Unshackle Indian agriculture

In news

It is time the Centre extended liberalisation to the agricultural sector and freed it from shackles

Why?

While imports of many agri commodities are under OGL, there are numerous restrictions on exports. The moment there is a slight spurt in domestic prices, curbs are imposed on exports.

How? Explanation

  • Last year, India’s production of pulses was 23 million tonnes (MT), the highest ever, 40% more than the previous year.
  • This was owing to good rains, higher minimum support price (MSP) and higher acreage. High production should have meant lower imports.
  • No such luck. Last year’s imports were at an all-time high of 6.6 MT, that too at zero import duty. This caused prices to crash, in some places to half of the MSP. Farmers faced ruin. In barely 18 months, the price of tur dal has gone down from Rs200 to Rs30 a kilo.

Changes required

  • Export restrictions must go.
  • Monopoly procurement must go.
  • Essential Commodities Act restrictions must go.
  • Arbitrary stocking limits must go.

Export restrictions

It has been widely used in the past and continue to be a trade policy instrument used to control agricultural markets. Countries usually apply these measures in an attempt to contain the growth of domestic prices and ensure sufficient internal supplies, as a response to rising food prices

Monopoly procurement

Guarantee price scheme for any product given to grower. Once fixed it remained same throughout the season, Cultivator is assured to get the same price of the product even if federation would not be able to sell at the required amount, however if federation earned profit by selling the product at higher price, cultivator would receive 75% of profit.

The Essential Commodities Act, 1955 

It was enacted to ensure the easy availability of essential commodities to consumers and to protect them from exploitation by unscrupulous traders. The Act provides for the regulation and control of production, distribution and pricing of commodities which are declared as essential. The Act aims at maintaining/increasing supplies/securing equitable distribution and availability of these commodities at fair prices.

Arbitrary stocking limits

Exports of many agriculture commodities, sugar for instance, are regulated by  Arbitrary stocking limits .Such executive actions make India an unreliable supplier. That in turn leads to low net realisation from export. Then, there are quality related issues with instances of pesticides often being found above permissible limits, leading to rejection of export consignments.

Policy lessons

  • There is no instrument for using future price information. Farmers plant crops based on anticipated future prices, not past prices.
  • There are arbitrary stock limits for private traders, which can inhibit inter-period smoothening of prices. In the absence of futures trading, the volatility in tururadmoong and chana has been as high as 48, 54, 72, and 28%, respectively, since July.
  • For the past 10 years, all exports of pulses have been banned. This was presumably for food security and price stability. But this export ban has hurt farmers, who couldn’t take advantage of high prices.
  • Pulses continue to be in the Agriculture Produce Marketing Committee (APMC) Act. Thus farmers are not free to sell to any buyer they wish but must go through the APMC.
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