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BW Businessworld

Need to Deregulate Indian Agriculture

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

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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 economic and social value of inputs and the inability to calibrate 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 fourth is the poor agricultural infrastructure in terms of storage, warehousing, cold-chains etc. The fifth is the ineffective marketing framework and lack of facility available to farmers to trade their produce freely. The sixth is the lack of dissemination about 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. 

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

They permit forward contracts for purchase of farmer’s produce at mutually agreed prices – as per a stipulated framework of price determination. They permit trade of farmers’ produce beyond the physical premises of Agricultural Produce Market Committee (APMC) markets or Mandis. They allow electronic trading of farmers’ produce in any specified trade area. Direct and online buying and selling of the agricultural produce via electronic devices and the internet is encouraged. State Governments are 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 will the draconian provisions kick in. Storage of food items, including cereals, pulses, potato, onion, edible oilseeds, and oils have been deregulated. Further, the imposition of any stock limit on agricultural produce will be based on price rise and can only be imposed when there is a 100% increase in the retail price of horticultural produce and 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.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Raghav Chandra

Former Secretary Government of India

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