minister announced that
the Government would undertake reforms of Essential Commodities Act. The ECA
1955 was very much in effect. It was applicable to 8 commodities- five of these
agricultural- foodstuffs, pulses, fertilisers, hank yarn, seeds and jute and
drugs, petroleum products and masks. Production, distribution, storage and
prices were liberalised for many foodstuffs- wheat, wheat products, rice,
paddy, sugar and gur, edible oilseeds and oils, hydrogenated oils, onion and
potatoes but liberalisation was kept in abeyance to varying degrees for pulses,
edible oilseeds and oils, sugar and onion.
ECA Reform as Part of Aatm
Nirbhar Bharat
The
Essential Commodities (Amendment) Ordinance 2020 promulgated on 15th
June modifies the regulatory and control regime for foodstuffs.
The
Ordinance does not exclude the agriculture commodities from the Schedule of the
ECA-55. Nor does it delete Section 2 Sub-section 4 which confers jurisdiction
on the central government to exercise the powers of ECA-55 over foodstuffs. The
Ordinance modifies the circumstances in which the regulatory and control
authority is exercised in case of foodstuffs and in case of specifying stock
limits as the control mechanism some additional exclusions have been built in.
Section 3
(1) allows the Central Government to provide by way of an order for regulating
or prohibiting the production, supply and distribution of an essential
commodity, if it is of the opinion, that it is necessary or expedient to do so
for maintaining or increasing supplies of any essential commodity or for
securing their equitable distribution and availability at fair prices or for
securing any essential commodity for the defence of India or the efficient
conduct of military operation. The Section 3 (1A) inserted by the Ordinance
will allow the Central Government to do so only in ‘extra ordinary
circumstances, which may include war, famine, extra ordinary price rise and
natural calamity of grave nature’. Extraordinary circumstances have not been
defined. It is a matter of interpretation. Effectively, the amended law permits
the central government to exercise the authority under ECA for foodstuffs in wide
ranging circumstances.
For
exercising regulatory authority for fixing stock limit only, extraordinary
price rise has been defined. Extraordinary price rise has been defined to mean
100% price rise in case of horticulture produce and 50% price rise in case of
other crops over the price prevailing last year on the same day or five years’
average retail price whichever is low. 100% price rise year on year for onions
and other horticulture produce is very common. Extraordinary price rise and
natural calamity are quite loose concepts to prevent continuation of ECA-55 to
foodstuffs.
Essential Commodities Act
needs to be Junked
Industrial
commodities which were part of the ECA regime in 1960s to 1980s are no longer
part of ECA-55. These commodities have been removed from the Schedule of the
ECA-55. This happened as the demand and supply situation of these industrial
goods improved and there was no good reason for anyone to stock the commodities
in anticipation of price rise.
The
situation is same for most of agriculture commodities. There is no shortage of
cereals in the country. In fact, we produce rice, wheat and maize in excess of
our requirements and regularly export. Agriculture exports itself more than
cover the imports of pulses and oilseeds, the demand supply gap of which has
also come down sharply. The country now has about $500 billion of foreign
currency reserves to be able to import any commodity needed for consumption.
The shortages of 1940s to 1960s are long gone.
In fact,
there is no need for ECA-55 to remain on statute book any longer. Not only
foodstuffs, remaining 7 commodities in the ECA-55 Schedule need no controls.
Like industrial goods, all the five items of agriculture should go out of ECA.
Likewise, you don’t need any controls over petroleum products, fertilisers and
masks. To deal with extraordinary situation in disasters, if need be,
provisions of Disaster Management Act can be resorted to.
Essential
Commodities Act 1955 needs to be simply scrapped.
Reforms for Making Farmers Aatmnirbhar
India today is not only
self-sufficient in food production but India has become a significant exporter
of agriculture products. While Indian agriculture has become aatmnirbhar,
Indian farmer has not. There is an
unfortunate irony in India’s stellar story of agriculture turn-around. Indian
farmers have not seen much change in their fortunes. Farmers and agriculture
labourers who still make more than 50% of India’s work force continue to be the
poorest income earners.
Ever since
independence, India’s agriculture policy and programme strategy focussed only
on increasing production and productivity. Farmers’ income was not the real
goal of the policy. Only in 2014, the government specifically mentioned
doubling the farmers’ income by 2022 as a policy goal. However, the agriculture
programmes and policies did not change much to attain this goal.
Farmers’ income is the
net sales price of his produce minus the cost of cultivation. As farmers’
operational holdings are small- less than a hectare on an average, farmers end
up earning very low profits as such small landholdings deliver only very small
crop output for sales. Farmers’ incomes in India on an average are about 1/5th
of other workers and about 30% of national average income.
