Last month, the Devendra Fadnavis government approved amendments to the Maharashtra Agricultural Produce Marketing [Development & Regulation] Act, 1963 to bring it in line with the Centre’s Model Agricultural Produce and Livestock Marketing –[Promotion & Facilitation] Act, 2017.
As per the amendment, the entire state is declared as a single market instead of the earlier rule of notifying “market areas” where sale/purchase of farm commodities could take place. Henceforth, a trader will need a single license enabling him to purchase agricultural produce from any mandi within Maharashtra. This is a good decision that can help farmers realize a better price.
In yet another decision, the Maharashtra government has made purchase of a farm commodity below the official minimum support price [MSP] a punishable offence. If, a private trader buys farmers’ produce at a price lower than the MSP, he can be jailed for one-year besides having to pay a fine of Rs 50,000/-.
This is a ‘draconian’ regulation which amounts to strangulating the private trader. This is completely out of sync with the prime thrust of present government at the centre on reforms, liberalization and ease of doing business. To understand as to what led to such an extreme step, we need to look at underlying thought process of the ruling dispensation on the issues facing the farmers.
Given the predominating role of weather in Indian agriculture, the farmer suffers under drought leading to steep decline in production. Even when, rainfall is good enabling bumper production, he suffers due to low price realization from sale of his produce. This is a big worry for BJP which is facing farmers protest all over the country [it barely scraped through the half-way mark in Gujarat elections held early this year].
In view of general elections next year and dire need to keep farmers in its good books [they are a big vote bank], in Union Budget for 2018-19, the NDA – government announced that they will be assured MSP which is at least 1.5 times the cost of production. The MSPs for the current Kharif season have since been notified.
Mere assurance of a remunerative price is of no use unless arrangements are made for ensuring that the farmers are able to sell their entire produce at this price. In this regard, the past experience does not inspire confidence as farmers rarely realized the notified MSP which anyway was lower than a price determined on the basis of ‘1.5 times the cost’ formula.
Now, to make it happen, the government has thought through three alternatives viz. market assurance scheme [MAS]; price deficiency payments and incentives to private sector to buy farmers produce at MSP – as recommended by NITI Aayog.
Under MAS, agencies of the state buy the produce directly from farmers at the MSP. Under second option, the government does not buy; instead it reimburses the shortfall in price realized from sale [albeit in the mandi] vis-à-vis the MSP. Under third alternative, the private sector is incentivized to buy at MSP.
Historically, the governments have used the first option but without much success. This is because the state agencies such as Food Corporation of India [FCI], National Agricultural Cooperative Marketing Federation of India [NAFED] etc. do not have the infrastructure and wherewithal to carry out procurement operations on the required scale. As a result, even in case of staple food such as rice and wheat, the agencies are able to purchase only up to 1/3rd of the marketable surplus; for others such as pulses and oilseeds, the procurement is much less.
As regards, the second option [generally used in developed countries to protect farmers income], there are issues with regard to the price at the mandi level as also the quantum of produce that should be used for determination of deficiency payments. The wide variation in price from market-to-market further complicates matters. This brings in discretion giving rise to arbitrariness and corruption.
Under the third alternative, it is hard to fathom whether the incentive scheme would work. Fundamentally, a trader is driven by profit motive. He would be willing to pay only a price at which he hopes to earn a reasonable margin taking into account the rate at which he can sell to consumers and costs incurred by him. If, in a depressed market, the realization from sales is low then an incentive howsoever high won’t enthuse him to buy from farmer at MSP.
The policy makers in Maharashtra would have realized that the incentive mechanism won’t work. So, the state is using the force of law to achieve the goal. Sending the trader to jail merely because he cannot pay a target price is an abhorrent idea. This will force traders not to buy at all leaving farmers in the lurch. It could be a classic case of the remedy being worse than the disease.
Apprehending that the traders may shift their businesses to other states, the Maharashtra government has requested the centre to consider imposing a similar obligation on traders all over India. The latter should dismiss it outright and instead goad the former to withdraw its own order.
The objective of ensuring a good price to farmers for his produce is laudable. But, this can’t be done through use of force. Giving monetary incentive won’t work either. The only way out is to give them more options to sell. Today, this is constrained by license-permit raj and over-regulated markets. This raj has to go and markets de-regulated.
There is dire need for major reforms such as abolition of APMCs [agriculture produce market committees], contract farming, removal of barriers to inter-state movement, opening up of exports, foreign direct investment [FDI] in retail besides massive investment in infrastructure especially roads and food processing.
The biggest obstacle in the way of these reforms – pending for long – is vested interests who want status quo to continue. How Modi surmounts them, one can only wait and watch.