The need for unifying agricultural markets
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Tomatoes, onions, pulses—food inflation is not only a topic of heated discussions in homes, but also a persistent worry for policymakers. The usual export bans or raids on hoarders are almost Pavlovian in nature. But they have little impact over the long run. Indian agriculture needs meaningful structural reforms.
The creation of a unified agricultural market is an important item on the reform agenda. The idea made an appearance in the two budgets and economic surveys since the National Democratic Alliance came to power. The NITI Aayog too is working on a blueprint. It is expected to bring about much-needed uniformity in prices across agricultural markets in the country.
The existing Agricultural Produce Market Committee (APMC) Acts force farmers to sell their produce only to government-designated mandis. Introducing government-approved middlemen was a socialist intervention by different states to help their farmers market produce. It eliminated private players who were squeezing the farmer.
But the road to hell is paved with good intentions. The mandis restricted the economic freedom of farmers even as they were captured by local political elites who rig auctions. Further, the multiple charges levied within the mandis—such as market fees, licensing fees and commission—pushed up prices of agricultural commodities. Inadequate infrastructure did not help either.
It was in this situation that the model APMC Acts were circulated to the states in 2003. But the model has remained a mere blueprint in many states.
Karnataka stands out from the other states in this respect. Its Rashtriya e Market Services Pvt. Ltd (ReMS), a joint venture with NCDEX Spot Exchange Ltd, is a good working example of what the model APMC envisaged. First, to ensure ease of doing business, it integrated 51 of the 155 main market yards and 354 sub-yards into a single licensing system. Second, for improving efficiency and transparency, it introduced automated auction and post-auction facilities (weighing, invoicing, market fee collection and accounting). Third, to guarantee quality, assaying facilities were made available in the markets. Finally, in collaboration with NCDEX, it linked all APMCs in the state electronically, and enabled the discovery of a single state price for every commodity on a single platform.
The Karnataka model can help resolve the issues of all the stakeholders. It gave the farmer the power to accept, reject and bid the prices for his commodity on the basis of a transparent system. It increased the revenues of APMCs, helped in effective management of its funds and assets, and curbed corruption. The other states need to learn from this model.
In July 2015, the cabinet committee on economic affairs earmarked an amount of Rs.200 crore for the Central Sector Scheme for Promotion of National Agricultural Market through the Agri-Tech Infrastructure Fund. The Small Farmers’ Agribusiness Consortium is to be the lead agency responsible for the development of the national agricultural market under the ministry of agriculture. The scheme that seeks to integrate 585 regulated markets in the country through a common e-platform will also allow access for private markets.
For integration with the national e-platform and eligibility for assistance under the scheme for promotion of National Agricultural Market, the states and Union territories will need to undertake three reforms. These include a single licence valid across the state, a single-point levy of market fee, and provision for electronic auction as a mode for price discovery.
Agriculture is in the state list of the Constitution, and the unified agricultural market can be executed only in collaboration with the states. The states have already taken the lead in policy innovation, be it labour laws in Rajasthan, land acquisition reforms in Tamil Nadu or land pooling for urbanization in Andhra Pradesh. The Karnataka model of agricultural markets reforms should be seen as a similar case—a state innovation that can guide New Delhi.
Will the unified national agricultural market help to rein in food inflation? Tell us at email@example.com