Modi government has been on a reforms spree ever since the COVID-19 Pandemic struck India. First, the BJP ruled states announced historic labour and land reforms to attract companies exiting China, and now Union Finance Minister Nirmala Sitharaman has announced some of the boldest agricultural reforms till date.
On third day of Modi government’s Rs. 20 lakh crores fiscal stimulus, the Union Finance Minister announced three major reforms–
- Amendment to the Essential Commodities Act to de-regulate the farm sector and correct Supply-Demand mismatches.
- Agriculture marketing reforms allowing farmers to sell their produce to anyone who offers a better price ending market monopoly of Agricultural Produce Market Committee (APMC) mandis (markets).
- An Agriculture Produce Price Support System to ensure price certainty.
The most important of the three reforms has to be the proposed Amendment to the Essential Commodities Act, as the Modi government’s Finance Minister announced that Agricultural foodstuff including cereals, edible oils, oilseeds, pulses, onions, and potato will be de-regulated enabling farmers to realise higher value for their produce.
The Essential Commodities Act, being a vestige of the British Raj that used to enact war-time regulations for controlling supply of essential commodities, invests the government with extensive powers. The powers include issuing supply, stock limit and price Control Orders that artificially control market prices of essential commodities.
Agricultural produce- food items to be precise are declared essential commodities under the Act empowering the executive to control their supply, stock limits and price. Agriculture is a seasonal occupation and production tends to vary according to seasons, making warehousing and storage facilities critical in ensuring constant supply levels and avoiding a sudden price crash in the food market.
What Essential Commodities Act however does is to disincentivise augmentation of warehousing and storage facilities as Control Orders effectively criminalise stocking above particular levels.
The draconian Act allows the executive to regulate prices and stock limits, and the farmers (or stakeholders such as food processing units, value-addition corporations and exporters) are not able to control the supply levels during times of high production.
In lack of proper storage facilities and unfair supply Controls, they are often forced to part with their excess produce resulting in Supply-Demand mismatches that cause price crashes ultimately hurting the farmers. But now, Finance Minister Nirmala Sitharaman has stated that stock limits will be imposed only under exceptional circumstances– national calamities, famines, or a surge in prices.
The farm sector is going to get de-regulated and whimsical Control Orders will become a thing of the past as Modi government allows farmers to realise the true value of their produce, which should substantially raise farm income.
This reform should be essentially viewed in the context of Modi government’s announcement about letting farmers sell their produce to anyone who offers a better price. Currently they are forced to sell their produce to specific APMC mandis (markets), making the marketplace inaccessible to farmers.
Some BJP-ruled state governments- Uttar Pradesh, Madhya Pradesh, Gujarat and Karnataka, have already amended the Agricultural Produce Market Committee (APMC) Acts, allowing farmers to sell their produce directly to traders.
APMC mandis were supposed to eliminate middlemen, but these regulated markets in absence of competitive options, became sheer monopolies that virtually controlled agricultural prices. Now, the Modi government wants the farmers to realise the true value of their produce by expanding their market access.
To have regulated markets without the option of setting up other competitive markets gave rise to monopoly of the kind that saw rise of ‘local goondas’ who then became bigger goondas. This whole APMC nonsense was a total mess.
— Sunanda Vashisht (@sunandavashisht) May 15, 2020
This is why under PM Modi, BJP governments in several states are cutting through APMC monopolies, but the move is not being replicated in opposition-ruled states despite the Centre’s recommendation.
In order to make the farm sector a competitive market, the Centre now plans to come up with a law that will facilitate freedom of choice for the farmers in selling their produce at attractive prices, barrier-free interstate trade, and e-trading of agricultural produce. The bottom line is that, with these reforms announced by Modi government, the farmers are being freed from the clutches of APMC monopolies.
A central law will be formulated to provide adequate choices to the farmers to sell produce at an attractive price, barrier-free interstate trade and framework for e-trading of agricultural produce: FM pic.twitter.com/xxFDf5efv1
— ANI (@ANI) May 15, 2020
Finally, Union Finance Minister Nirmala Sitharaman has also announced the Agricultural Produce Price Support Program, in order to create price certainty in the farm sector. The Modi government wants to create a legal framework and a standard mechanism that communicates the exact amount which a farmer will earn for a certain quantity produced.
This is aimed at checking information gaps and effectively communicating the real prices to agricultural producers. As the Modi government creates a business economy for the farm sector, it will ensure that the ultimate beneficiaries are protected through the dissemination of correct price information.
The Modi government has thus unveiled unprecedented agricultural reforms that are going to correct all imbalances- Supply-Demand mismatch, APMC market monopolies, and price uncertainty. The farm sector is set for a major boost that should help Prime Minister Modi achieve his dream of doubling farmers’ incomes two years down the line.
