Context: In this episode we will discuss and analyse the state of agriculture sector and the need for continuity in reforms process to empower farmers and transform both agriculture and rural economy.

• Agriculture is one of the most important sectors in India. It accounts for around 18% of GDP. According to a survey published by the Ministry of Labor and Employment, the sector employs 45.7% of the workforce in 2014-15.
• Almost all varieties of crops are produced in the country due to the diverse climatic conditions. The production increased substantially after the green revolution in the 1970s when HYV (High Yielding Varieties) of seeds were introduced.
• However, the sector is under distress for last few years with an increasing number of farmers suicides, decreasing remuneration, etc.

Associated Challenges In India’s Agriculture
Issue Related to Subsidies

• Agricultural subsidies were introduced to incentivise farmers to take up the green revolution. Subsidies also intended to reduce the cost of production for farmers and to check food price inflation and protect consumers.
• However, today it has become apparent that subsidies are inflicting significant damage on different aspects of the economy.
• Subsidised Urea has led to massive overuse of nitrogenous fertilisers, leading to damaged soils and pollution of local water bodies.
• Similarly, power subsidies have not only led to an alarming overuse of groundwater,, but also it has severely damaged the health of power distribution companies.
• Credit subsidies like loan waivers have weakened the Indian banking system (due to increased NPAs), having negative spillover effects on the economy.
• Output price supports in the form of minimum support price (MSP) basically apply to only a handful of crops, especially wheat and rice that are procured by the government in a handful of states.

Consumer Oriented Policies

• Whenever there is a price rise in any agricultural commodity, the government imposes restrictions on exports to protect Indian consumers. It creates hindrances for farmers taking advantage of high prices in foreign markets.
• This, coupled with the Essential Commodities Act (ECA), has meant lower private investment in export infrastructure such as warehouses and cold storage systems.
• This lack of storage infrastructure compels farmers to go for Distress sale.

Flawed Agricultural Marketing Policies

• Due to restrictions imposed by Agricultural Produce Market Committee Acts passed by various states, Indian farmers today can only sell their produce at Farmgate or local market (haat) to village aggregators, APMC mandis and to government at the minimum support price (MSP).
• The introduction of the electronic national agriculture market (e-NAM)—an online trading platform for agricultural commodities in India—is a step in the right direction. However, its effects have been underwhelming due to three major bottlenecks:

Time cost of transactions

• Quality assessment challenges
• Transportation logistics

Marginal Land Holdings

• Raising farm productivity is critical for long-term increase in farmer incomes in India, as land fragmentation means that many Indian farmers are farming plots of such small sizes that even doubling their incomes would leave them with meagre earnings.
• In India, nearly 85% of agricultural land holdings are small and marginal (less than 2 hectare).

Slow Agricultural Growth Rate

• The Ashok Dalwai Committee Report on doubling farmers’ income, estimated that the doubling farmers' income will require an agricultural growth rate of 10-11% per annum, until 2022–23.
• However, agricultural growth rate and farmers' income growth rate has been stagnating and well below the required rate of growth.

?Steps to Increase Farmers' Income

• The Government with the aim of transforming agriculture in the country and raising farmers’ income have passed three important legislation from Parliament.

These legislations sought to bring much needed reforms in the agricultural marketing system such as removing restrictions of private stock holding of agricultural produce or creating trading areas free of middlemen and take the market to the farmer.

• The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020,
• The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020,
• Essential Commodities (Amendment) Act, 2020.

The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020
Features

• Freedom to the Farmers: The Act provides the farmers the freedom of choice related to sale and purchase of produce.
• Liberation from the Cess: The farmers will not be charged any cess or levy for sale of their produce under this Act. Further there will be a separate dispute resolution mechanism for the farmers.

Benefits

• Promotes trade: It promotes barrier-free inter-state and intra-state trade and commerce outside the physical premises of markets notified under State APMCs.
• Better price: It will open more choices for the farmer, reduce marketing costs for the farmers and help them in getting better prices
• One nation, one market: The Act will help create One India, One Agriculture Market and will lay the foundation for ensuring golden harvests for our hard working farmers.

The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, 2020
Feature

• Aims to provide for a national framework on farming agreements that protects and empowers farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services

Benefits

• Level playing field: The new legislation will empower farmers for engaging with processors, wholesalers, aggregators, wholesalers, large retailers, exporters etc., on a level playing field without any fear of exploitation.
• Transfers the risk: It will transfer the risk of market unpredictability from the farmer to the sponsor and also enable the farmer to access modern technology and better inputs.
• Attracts private sector: This legislation will act as a catalyst to attract private sector investment for building supply chains for supply of Indian farm produce to national and global markets, and in agricultural infrastructure.
• Eliminates intermediaries: Farmers will engage in direct marketing thereby eliminating intermediaries resulting in full realization of price.

Amendments to Essential Commodities Act (1955)
Background

• India has become surplus in most agri-commodities but farmers have been unable to get better prices due to lack of investment in cold storage, processing and export.
• The imposition of the curbs on stocking of farm produce and regulation of the prices of commodities, etc. under Essential Commodities Act (ECA) are some of factors responsible for less entrepreneurial spirit and thus less investment in the farm sector.

Benefits of Amendments

• The amendment would deregulate the commodities such as cereals, edible oils, oilseeds, pulses, onions and potatoes. It will help to lessen the fears of private investors of excessive regulatory interference in their business operations.
• Any limits under ECA over these commodities will be imposed only in exceptional circumstances such as war, famine, extraordinary price rise and natural calamity.
• The freedom to produce, hold, move, distribute and supply will lead to harnessing economies of scale and attract private sector/foreign direct investment into the agriculture sector.
• It will help drive up investment in cold storages and modernization of the food supply chain.
• The amendment is expected to help both farmers and consumers while bringing in price stability.
• It will also create a competitive market environment and also prevent wastage of agri-produce that happens due to lack of storage facilities.
• It is considered as a step towards transformation of agriculture and raising farmers’ income.

Significance of these Acts

• The reforms are expected to accelerate growth in the sector through private sector investment in building infrastructure and supply chains for farm produce in national and global markets.
• They are intended to help small farmers who don’t have means to either bargain for their produce to get a better price or invest in technology to improve the productivity of farms.
• The legislation on contract farming will allow farmers to enter into a contract with agri-business firms or large retailers on pre-agreed prices of their produce.
• It will also help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices.
• It will promote the creation of Farmer Producer Organisations (FPO) on a large scale and will help in creating a farmer-friendly environment for contract farming where small players can benefit.
• Competition is the best protector of stakeholders whether it is consumer or the farmers. Having a variety of buyers will protect farmers from exploitation and by having more sellers (farmers), consumers can buy better products at better deals.

Road Ahead

• This is a holistic perspective on contunity of reforms in Agriculture in India, this not only transform the agriculture sector but also the rural economy.