On June 5, the Indian government issued three ordinances – for permitting trade in agricultural produce outside the physical boundaries of the agricultural produce market committees (APMCs), easing restrictions under the Essential Commodities Act and facilitating contract farming.
While the country is still in the midst of an unprecedented crisis due to a sharp increase in COVID-19 cases, touching about 10,000 new cases a day, the environment governing the agriculture sector has been transformed through these ordinances.
While one can argue that such important and far-reaching enactments should have been debated in parliament, the reality is that these reforms have been under discussion for decades and several committees of parliament have given their recommendations for removing the restrictive regime governing the agriculture sector.
Of the three, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation Ordinance), 2020 has the most far reaching implications.
Breaking the shackles
Essentially, it allows sale and purchase of agricultural commodities in a trade area which is defined as any place outside the physical boundaries of market yards managed or licensed by APMCs. The only requirement for business in the trade area is that the trader should have a valid permanent account number and the farmer should be normally paid on the same day.
However, this ‘free trade’ can be made subject to regulation as the government has rightly retained the right to notify any document other than a PAN card in future. The government can also prescribe a system for registration of traders, modalities of transactions and the mode of payment to farmers.
Similarly, the ordinance allows any person (other than an individual) having a PAN card, to establish and operate an electronic trading and transaction platform for trade in agricultural produce. Compared to physical trading where delivery is on the spot, trading on electronic platforms will surely need better oversight and regulation. Therefore, in this case also, the government has rightly retained the right to frame rules for registration, code of conduct and the procedure.
It is therefore clear that in the next few months, we should expect the government to come out with regulations on the above issues. It is unlikely that the ecosystem will continue to be completely unregulated.
The most important provision in the ordinance is that there will be no market fee, cess or levy on the transactions in the trade area. Presently various taxes/fee/commission in APMCs in various states range from 1% in some states to 8.5% in Punjab. APMCs are stunned at the prospect of all trade moving out of their jurisdiction due to this advantage of zero tax in the trade area. There is a feeling in APMCs that in due course, the entire APMC ecosystem may itself wither away.
By the time the kharif crop arrives in the market, factory premises, warehouses, cold stores, silos may be in readiness to take advantage of a zero-tax structure. Many warehouses and cold stores have been notified by APMCs as sub-market yards and transactions at these locations will attract the charges prescribed by APMCs. It is possible that most of them will apply for de-notification and sub-market yards so that they qualify as trade area and become eligible for zero taxes.
One of the major problems in policy making for food-stuffs is the non-availability of information with the government about privately held stocks. Except for wheat and rice, India’s food surpluses for non-perishable items are marginal. The Warehousing Development and Regulatory Authority (WDRA) Act provides a mechanism for registration of warehouses and issue of electronic negotiable warehouse receipts by them.
This can easily enable the government to know the private stock in warehouses, at any given point of time. It is feared that as a result of this ordinance, there may be no incentive for any warehouse to register with WDRA as all warehouses can now act as marketplaces without paying any fee or charges to APMCs. This is not desirable. In fact, now that the business in trade areas is going to be completely deregulated, there is a need to make registration with WDRA mandatory so that the privately held stocks in warehouses are known to the government.
Another area of concern in the ordinance is the payment to farmers for sale proceeds. Earlier it was regulated by the APMCs. The ordinance says that in the trade area, payment will be made on the same day. But it also says that if procedurally required, the payment can be made in three working days. In this case, the farmers will have to be given receipt of delivery of produce in which the due amount will be mentioned.
In Nashik, the largest grape exporting district of Maharashtra, grapes have been out of the purview of APMC and the crop is sold by farmers outside the mandis. From time to time, there are reports in the media about traders defaulting on payment of crores of rupees. This year, taking the excuse of COVID-19, it seems that the traders and exporters want farmers to waive off 30% of their price.
Since the trade area is under no regulation, it is necessary to ensure, by law that the farmer is either paid in cash or by electronic transfer on the same day and before delivery of produce. This will eliminate the possibility of most disputes between farmers and purchasers.
For dispute resolution, the ordinance prescribes conciliation through a board appointed by the Sub-Divisional Magistrate (SDMs). Since SDMs and their officers also perform myriad other duties like law and order, census, elections, VIP visits etc., it would be unrealistic to assume that they will be able to find time for settling the disputes. By making same day payment mandatory, most disputes relating to payments can be avoided.
One major benefit of the ordinance will be to spur reform in APMCs. Now that they will face real competition from other trade areas, they will have to provide better facilities to farmers and become more transparent. In the interest of farmers, they should continue to get good business as they will still be the primary source of price discovery. The farmers should be able to refer to them for prices in trade areas as it is unlikely that there will be any auction in trade areas. The government should make e-NAM work for the sake of price dissemination and competition to trade areas.
While the legality of Centre’s power to legislate on agricultural trade is likely to be challenged in the Supreme Court, the farmer would be wishing for an alternative to APMCs, which is not exploitative and pays them fair price.
From the Model APMC Act of 2001 to the Ordinance of 2020, farmers have been watching from the sidelines the debates for protecting their interest and getting them a better price. They would only hope that they will now have more choice to sell their produce.
Siraj Hussain is a Visiting Senior Fellow at ICRIER and is a former Union Agriculture Secretary.