MAKING AGRICULTURAL MARKET REFORMS SUCCESSFUL

Focus: GS-III Agriculture

Introduction

• The recent reforms in agricultural marketing have brought a sea change in policy.
• The removal of restrictions under the Essential Commodities Act (ECA) should help attract private investment in agriculture and help farmers of cereals, pulses, oilseeds, onion and potato, who have been adversely affected by the policy regime hitherto that discouraged private investment.
• The two new ordinances are expected to enable inter-State trade and promote contract farming, thereby providing a large number of options to farmers.

Click Here to read more about the two ordinances regarding agriculture reforms

Difficulties to be addressed

I- Time-Inconsistency

• Behavioural economists call this problem ‘time-inconsistency’ problem, or in simple terms, the policy credibility problem.
• This situation arises when a decision maker’s preferences change over time in such a way that the preferences are inconsistent at different points in time.
• In 2016, the electronic national agricultural market (e-NAM) was launched, and was intended to be a market-based mechanism for efficient price discovery by the farmers.

States needed to amend their respective Agricultural Produce Market Committee (APMC) Acts to put in place three prerequisites for the success of this programme —

1. A single licence across the State;
2. A single-point levy of the market fee;  
3. Electronic auctioning in all the markets.

Several States could not or did not carry out these amendments and the e-NAM proved to be far less effective than desired.

PM-AASHA

• The government reverted back to public price support by launching an ambitious programme, PM-AASHA in 2018 – the main objective of this programme was to provide an assured price to farmers that ensured a return of at least 50% more than the cost of cultivation.
• However, the initial budgetary outlay did not match the level of ambition of the programme.

PM-KISAN

• Then evolved the PM-KISAN, a direct cash transfer programme, in the interim Budget of 2019-2020.
• This programme involved a fixed payment of ₹6,000 per annum to each farm household with a budgetary outlay of ₹75,000 crore.
• Click Here to read more about PM-KISAN

II- Centre-State relations

• Although the Ordinances were passed by the Central Government using the constitutional provisions, the implementation of the same vests with the States.
• Also, inter-State trade involves movement of goods across the State boundaries.
• Thus, coordination between the Central and the State governments, and also among various States becomes crucial.

III- Interlinked market failures

• Absence or failure of credit and insurance markets may lead a farmer to depend upon the local input dealer or the middleman to meet his/her farming needs.
• This, in turn, may tie him to these intermediaries and constrain his choice of output markets. Similarly, the widespread restrictions on land leasing in many States lead to inefficient scale of production.
• Thus, reforms in the output market alone are not sufficient and must be supplemented and complemented with liberalisation of the lease market and better access to credit and insurance markets.

-Source: The Hindu