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Need To Deregulate Indian Agriculture

Updated: Jan 23

More market-marked contracts and involvement of private companies are needed both in agriculture and agro-forestry.

Indian agriculture suffers from several fundamental shortcomings. First, the extreme level of fragmentation of holdings is debilitating. The second is the inability to scientifically estimate the economic and social value of inputs and the inability to calibrate the choice of crops and pricing of produce. The third is the excessive usage of nitrogenous fertilizers. The fourth is the lack of mechanization and technology. The fifth is the poor agricultural infrastructure in terms of storage, warehousing, cold chains, etc. The sixth is the ineffective marketing framework and lack of facilities available to farmers to trade their produce freely. The seventh is the lack of dissemination of best practices and the lack of effective risk management. Lastly, and most importantly is the inability to transfer produce from one place to another seamlessly, without hindrance.

That is why the proposed new agriculture laws: The farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, the Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, and the Essential Commodities (Amendment) Act were actually quite progressive.

They permitted forward contracts for the purchase of farmer’s produce at mutually agreed prices – as per a stipulated framework of price determination. They permitted the trade of farmers’ produce beyond the physical premises of Agricultural Produce Market Committee (APMC) markets or mandis. They allowed electronic trading of farmers’ produce in any specified trade area. Direct and online buying and selling of agricultural produce via electronic devices and the Internet was encouraged. State Governments were prohibited from levying any market fee or cess on farmers, traders, and electronic trading platforms for trading farmers’ produce in an 'outside trade area.' With the amendment in the Essential Commodities Act, only when the Government of India lists certain commodities as essential to regulate their supply and prices in cases of war, famine, extraordinary price rises, or natural calamities would the draconian provisions kick in. Storage of food items, including cereals, pulses, potatoes, onion, edible oilseeds, and oils was to be deregulated. Further, the imposition of any stock limit on agricultural produce was to be based on a price rise and could only be imposed when there was a 100% increase in the retail price of horticultural produce and a 50% increase in the retail price of non-perishable agricultural food items.

Already exclusive forward contracts between companies and farmers are operational and successful – potatoes used by PepsiCo for its Lay’s and Uncle Chipps wafers, or even exportable gherkins. The principals in these cases undertake assured buyback at pre-agreed prices and provide farmers seeds/planting material and extension support to ensure high international quality. More market-marked contracts and involvement of private companies are needed both in agriculture and agro-forestry.

Whenever the effectiveness of an agricultural scheme is reviewed to examine the need to continue it, the constant refrain has been for the need to liberate Indian agriculture from the shackles of conservatism – to deregulate the movement of produce, to do away with the APMC Act, to permit contract farming and to do away with stock regulations. It is imperative to create enabling provisions for private sector efficiencies to help lift the moribund state of our agriculture. If a non-urea and less fertilizer-dependent cropping regime is to be encouraged, if groundwater and soil conservation are to be nurtured if there is to be a correct allocation of resources towards pulses, oilseeds, and horticulture if there is to be a free and unified agricultural market in which a trader sitting in Kanyakumari can bid for peaches from Kargil, or a farmer in Lasangaon can sell his onions to a trader in Ghaziabad – then indeed farmers need a deregulating policy dispensation.It is a pity that this plan for introducing these laws has been shelved.


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