Economy

APMC REFORMS: Beginning of a new era for the Agricultural sector in India

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Feature Image Courtesy: Bussiness Standard

Manav explains the complex structure of APMCs and why those needed to exit from the agricultural theatre.

When the Hon’ble Prime Minister (PM) Narendra Modi announced that the central government would create a 20 lakh crore package which will be called as the Atmanirbhar package, he said that every crisis provides an opportunity. An opportunity to make significant changes and reforms. The announcements made by the Finance Minister (FM) Nirmala Sitharaman on the first two days were mainly focused on providing relief to small businesses. However the announcements on the third day came like a bang. The government had decided to make significant changes in the agricultural sector that provides employment to nearly 60% of the workforce in our country. Everyone was expecting major economic reforms and the government lived up to that expectation.

Considering the fact that India is a developing nation, farmers have been the backbone of the Indian economy. With the popular slogan given by former PM Lal Bahadur Shastri ‘Jai Jawan, Jai Kissan’, we Indians hold immense respect and gratitude towards the Annadata of our country. But in reality, the condition of the farmers and the agricultural sector is deteriorating day by day. It is because of the redundant policies and the ignorance of the government. The contribution of the agricultural sector to our country’s GDP has decreased over the years and now it stands at 15%. Over the years, before every state or national election, political parties have made tall promises to improve the well being of the farmers in the country through reforms but these promises fall flat and barely anything is done for the farmers when the elections are over. Even the 1991 major economic reforms by the UPA government didn’t cater much to the needs of the agricultural sector. Farmers are merely used as a means to get votes and win elections. But finally this crisis has made the government to take those bold reforms which the agricultural sector was lacking in order to address the longstanding needs of the farmers.

The Central Government has made some significant agricultural reforms thus it a 1991 moment for the farmers in the country. The government has made an attempt to discard the ancient, redundant and useless agricultural trade practices by making some changes in the Essential Commodities Act and promulgate laws to liberalize the sector. One of such attempt to liberalize the sector is by promoting inter-state trading and allowing the farmers to sell their product to anyone outside the APMC yards (Agricultural Produce Market Committee) by promulgating the The Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance 2020. This ordinance is a boon for the farmers which would strengthen the farmers of our country to a great extent.

The government’s decision which, relates to agricultural trading and APMC yards, can be understood as

1) UNDERSTANDING APMC YARDS

After Independence, the Indian economy was at a very primitive stage or it can be said that European colonialism had almost destroyed and shattered the Indian economy. It was very much dependent upon the agricultural sector. The entire burden to handle the economy was on the shoulders of the farmers of our country, those farmers who were exploited by the British and were at their mercy. Thus there was an urgent need to create some sought of provision or a legislation which secures the interest of the farmers.

In the 1950s, a series of legislations were passed to secure the rights of the farmers by setting up APMCs in different states of India.  The primary aim to establish Agricultural Produce Market Commission was to avoid the exploitation of farmers by the middlemen and to provide farmers a better price for their produce. The APMC yards or markets or mandis were to be established so that the farmer gets a market to sell his produce to different traders/customers and thus bringing both the producer and the buyer under one single roof. Also it aimed to provide adequate agricultural infrastructure such as cold storages and warehouses. This yard is run by elected traders, farmers and some representatives of the government. A trader or a farmer requires a license from the APMC to buy or sell agricultural produce in this market.

2) PROBLEMS WITH THE APMCs

However over a period of time, these APMC yards which aim at providing protection and an adequate market for the farmers have become counterproductive. They are doing more harm than good. The acts that create provisions for setting up APMC yards in different states do not permit other sub-markets to set up thus establishing a monopoly of only one market in the agricultural sector. This curbs the freedom of choice of the farmers and the traders. The farmer has to sell his produce in the APMC market of his home state only and cannot sell it to some other APMC market of a different state. For example, a farmer of Konkan has compulsorily to sell his rice produce in an APMC mandi of Konkan area only and cannot sell in the APMC mandi of Karnataka even though the latter gives him a better market to sell his production at a higher cost. This affects the interstate trade of agricultural goods in the country.

Also the states governments levy some sought of cess or tax on the farmer and on the trader when any purchase or sale is made in the APMC mandis. State governments impose sales tax besides charging levies such as rural development cess or infrastructure cess, which add to the buyers’ procurement costs.

Rigid interstate transactions due to APMCs is one of the reason why eNAM – an online pan India electronic trading portal that creates a unified market for agricultural commodities launched in April 2016 has faced a lot of setback. In spite of providing adequate funds to the APMCs to build eNAM infrastructure, out of almost 2,500 APMCs, only 585 in 18 States have been connected to the e-NAM portal so far. This restriction was hindering the Modi Government’s one of the most popular initiatives – Digital India.