The goal of doubling
the farmers’ income has not been very well defined. Neither has a coherent
policy and strategy spelt out to achieve this. Farmers’ income needs to be
raised at least five time to bring about worthwhile change in their lives. This
requires a multi-pronged strategy. There are five critical planks of the
policy, strategy and programmes for achieving this goal.
First, an average
farmer’s operational land holding need to become five times than what he
cultivates today. This is necessary to raise his turnover to generate five
times the profit/income.
Second, the farmers
need to get stable and predictable prices for his produce, preferably it should
be possible for him to lock-in output prices before he cultivates.
Third, the farmers
should be able to choose right amount and quality of inputs to economise/reduce
his cost of cultivation.
Fourth, land is the biggest
asset, mostly the only asset, which the farmers own. Farmers should be
completely free to get the best out of his land-asset.
Fifth, skill-set of
farmers is quite limited. The farmers know how to cultivate traditional
agriculture. Most farmers and agriculture labourers are good enough to work
only as unskilled manual labour outside agriculture. There is need for a large-scale skilling
required to make farmers earn income from non-farm businesses.
Increasing Average Operational Holding
Five Times
On an average, a wheat
farmer in India producing 3 tons per hectare with a profit margin of Rs. 600
per quintal, earns a profit of 18000 per hectare. For an average farmer in
Bihar operating .25 hectare of land, his profits would only be Rs. 4500 only.
Even if you assume that a Bihari marginal farmer is able to raise two crops a
year, his annual income from the .25 hectare would be only Rs. 9000 a year.
Even if you add the imputed cost of his labour which is part of the cost of
cultivation, the income does not go beyond Rs.12500. It is also not certain
that the Bihari wheat farmer would end up getting minimum support price. For a
national marginal farmer operating .4 hectare of land it will be Rs. 14400
income per year. Barring some cash crops like sugarcane, average farm earnings
in the country range between Rs. 10000-15000 per farmer.
Minimum wage in Bihar
is about Rs. 7000 per month. Annual wages which can be earned under MGNREGS for
100 days work is about Rs. 30000 at the rate of Rs. 300 per day. It is easy to
understand that the farmer is the poorest amongst the poor. Unless his income
increases manifold- at least 5 times- there is no real hope for the farmers of
India to live a life which meets his minimum needs.
How do you increase
operational holdings five times?
Two reforms are crucial
to achieve this objective. First, remove all restrictions and prohibitions on
land leasing. Second, remove all restrictions and prohibitions on sale of land.
Model Agriculture Land
Leasing Act 2016 is awaiting adoption for last four years. This need to be
enacted. In fact, the land revenue and tenancy laws of the States should be
amended to put in place a simple, practical and liberal land leasing regime in
the country in place of prohibitory and restrictive system of today. This would
formalise informal contracting of today which would encourage consolidation of
operational land holdings.
There are enormous
direct and indirect restrictions on land sale. The agriculture land cannot be
sold for non-agriculture purposes. Agricultural land of SCs and STs cannot be
sold to non SCs and STs. All restrictions on sale of land need to be removed.
These two measures, not the artificial
constructs like contract farming provisions in the APMCs Act of 2003 or the new
Ordinance- Farmers (Empowerment and Protection) Agreement on
Price Assurance and Farm Services Ordinance 2020, would usher in increasing
average operational land holdings in India.
Stable, Predicable, Preferably Locked-In
Prices
Paying good prices to
farmers for their cereals produce was adopted as the policy goal in India in
1965 when the system of minimum support prices got instituted and Food
Corporation of India was established to make procurement at such support prices
(MSP). The minimum price support mechanism has been expanded to include almost
every foodgrains and fiber crop today. Profit element for the farmers also kept
increasing. In 2018, the Government decided to build in at least 50% profit
over cost of cultivation as part of the MSP.
There are two necessary
conditions for the MSP system to operate successfully. First, the government
agency must be able to buy whatever quantity farmers offer to sell at MSP for
all the crops under MSP and in all places. Second, the surplus supply over
domestic demand is exported away.
Despite 55 years of
operating MSP system, the government system is able to buy essentially two
crops- wheat and rice- in the country. Some of the remaining crops are
sporadically bought. The system of MSP purchases, even for wheat and rice, does
not operate efficiently in some states still.
As a result, not only providing 50% of cost of cultivation as income to
farmers, but the MSP system itself has remained unimplemented for most crops.
