Sops, reforms for farmers in third tranche of govt aid
Farmers to get rights to sell freely, govt to overhaul agri markets
NEW DELHI: Finance minister Nirmala Sitharaman on Friday announced a mix of financial, legislative and reform measures aimed largely at increasing the pricing power of farmers – or share of profits in farm incomes – by proposing to dismantle historical domestic trade barriers, bring new laws for freer food and commodities markets, and better infrastructure.
Sitharaman’s third tranche of measures, aggregating ~1.63 lakh crore and part of a larger ~20-lakh crore stimulus, did not contain any direct cash transfer programme for farmers, or money in hand, but is a mix of new allocations and top-up to existing agriculturally critical schemes, some them announced in Budget 2020-21 in February.
It is also an attempt to push through critical legislative reforms that can free up India’s agricultural markets and improve farm incomes. Farming, the largest source of livelihoods, supports nearly half of all Indians and it has been hobbled by myriad archaic regulations.
According to estimates by economists and securities research firms, the measures announced thus far add up to around ~18.3 lakh crore (including around ~5.7 lakh crore of monetary measures taken in March by the central bank, and the ~1.7 lakh crore welfare package announced in late March ).
Finance ministry officials said there will be two more tranches -one to be announced on Saturday and the other on Sunday.
DK Srivastava, chief policy
advisor at consultancy firm EY India, said, “One salient feature of this tranche is that the direct fiscal cost (or cash spending) accounts for nearly 30% of the estimated benefit, which is much higher than in earlier two tranches.” His reference is to the fact the fiscal cost of the previous tranches is estimated by economists at a fraction of the overall number – a Credit Suisse report put the fiscal cost of the ~1.7 lakh crore welfare package, the ~5.7 lakh crore monetary measures, and the first tranche of ~5.94 lakh crore announced on Wednesday at around ~55,000 crore.
On Friday, the finance minister announced ~1 lakh crore to fund new farm-gate infrastructure, or simply agricultural produce markets, harvest management facilities, and a law to permit farmers to freely sell their produce to any trader of their choice, potentially ending persistent trade barriers in food trade that have been characterised by so-called agricultural market produce committees (APMCs). Sitharaman said a mechanism would be fixed to assure profitable prices for farmers, which means at least a baseline profitable price signal available at the “time of sowing”. This is referred to as price discovery, whereby farmers will be able to estimate crop prices before taking sowing decisions so that they are able to grow commodities for which there will be demand.
“A central law will be formulated to provide adequate choices to farmers to sell produce at attractive price, barrier-free inter-state trade and a framework for e-trading of agriculture produce.” She also outlined proposed changes to the Essential Commodities Act (ESA), to “enable better price realisation for farmers by attracting investments and making agriculture sector competitive.”
The indication is that the government will use the law more sparingly, a proposal for which had been made by an interministerial panel to reform the sector in January. The ESA allows the government to decide how much stock wholesale traders or even retailers can store, legally called “stock limits”. Cereals, edible oils, oilseeds, pulses, onions and potato will be deregulated, she said. Stock limits will be imposed under very exceptional circumstances.
The finance minister, responding to a question, rejected the Opposition’s charges that much of her announcements were re-allocated spending and had included taxpayer refunds. “We have included schemes announced in the Budget. But amounts are being disbursed now. When was the Budget? In February. When we are giving expedited tax refunds, it is taxpayers money. I am specifically saying that,” Sitharaman said. These reforms in “agricultural marketing”, or the mandi system that controls buying and selling of farm produce, have been a long time in the making. Various panels and economists have often argued for changing the existing structures. APMC regulations require farmers to only sell to licensed middlemen in notified markets, usually in the same area where a farmer resides, rather than in an open market. They often act as cartels, evidence suggests. In December 2010, when prices peaked during the last major spike, a probe by the country’s statutory anti-monopoly body, the Competition Commission of India, revealed that one firm accounted for nearly a fifth of the onion trading for that month at Lasalgoan APMC.
Ushered in during the 1960s, APMC regulations were meant to protect farmers from distress selling. Under the system, farmers have to go through smaller crop aggregators to access bulk buyers. Over time, this has spawned layers of intermediaries spanning the farm-to-fork supply chain. This results in a large “price spread”, or the fragmentation of profit shares due to the presence of several middlemen. Farmers often get the lowest shares.
EY’s Srivastava added that “the focus on agriculture and allied sectors in this third tranche of the stimulus package may be justified due to its large share in employment. These reforms are both welfare-improving and efficiency-augmenting”.
“Terms of trade has moved away from agriculture. That is what the government appears to have realised and trying to correct,” said economist YK Alagh.
His reference is to the total prices paid by farmers in running their households versus total prices received by selling their produce. Agriculture in India suffers negative total revenues, or negative terms of trade implying that assets going out of the sector are more than those flowing in. Farming, therefore, has steadily become an unprofitable occupation, according to a 2018 study by the Organisation of Economic Cooperation and Development (OECD), a grouping of 36 countries, and the New Delhi-based think-tank ICRIER.
The government will bring in a facilitative legal framework to enable farmers for engaging with processors, aggregators, large retailers, exporters, etc, in a fair and transparent manner, the minister said. “This will ensure assured returns and risk mitigation for farmers.”
“A central law to enable farmers to sell to a buyer of their choice including online channels and marketplaces is expected to go a long way in maximizing farmer realisations while minimizing intermediary transaction costs. Farmers would be able to avail of price discovery and sell their products on both government platforms like e-NAM and private online grocery platforms,” said Arindam Guha, an economist with Deloitte India. To improve animal husbandry incomes, which gives higher net returns compared to crops, Sitharaman said: “We want to ensure 100% vaccination of nearly 530 million animals... Despite Covid-19 lockdown, 15 million cows and buffaloes have been tagged and vaccinated.” To control foot and mouth diseases, which cripples milk output of afflicted animals, the FM announced ~13,343 crore. The government will set up an Animal Husbandry Infrastructure Development Fund worth ~15,000 crore to “support private investment in dairy processing, value addition and cattle feed infrastructure”. It will implement a scheme for infrastructure development related to beekeeping, according to the finance minister, aiming to increase incomes of 200,000 beekeepers. The government has extended the Operation Greens for Tomatoes, Onion and Potatoes (TOP) to all fruits and vegetables. Under this, 50% subsidy would be given on transportation from surplus to deficient markets and 50% subsidy on storage. The finance minister also allotted ~4,000 crore for herbal plantations.
“These initiatives may prove good in the long run but they do not solve the problem of farmers whose harvests perished because of the lockdown. It is clear that the government is in no mood to compensate these losses directly,” said economist Sudhir Panwar, a former member of the erstwhile UP State Planning Commission.
All told, the government on Friday announced funding worth ~1.63 lakh crore. This includes ~10,000 crore for micro food enterprises, ~20,000 crore for fisheries, ~500 crore for beekeeping and another ~500 crore for Operation TOPs, the vegetables mission. So far, the government has unveiled measures worth over ~9.1 lakh crore in the earlier two tranches since Prime Minister Narendra Modi’s address to the nation on May 12.