Home / Opinion / Views /  Precious lessons for farm reform from a 2017 model law

The repeal of India’s central farm laws is seen so widely as gravely negative for prospects of further economic reform that it might be opportune at the start of this New Year to set the record straight. The good news is that farm reform, defined as opening up marketing channels for farm produce, was already well underway before the three central laws were enacted. The bad news is that there is still a great deal of avoidable confusion as to the exact state of play in that process.

The states were the appropriate jurisdiction for legislating on trade in farm produce, since in any case it was state laws enacted 50 years ago that had limited the purchase of farm produce to licensed traders in Agricultural Market Produce Committee (APMC) market yards. A model act for doing away with the APMC-controlled regime was drafted for states in 2017 by the Centre. The 2017 model is an admirably comprehensive and carefully-worded legal provision, protecting farmers as it does from every conceivable abuse of the move towards greater freedom of sale.

In December 2019, the 15th Finance Commission, in its interim report, incentivized states to enact legislation based on the 2017 template, with a promised reward in their final report. Since Ramesh Chand was a member of both the Finance Commission and the Niti Aayog, the Centre quite clearly agreed that states were the appropriate legislating authority. That thinking seems to have changed in 2020, with enactment of three central laws.

How many states had already gone with the 2017 template by 2019? The Union ministry of agriculture, at a conference of state agriculture ministers in July 2019, presented a detailed tabulation showing that 22 states had provided freedom for farmers to sell their produce to private traders, the key element enabled by the 2017 model law. Kerala and Manipur had never enacted an APMC law, and Bihar repealed its APMC law in 2005. That left only three states of the present Indian total of 28 which did not give farmers freedom to sell to private traders: Haryana, Madhya Pradesh and Tamil Nadu.

Sadly, we cannot conclude that the freeing of farmers from the clutches of the APMC monopsony was complete, barring those three states, because in the same July 2019 presentation, only four states are named as having fully followed the 2017 template: Arunachal Pradesh, Uttar Pradesh, Chhattisgarh and Punjab. It could be that the other states had not followed the 2017 template in every detail. Another explanation could be that those states had not followed enactment with a notification of rules. But without notification (the point at which any law is administratively recognized), how could 22 states have been listed as having freed farmers to sell to private traders? The issue remains mired in confusion.

I should explain why I rate the 2017 model act so highly. Many laws at both the Centre and states leave details about procedures to the rules, which can easily be changed by administrative notification, without having to refer back to the legislative body for a change in the law. The 2017 template was exceptional for having inserted procedures for setting market fees, and specifying uses to which the revenue from these fees could be put, right in the law itself without being waved away to the rules.

There was no compulsion on states to enact their own legislation based on the 2017 template. There are prior and very successful instances of states having voluntarily followed a standard template on which to base their own legislation. The Fiscal Responsibility and Budget Management (FRBM) acts, enacted by states starting in 2005, was one such. Another example was the model VAT law offered to states that same year. In the case of farm laws as well, it was only a matter of time before all states would have seen the advantages of enacting (and notifying) laws based on the 2017 template.

The equivalent central law of 2020 is much shorter than the 2017 model, because it does not go into the kind of painstaking detail as the 2017 template does in order to secure the rights of farmers.

There were also two major departures in the 2020 act. One was that it explicitly ruled out the levy of market fees. That was most puzzling, since a lot of initial investment and maintenance is needed for agricultural market yards. If no market fees are levied, investment and maintenance have to be fully borne by either government or private traders. If it’s the latter, an agricultural market could easily degenerate into a local monopsony. That possibility was what the 2017 model act guarded against.

The second departure was that the central law required all traders in farm produce, barring farmer organisations, to have a permanent account number (PAN) for income taxation. Quite aside from the merits of that requirement, it should have been in a finance bill rather than a farm bill.

I have dealt only with the marketing law, of the three enacted, for lack of space. The essential point is that the 2017 model is still in place, providing a secure legal basis for opening up markets to farmers in a non-exploitative way.

Indira Rajaraman is an economist

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