The core objective of
MSP system is to provide farmers a minimum return/income. PM KISAN operates as
income transfer scheme for the farmer. The element of income in actual
procurement undertaken by the Government of India in a year, which should be in
the range of about Rs. 50-60000 crore can be added to the actual outgo of PM
KISAN (approximately Rs. 54000 crore). Taking it to an outlay of Rs. 1 lakh
crore, PM KISAN can operate as the genuine income/profit transfer scheme for
the farmers. Rs. 1 lakh crore transferred to about 10 crore farmers would imply
transfer of Rs. 10000 per farmer irrespective of crop or the area.
A better variation
would be to pay an amount per hectare rather than per farmer. As India
cultivates about 14 crore hectares of land, an amount of Rs. 7000-7500 per
hectare would provide requisite support. This system would have added advantage
of incentivising many marginal farmers to move away from agriculture. All MSP
operations will need to be discontinued. The Government should buy only that
much quantity which is required for food security operations at prevailing
prices.
Doing Away with Input Subsidies
India has built a
massive system of agriculture input subsidisation since independence. There was
some rationale to subsidise inputs like fertiliser, seeds, electricity, water
etc. in the initial years to popularise their use to increase productivity of
crops. These objectives have been achieved by now. In fact, there is now
overuse of fertilisers, electricity and water. The overuse is proving counter
productive rather than contributing anything to further increase in
productivity.
The input subsidy programmes
have distorted markets. Lot of inefficient fertiliser producing entities
continue to exist putting undue burden on government finances. Government of
India foots the bill of over Rs. 70000 crores in fertiliser subsidies. Most
States provide subsidised or free electricity to farmers. It is estimated that
States provide about Rs. 80000 crores in electricity subsidies. Central Government
and State Governments virtually underwrite interest on farm loans. Government
of India incurs expenditure of about Rs. 20000 crores annually. State
Governments are estimated to provide another Rs. 30000 crores in interest
subsidies. Water subsidies are not directly computable.
Fertiliser, electricity
and interest subsidies cost about Rs. 2 lakh crores to the Central and State
Governments annually. These subsidies should be replaced by a system of direct
cash benefit transfer to farmers. In this system, the farmers would get cash
support which other wise accrues to inefficient industries and electricity
boards. The industry would become efficient and competitive and the farmers
would also get real choice and flexibility in making their decisions about
crops to grow, water and electricity use and how much loans to take.
Freeing-up Land Asset
Land is the only real
asset which farmers have. On account of severe restrictions imposed on
agriculture land, the land as an asset is however grossly under-valued.
Agriculture land can be put to only agriculture use. Returns from agriculture
are very poor. Therefore, the imputed value of future returns from agriculture
makes the price of agriculture land very low.
Non-agriculture land
is, however, in short supply. Returns from non-agriculture use is much higher.
The ratio of GDP generated from land used in agriculture and non-agriculture is
1:200. Non-agriculture land is 200 times more valuable. That is the reason,
whenever agriculture land is converted into non-agriculture use, its price
shoots up.
Two policy actions are
needed to remedy this situation. One, increasing the supply of non-agriculture
land. Second, freeing up agriculture land for non-agriculture use by farmers.
This would require amendments in the land revenue and tenancy laws to freely
allow sale of agriculture land and to allow farmers to use agricultural land
for non-agricultural purposes.
Re-skilling Farmers for More Non-Farm
Income
Agriculture cannot
provide adequate income to teeming millions of farmers in India. At the time of
independence about 70% of workers were farmers and agriculture labourers. Now a
little more than 50% of workers are farmers. In absolute number, there are about
three times more cultivators and agricultural labourers in 2011 compared to
1951- 26.3 crores as against 9.7 crores. Agriculture land has increased only by
15% in this period.
This requires lot of
farmers to move into non-agricultural occupations. This has been happening for
ever but the speed has been quite slow. Government policies have been
discouraging migration of agriculture labour to non-agriculture. Migration of
farmers from agriculture to non-agriculture would have no adverse impact on
agriculture productivity. Rather, it would help in raising it as this would
lead to more mechanisation and efficient operation of farm holdings.
Farmers do not have
skills for non-agriculture work. When they leave agriculture, they end up
mostly doing manual work. Focused skill development programme for farmers to
skill them for construction, manufacturing and services businesses would help
this transition. Migrant friendly policies, lot of rental housing in urban
areas and industry led skilling programmes would make lot of difference.
SUBHASH CHANDRA GARG
NEW DELHI- JUNE 13,
2020
Subash , this is another very well reserached , reasoned and written post . Keep up the great work of educating Indians and the powers that be . Please send the same post to the PM and all the Ministers . This must be discussed in parliment . Please also write about the plight of mirgrant workers who number 145,000,000 !
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