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Significant reforms in agriculture were undertaken in the early decades after India’s independence. These included land reforms and the Green Revolution. Given the sector’s significance to Indian livelihoods, we now need fresh reforms to unlock India’s vast agricultural potential, and improve both productivity and sustainability, in the interests of all stakeholders.

India recently passed the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (or Produce Act) and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 (or Agreement Act). Without delving into any political controversy over these, this article looks at how private participation in farming can go beyond the purchase of farm produce, and examines areas where legislative clarity may help.

Take the Produce Act. Given that it allows farmers and traders to engage in both intra- and inter-state trade, it is expected that the Union government would, by way of rules or otherwise, provide more detailed modalities for such trade. Given the vast expanse of the sector, this would be a welcome move from a governance and compliance perspective. For instance, the Act’s electronic registration requirement for a trade can keep fly-by- night operators out. In this significant endeavour, involving a private sector technology expert could be worthwhile.

The Produce Act also allows persons to establish and operate an electronic trading and transaction platform—to facilitate intra- and inter-state trade. Any person establishing such a platform would have to prepare and implement guidelines on fair-trade practices, covering the mode of trading, fees payable, inter-operability with other platforms, logistics, quality assessments, timely payments, etc. Since it is analogous to e-commerce market models, technical expertise from the private sector could help.

Now consider the Agreement Act. Its key feature is contract farming, based on negotiated agreements between farmers and sponsors (i.e., those who sign deals with farmers to buy their produce). Without trying to predict the success or failure of wide contract farming in India, we should note that there are two main categories of farming agreements that are highlighted in the Act:

One, where the ownership (and consequently risk) of the farm output rests with the farmer and the sponsor makes a purchase in accordance with the agreement. And two, where the farmer is paid for his farming services, but the production and its risks are the sponsor’s responsibility.

The quality, grade and standards of farm produce can be drafted into a farming agreement, and such standards could be prescribed by government authorities or agencies authorized by the Centre. Given the agricultural diversity in the country, an expert private agency with suitable credentials may be well placed to make a worthy contribution.

Further, farming agreements are also expected to have neutral third-party inspection for quality, grade and standards. Private players not related to either the farmer or the sponsor can undertake this activity.

The Agreement Act also allows for a farming agreement to be linked with insurance or credit instruments. This can be done under schemes of central or state governments, or of a financial services provider. Therefore, in this space, too, private-sector insurers, agricultural-credit companies or non-banking finance companies may get to play a wider role than they could earlier.

While the Produce Act envisages electronic trading platforms, a farming agreement may also have additional third parties acting as aggregators. An aggregator could work either at the farmers’ end or the sponsors’ end. While an aggregator’s role has not been detailed by the law, this is yet another area where an agri-tech company or expert private sector player may be able to contribute.

There are also areas that call for further clarity. Given the wide impact of the recent legislation on farming, the rules laid out and further guidelines issued by the government would be of critical importance. Here follow a few aspects of India’s new farm laws that could be clarified for the benefit of stakeholders in the country’s farm sector:

One, the definition of “trader" under the Produce Act appears to be wider than intended, because it includes those who purchase farm produce for themselves or on behalf of one or more persons for uses that include consumption. The term “person" itself includes an individual as well.

Two, it would go a long way in generating awareness of the changes if the government were to provide model formats for farming agreements, per the Agreement Act. These models could also serve as starting points for negotiations between farmers and sponsors. Hence, it is important for them to ensure that all stakeholders’ interests are balanced.

Each of the farm sector acts also contains a provision for protection from prosecution for acts done or intended to be done in good faith. This extends to not just governments or its officers, but also to “any other person". This wide range could create ambiguity on the ground over access to legal recourse.

Overall, under the present form of each of the Acts, there are significant areas where private-sector experts can play a productive role. At the same time, sufficient thought needs to be applied to the finer details of implementation, especially the rules and guidelines that would govern the same. This is too important a sector for loose ends.

Saurya Bhattacharya is partner, Cyril Amarchand Mangaldas

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