đŸ’„Join UPSC 2027,2028 Mentorship (July Batch) + XFactor Notes & Microthemes PDF
Talk to Mentor

Civilsdaily

Login

Subject: Economics

  • Reform is about giving farmers choice

    The article analyses the regional variation in the problems and issues of the farmer and how it has implications for the reforms in agriculture.

    An issue of estimating the number of farmers in India

    • Almost 111 million are registered for the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan).
    • Other than some categories being barred from PM-Kisan benefits, not every eligible farmer has necessarily registered for PM-Kisan.
    • The last Agriculture Census in 2015-16 gave us 146 million holdings.
    • If the agricultural landholding is conditional on being a farmer, apart from a possible further increase since 2015-16, 146 million is possibly the upper bound.
    • Every definition of “farmer” is not contingent on the ownership of land.
    • The Protection of Plant Varieties and Farmers’ Rights Act of 2001 is an example where status as a farmer depends on cultivating land (or supervising cultivation), not owning it.
    • That issue was also flagged by the National Commission on Farmers, such as in the Draft National Policy for Farmers (2006), where “farmers” included agricultural labourers, sharecroppers, tenants and so on.

    Issues with making landholding prerequisite for being a farmer

    • The Committee on State Agrarian Relations and the Unfinished Task in Land Reforms (2009) noted that “the Survey and Settlement Operations in the Permanently Settled Areas have not been taken up and where they have been taken up, for instance in Bihar, they tend to never conclude”
    • The last extensive survey and settlement in India was conducted two to three decades prior to Independence.
    • Post-Independence, some states have not undertaken a revisional survey and settlement so far.
    • There have been improvements since 2009 and the Department of Land Resources has a Digital India Land Records Modernisation Programme (DILRMP).
    • Punjab and Haryana rank 16th and 18th respectively in Records and Services Index (LRSI).
    • Gujarat, West Bengal and Tripura score high on this Index (over 90 per cent).

    Variation across the States

    • If land records are in this condition, some farmers will conceivably be excluded from the farmer definition.
    • With diverse and heterogenous agriculture, all farmers will not have identical views.
    •  2015-16 Agricultural Census tells us that most operational holdings are in UP, Bihar, Maharashtra and MP, in that order.
    • The highest operated areas are in Rajasthan, Maharashtra, UP and MP, in that order.
    • 86.1 per cent of holdings are small and marginal (less than 2 hectares) and only 0.6 per cent are large (more than 10 hectares).

    Conclusion

    The face of Indian agriculture has changed and is no longer what it was in the Green Revolution days, centred on Punjab, Haryana and western UP. Farmers, and governments, in Bihar and Kerala, don’t want APMCs, nor do UP, MP, Gujarat and Karnataka. There is no evidence that this has made those farmers worse off.

  • Growth compulsion, fiscal arithmetic

    The government faces the challenge of high fiscal deficit and declining revenue. This article discusses the challenge and suggests the way forward to deal with the situation.

    Dismal growth prospects

    • At (-)23.9% contraction for the first quarter of 2020-21, India’s growth showed one of the highest contraction globally.
    • What is most surprising in the Q1 data is that the sector ‘Public Administration, Defence and other Services’ contracted at (-) 10.3%.
    • This means that there was no fiscal stimulus.
    • The 2020-21 real GDP growth for India is forecast in the range of (-) 5.8% (RBI) to (-) 14.8% (Goldman Sachs).
    • The OECD in its September 2020 Interim Economic Outlook has projected a contraction of (-) 10.2% in FY21 for India.

    Challenge of decline in revenue

    • Due to a sharp contraction in nominal GDP growth, central and State tax revenue, both may contract.
    • . In the first quarter of 2020-21, the Centre’s gross tax revenues contracted by (-) 32.6%.
    • The CAG-based data pertaining to 19 States show a contraction of (-) 45% in their own tax revenues.
    • Given the adverse impact of the lockdown, even the budgeted non-tax revenues are not likely to be realised.
    • The revenue calculations of the Budget were made on the assumption that the nominal income of the country would grow at 10%.
    • Some estimates indicate that the tax and non-tax revenue and non-debt capital receipts in the current fiscal may fall well short of the budget estimates by an amount higher than â‚č5-lakh crore.
    • The combined fiscal deficit of the Centre and the States will have to make up for the shortfall in tax and non-tax revenues, if the level of budgeted expenditures is to be maintained.

