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Agriculture paying heavy price for missing the economic reforms bus

After the economic liberalization which began in 1991 in India, with devaluation of Rupee to encourage exports relative to imports, the next shift was after 1995, when India joined the World Trade Organization. Prof MD Nanjundaswamy in the decade of 2000 made significant contributions towards TRIPS through development of sui generis system for India under WTO. However, the same zeal did not penetrate in trade of agricultural produce which affected the domestic market reforms, farmers and consumers severely. The farmers continued to be under the clutches of middleman and merchants in the APMC markets and with local village traders who continuously exploited farmers through undercover sales, illegal deductions for their produce, charging usurious interest rates for having lent cash loans and non-transparent price mechanism through cartels. Even though consumers are the ultimate buyers, APMCs still do not have representation of consumers in their Act.

Basically the WTO aimed at reduction of obstacles to trade such as import tariffs, other barriers to trade) and following rules of conduct of international trade (such as antidumping, subsidies); application of rules for trade in goods, services, and TRIPS; transparency of regional and bilateral trade agreements; dispute settlement among member nations; capacity building of personnel in matters of international trade; collecting and sharing trade data pertaining to WTO activities and educating public about aims and activities of WTO. While some of these economic reforms were undertaken in other sectors benefitted substantially, as agriculture missed the Economic reforms bus, farmers suffered and are continuing to suffer as they are opposing even the current market reforms.

The impact of WTO reforms on different sectors is reflected in the growth in Total Factor Productivity (an indicator of the contribution of non-inputs in production such as research, extension, infrastructure, markets, roads) which recorded the highest growth in Information and Communication services (index value of 275), Finance and insurance activities (175), Total manufacturing (125), compared with Agriculture (110), in 2012. The base index of TFP being 100 in 2005. Therefore, the role of markets, roads, extension which had a substantial role to play in other sectors which recorded high TFP growth could not make their presence felt in agriculture as parallel reforms were not undertaken.

Accordingly, the key recommendations made by ICRIER OECD study in 2018 in agriculture are to reform market regulations and strengthen market functioning in APMCs by reinforcing E-NAM, Model APMC Acts, offering support to farmers to integrate in competitive markets, allowing private sector to play a greater role in marketing, stepping up digital connectivity in rural areas. A significant recommendation is to move gradually towards targeted subsidies through Direct Benefit Transfers, and allowing private sector in stocking operations. The recommendations also included development of a single market for agricultural products and gradually remove export restrictions so that a stable and predictable market environment is created. Further, reduction of tariffs and relaxation of restrictions on imports was also recommended.

The ICRIER-OECD reforms are aimed at improving food security, advancing quality of life of small and marginal farmers, address climate change, and attain sustainable productivity growth with modern, efficient and resilient agro-food system contributing towards inclusive growth and jobs.

Among the private traders in the agricultural markets, the farmers have been historically exploited right from improper weighing of produce to illegal deductions on to lack of transparency in price formation including exploitation of farmers through cartels, the last being charging usurious interest rates for cash loans extended. Ultimately, even with 55 years of APMCs, on the one hand farmers are not able to receive even 50% of the consumer’s price, and on the other consumers are paying higher price for the produce, with the increasing margins grabbed by superfluous middleman contributing to market imperfections and inefficiencies.

It is crucial for farmers and farmer leaders to appreciate the role of private sector in improving efficiency of markets. Unfortunately, private sector is immediately referred by them as ‘corporates’ even though all the existing APMC middleman and traders are in fact private traders. Farmers are already supporting corporate products such as tractors, mixies, grinders, washing machines, sprayers, motorbikes, cars, mobile phones, WhatsApp, Facebook and perhaps are the biggest market for corporate products considering their spread and population. While a number of court cases may exist where APMC merchants exploit the farmers, similar instances of corporate exploitation of farmers are seldom found. However, misinformed farm leaders are preventing farmers to benefit from scale economies of private operations. In addition, the three new farm laws also permit the FPOs to trade in agricultural commodities and transfer the benefit from trade to the members of FPOs who are largely small and marginal farmers.

The new farm laws precisely aim at enhancing the role of private sector allowing traders, merchants in addition to APMC merchants to compete in the market and offer better prices to farmers. The experience of Government of Karnataka has been clearly documented by NITI Ayog where by offering unified market platform, the market prices increased by 38% on an average. This implies that currently the prices have been depressed at least to the tune of 38% by protecting the APMC traders and middleman, by not allowing farmers to sell to traders outside APMCs and/or not allowing other buyers outside APMCs to buy from farmers, who may be offering enhanced supply chain, value chain benefits to farmers and consumers. Therefore, it is crucial for farmers, farmer leaders to educate themselves and educate all other farmers regarding the benefits of new farm laws and gain from market reforms as has been substantially gained by services sector and manufacturing sector.

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Views expressed above are the author’s own.



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