Also, in these mandis, only those who have a license from the APMC can engage in a business transaction. This clearly violates the freedom of trade and business of the individual. The criterion to get the license is so rigid that small and marginal farmers which are about 82% of the farmers in the country are unable to apply for it. Lack of license forces small farmers to sell their produce to middlemen and thus the entire purpose of the APMC which was to avoid exploitation of farmers by middlemen is defeated. It was high time to implement a law to discard these rigid rules and regulations

3)  THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION & FACILITATION) ORDINANCE 2020 AND ITS IMPACT

To summarize all the drawbacks in the agricultural sector, the farmers in our country had no freedom of choice, freedom of trade and profession because of which the farmer wasn’t able to achieve the success and the earn the income he deserved for his efforts. It was only the agricultural sector of country which was subject to so many restrictions. To liberalize this sector and give the basic professional rights to the farmers, the government decided to promulgate The Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance 2020 (http://www.agricoop.gov.in/sites/default/files/219745.pdf). Hands down this was much needed reform to modernize the agricultural sector of our country.

As per the seventh schedule of the constitution, trade and commerce, markets and fairs come under entry 26 and entry 28 of the state list respectively. Thus state government has its own legislation that regulates the function of APMC in the respective state. The question arises that can the central government interfere with the laws made by the state governments to regulate trade practices and markets? The answer to that is yes. The ordinance will stand as both entries of the state list i.e. 26 and 28 are subject to the provisions of entry 33 of the concurrent list which provides for Central legislation overriding State legislation. The ordinance is clearly in line with the conditions mentioned under entry number 33 of the concurrent list.

With this move the government wishes to establish one agricultural market. The introduction of the ordinance highlights certain important objectives as – freedom of choice to the farmers and the traders relating to sale and purchase; barrier free interstate trade; facilitate a framework to promote online trading. The features of the ordinance are as follows.

a) Guaranteeing Freedom of Choice and profession to the farmers and the tradersThis ordinance gives the traders and the farmers to buy and sell agricultural produce outside the APMCs. It gives a green signal to the private entities to establish their markets and not solely depend on APMCs. The farmers will enjoy a variety.  He can decide to whom he should sell his produce on the basis of returns and other incentives offered by the buyer. This will increase the income of the farmers and will take the government a step further to achieve their vision of doubling farmer’s income by 2024. More markets will ensure more competitiveness in the agricultural sector which will curb its monopolistic nature.

b) Promoting barrier free Interstate tradingAlthough India is one of the signatories to WTO which promotes barrier free trade at an international level, there are a lot of procedures which hinder free trade at a domestic level in India, especially in the agricultural sector. This ordinance attempts to abolish the obstacles which can hamper barrier free interstate trade.  Firstly to an extent, it abolishes the license raj system which meant that goods can be bought and sold by only those who have a license from the APMC. Any trader with a PAN card can buy the farmers’ produce in trade area which includes farm gates, factory premises, warehouses, silos, etc. This will be a boon for those small farmers in out country that do not possess a licence from the APMC. The farmer will not have to pay any cess or market fee when he sells his goods in these trade areas. However to trade in the APMCs, license will be necessary. Secondly the farmer can sell his products to any trader in any trade area anywhere in the country. Thus, these steps will ensure and endorse interstate trading.

c) Encouraging electronic trading – The government also wishes to give a boost to direct and online trading of agricultural products. There are no complex rules and regulations that a trader or a farmer needs to adhere when he/she decides to engage in an online trade transaction. In order to ensure smooth trading on these platforms the government may prescribe norms and code of conduct and also charge a penalty from those who do not comply with it. This will be very beneficial to make the eNAM initiative of the government a grand success.

There were concerns raised by some farmers and political parties that this ordinance will pave a way for exploitation of farmers by private entities. The farmers contended that they felt safer when they traded through APMCs mandis. It must be understood that this act doesn’t dilute the APMCs or their functions. The APMC mandis would still be in place. This ordinance will only provide a choice to the farmers as well as the traders to buy or sell goods in different markets. If the farmer feels that the private entities are not providing him with the returns he deserves, he can very well trade in the APMC mandis.

This privatization of the agricultural sector was extremely necessary to keep in line with the modern trade practices of the 21st century. It becomes very necessary to empower the farmers of our country if we aim to achieve a high economic growth rate. These initiatives are undertaken to ensure the well being of the farmers and traders and to improve the condition of the agricultural sector. It’s after a long time that the government has decided to pay heed to the demands of the farmers. It wont be wrong to say that this pandemic is a blessing in disguise for the Indian farmers!

– Manav Asrani,

Writer, Bharat Bhagya Vidhata.

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