    Challenge of widening of fiscal deficit

    • In order for the central government to maintain the level of budgeted expenditure and also provide for additional stimulus, its fiscal deficit may have to be increased to close to an estimated 8.8% of GDP.
    • If one adds the Centre’s and States’ fiscal deficit, the combined fiscal deficit amounts to 13.8% of GDP.
    • If the nominal GDP actually contracts in 2020-21, the fiscal deficit as the percent of GDP would go up further.

    Role of the RBI

    • The International Monetary Fund, in its June 2020 update of the World Economic Outlook, estimated the fiscal deficit of India and China at 12.1% of GDP.
    • India doesn’t have adequate resources to support a fiscal deficit of nearly 14% of GDP.
    • All this will therefore require substantial support from the Reserve Bank of India which will have to take on itself, either directly or indirectly, a part of the central government debt.
    • In the direct mode, the RBI takes on the debt directly from government at an agreed rate.
    • It took India long to move away from the automatic monetisation of debt.
    • Even if the RBI wants to support the borrowing programmes, it should not do so directly.
    • The indirect method is preferable as the market still sends out the signals on interest rate.
    • In both cases, the RBI is the provider of liquidity.
    • The question ultimately relates to the extent of debt monetisation that may be undertaken.
    • The country has also to guard against high inflation.

    Role of government

    • The economic situation warrants enhanced government expenditure.
    • It appears that governments are withholding expenditure. That is not the right approach.
    • At the same time, there is a limit to monetisation of debt.

    Conclusion

    Perhaps the best course of action would be to keep the combined fiscal deficit at around 14% of GDP in the current year and find ways to finance it. This will have to be brought down gradually. It may take several years of normalisation.

  • Where are the funds collected through cess parked?

    The Comptroller and Auditor General (CAG) of India, in its latest audit report of government accounts, has observed that the government withheld in the Consolidated Fund of India (CFI) more than â‚č1.1 lakh crore out of the almost â‚č2.75 lakh crore collected through various cesses in 2018-19.

    Try this PYQ:

    Q.Consider the following items:

    1. Cereal grains hulled
    2. Chicken eggs cooked
    3. Fish processed and canned
    4. Newspapers containing advertising material

    Which of the above items is/are exempted under GST (Goods and Services Tax)? (CSP 2018)

    (a) 1 only

    (b) 2 and 3 only

    (c) 1, 2 and 4 only

    (d) 1, 2, 3 and 4

    Issues with the cess deposits

    • The CAG found this objectionable since cess collections are supposed to be transferred to specified Reserve Funds that Parliament has approved for each of these levies.
    • The nation’s highest auditor also found that over â‚č1.24 lakh crore collected as Cess on Crude Oil over the last decade had not been transferred to the designated Reserve Fund — the Oil Industry Development Board.
    • Similarly, the Goods and Services Tax (GST) Compensation Cess was also “short-credited” to the relevant reserve fund.

    What is Cess?

    • The Union government is empowered to raise revenue through a gamut of levies, including taxes (both direct and indirect), surcharges, fees and cess.
    • While direct taxes, including income tax, and indirect taxes such as GST are taxes where the revenue received can be spent by the government for any public purpose in any manner it deems appropriate for the nation’s good, a cess is an earmarked tax that is collected for a specific purpose and ought to be spent only for that.
    • Every cess is collected after Parliament has authorised its creation through enabling legislation that specifies the purpose for which the funds are being raised.
    • Article 270 of the Constitution allows cess to be excluded from the purview of the divisible pool of taxes that the Union government must share with the States.

    How many cesses does government levy?

    • A report submitted to the Fifteenth Finance Commission listed 42 cesses that have been levied at various points in time since 1944.
    • The very first cess was levied on matches, according to this report.
    • Post Independence, the cess taxes were linked initially to the development of a particular industry, including a salt cess and a tea cess in 1953.
    • Subsequently, the introduction of cess was motivated by the aim of ensuring labour welfare.
    • Some cesses that exemplified this thrust were the iron ore mines labour welfare cess in 1961, the limestone and dolomite mines labour welfare cess of 1972 and the cine workers welfare cess introduced in 1981.

    Cesses after GST

    • The introduction of the GST in 2017 led to most cesses being done away with and as of August 2018, there were only seven cesses that continued to be levied.
    • These were Cess on Exports, Cess on Crude Oil, Health and Education Cess, Road and Infrastructure Cess, Building and Other Construction Workers Welfare Cess, National Calamity Contingent Duty on Tobacco and Tobacco Products and the GST Compensation Cess.
    • And in February, Finance Minister Nirmala Sitharaman introduced a new cess — a Health Cess of 5% on imported medical devices — in the Finance Bill for 2020-2021.

    Why is the issue in the news currently?

    • For one, most crucially, the express purpose of this particular cess is to help recompense States for the loss of revenue on account of their having joined the GST regime by voluntarily giving up almost all the power to levy local indirect taxes on goods and services.
    • Also, the share of revenue to the Centre’s annual tax kitty from cess had risen to 11.88% of the estimated gross tax receipts in 2018-19, from 6.88% in 2012-13.
    • Given that cess does not need to be a part of the divisible pool of resources, this increasing share of cess in the Union government’s tax receipts has a direct impact on fiscal devolution.

  • Case for principles of sound public policy

    Context

    • Due to extreme uncertainty, several adventurous prescriptions have been put forth.

    Following are 4 unconventional measures and issues with them are discussed here.

    1) Shoud we change the Inflation targeting regime?

    • Monetary policy committee (MPC) concluding that elevated inflation has constrained it from easing policy rates further.
    • One way out of this is for the government to relax the inflation-targeting framework.
    • This would involve greater tolerance for higher levels of inflation or by extending the period over which the MPC has to meet its inflation target.
    • Others have suggested shifting from headline to core-inflation as the nominal anchor of monetary policy or incorporating other indicators such as nominal GDP explicitly into the framework.
    • The more extreme ones talk about doing away with the inflation targeting framework altogether.

    Why changing the inflation targeting regime will not be helpful

    • There is a strong argument for the MPC to look beyond the current spike in inflation and ease rates further.
    • But disagreements with either the rationale or the stance of the committee members must not be construed as disagreements with the framework.
    • Raising the tolerance threshold may sound appealing now, but it will inject a degree of uncertainty and unpredictability in monetary policy.
    • Considering that anchoring expectations around the inflation target takes time, frequent revisions are unlikely to help stabilise household expectations.
    • While explicitly signalling  will be one of deviating from a rule-based framework.

    2) What we shift to Multiple Indicator Structure?

    • Such a move would bring back the situation of the pre-MPC days.
    • In pre-MPC days there was far greater uncertainty over monetary policy.
    • In pre-MPC days there was no clarity over the indicator that was dictating the stance of the RBI governor or which indicator would be given preference, and when.
    • Such proposals go against the rationale for shifting to such a framework in the first place — an inflation targeting regime.
    • Inflationg targeting regime is a well-defined anchor, is meant to facilitate greater transparency and accountability from the central bank.

    Way forward

    • There must be a concerted attempt to push for more external voices in the MPC.
    • In the UK, a non-voting treasury representative sits with the MPC to discuss policy issues.

    3) Should central bank effectively financing the Centre’s capital expenditure on a regular basis?

    •  This is problematic at many levels.
    • First, notwithstanding problems in estimating potential output, monetisation, even in the rarest of rare cases, should be the last resort.
    • Such an arrangement, risks tilting the balance of power in favour of the government.
    • Any government, owing to its short-term political imperatives, is likely to be seduced by the apparent simplicity of this idea.
    • Second, giving a central bank a degree of control over the government’s expenditure priorities is not a prudent approach.
    • Whatever be their policy inclinations and expenditure priorities, elected representatives have to face voters.
    • Why should unelected technocrats be in charge of determining the expenditure priorities of the government?
    • Such proposals blur the lines between fiscal and monetary policy and may lead to what some call the fiscalisation of monetary policy.

    4) Should government pledge its shares in companies?

    • This raises questions. Should a sovereign pledge assets to borrow in the local currency?
    • In 1991, India had pledged gold for a foreign currency-denominated loan not a local currency loan.
    • So why the collateral? And what happens if the value of the shares pledged falls below that of the loan?

    Conclusion

    Some unconventional measures may well be needed at the current juncture. But discarding the principles of sound public policy, though it sounds appealing, could end up doing more harm than good.

  • [pib] Delhi–Meerut Regional Rapid Transit System (RRTS)

    The first look of India’s first RRTS train on Delhi-Ghaziabad-Meerut corridor has been unveiled.

    Try this PYQ:

    Q.Consider the following pairs:

    National Highway: Cities connected

    1. NH 4: Chennai and Hyderabad
    2. NH 6: Mumbai and Kolkata
    3. NH 15: Ahmedabad and Jodhpur

    Which of the above pairs is/are correctly matched?

    (a) 1 and 2 only

    (b) 3 only

    (c) 1, 2 and 3

    (d) None

    About the RRTS train

    • The Delhi–Meerut RRTS is an 82.15 km long, under-construction, semi-high speed rail corridor connecting Delhi-Ghaziabad-Meerut.
    • It is one of the three rapid-rail corridors planned under Phase-I of Regional Rapid Transport System (RRTS) project of National Capital Region Transport Corporation (NCRTC).
    • With a maximum speed of 160 km/h (99.42 mph), the distance between Delhi and Meerut will be covered in around 62 min (1.03 h).
    • With radiating stainless steel outer body, these aerodynamic RRTS trains will be lightweight and fully air-conditioned.
    • Each car will have six automatic plug-in type wide doors, three on each side for ease of access and exit.

  • Lessons from Bihar’s abolition of its APMC system for farmers

    The article analyses the results of complete abolition of APMC in Bihar in the context of current protest against the agri bills.

    Context

    • Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 has been a source of anger among farmers.
    • By allowing unregulated trading areas beyond APMC mandis, the law seeks to remove intermediaries from agricultural trade and raise price realization for farmers.

    Excessive politicization of APMCs

    • APMC’s excessive politicization has resulted in cartelization and price-fixing.
    • For this reason, there have been several attempts at reforming their functioning.
    • Easier licensing norms, the removal of entry and exit barriers and computerization and transparency have been introduced in most APMC markets.
    • However, the Bihar government decided to abolish the APMC system altogether in 2006.

    Analysing the impact of abolition of APMC in Bihar

    • It was hoped that abolition would ensure better prices for farmers of the state and attract large sums of private investment.
    • Before their abolition, Bihar had 95 market yards, of which 54 had infrastructure such as covered yards, godowns and administrative buildings, weighbridges, and processing as well as grading units.
    •  With no revenue to maintain it, that infrastructure is now in a dilapidated condition.
    •  A study by the National Council for Applied Economic Research reported increased volatility in grain prices after 2006.
    • Most of the farmers surveyed reported high storage costs at private warehouses.
    • Farmers this year in Bihar received lower price for maize compared to the farmers in states with APMC.

    Lessons from Bihar

    • The Bihar experiment has important lessons for future marketing reforms in agriculture.
    • The benefits of these reforms will only accrue to farmers if they are accompanied by private investment in creating the physical infrastructure and institutional mechanisms needed to allow for greater participation of farmers.
    • The record of states on attracting private investment isn’t much better.

    Conclusion

    By only attempting to shift trade away from APMC to non-APMC areas, without a regulatory framework, the new law is unlikely to ensure better price realization for farmers.

  • Explained: How is MSP fixed?

    The recently enacted Farmers bill seeks to dismantle the monopoly of APMC mandis, thereby allowing sale and purchase of crops outside these state government-regulated market yards. This has prompted many fears regarding the continuance of the existing minimum support price (MSP)-based procurement regime.

    Try this PYQ:

    Q.There is also a point of view that agriculture produce market committees (APMCs) set up under the state acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine. (UPSC 2014)

    What does the law say about MSP?

    • The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill does not give any statutory backing to MSP.
    • There is not even a single mention of either “MSP” or “procurement” in the Bill passed by both Houses of Parliament last week.

    Is there any legal backing for MSP?

    • MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidised grains through the PDS, isn’t an entitlement for farmers.
    • They cannot demand it as a matter of right.

    What is the basis of MSP then?

    • It is only a government policy that is part of administrative decision-making.
    • The government declares MSPs for crops, but there’s no law mandating their implementation.
    • The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations:
    1. 7 cereals (paddy, wheat, maize, bajra, jowar, ragi and barley)
    2. 5 pulses (chana, arhar/tur, urad, moong and masur)
    3. 7 oilseeds (rapeseed-mustard, groundnut, soyabean, sunflower, sesamum, safflower and nigerseed) and
    4. 4 commercial crops (cotton, sugarcane, copra and raw jute) —

    What about CACP?

    • The CACP come to existence in 1965 and MSPs are being announced since the time of the Green Revolution, starting with wheat in 1966-67.
    • The CACP is simply an attached office of the Ministry of Agriculture and Farmers Welfare.
    • It can recommend MSPs, but the decision on fixing (or even not fixing) and enforcement rest finally with the government.
    • The government can procure at the MSPs if it wants to. There is no legal compulsion. Nor can it force others (private traders, organised retailers, processors or exporters) to pay.

    Exceptions to MSP: Fair and remunerative price (FRP)

    • The only crop where MSP payment has some statutory element is sugarcane.
    • This is due to its pricing being governed by the Sugarcane (Control) Order, 1966 issued under the Essential Commodities Act.
    • That order, in turn, provides for the fixation of an FRP for cane during every sugar year (October-September).
    • But even the FRP — which, incidentally, was until 2008-09 called the ‘statutory minimum price’ or SMP — is payable not by the government.
    • The responsibility to make FRP payment to farmers within 14 days of cane purchase lies solely with the sugar mills.

    Has there been any move to give MSP legislative backing?

    • The CACP, in its price policy report for the 2018-19 Kharif marketing season, had suggested enactment of legislation conferring on farmers ‘The Right to Sell at MSP’.
    • This, it felt, was necessary “to instil confidence among farmers for procurement of their produce”. That advice, predictably, wasn’t accepted.

    A cause for farmers fury

    • The ongoing farmer protests essentially reflect a loss of that very confidence.
    • Is the dismantling of the monopoly of APMC mandis in wholesale trading of farm produce the first step at ending even the present MSP-based procurement programme, largely limited to wheat and paddy?
    • If APMCs were to turn unviable due to the trades moving outside, how will government agencies undertake procurement that now takes place in mandis?
    • These questions are playing in the minds of farmers, particularly in states such as Punjab, Haryana and MP that have well-established systems of governmental MSP purchases.
    • For them, freedom to sell to anyone, anywhere and anytime has little value compared to the comfort of assured procurement at MSP.

    Govt’s response

    • PM has tweeted that the “system of MSP will remain” and “government procurement will continue”.
    • The Agriculture Minister, too, has pointed out that past governments never thought it necessary to introduce a law for MSP.

  • Explained: How remunerative is farming in India?

    The government’s push to reform India’s agriculture sector has divided opinions and triggered a debate about the state of Indian agriculture.

    Try this PYQ:

    Q.In view of the declining average size of land holdings in India which has made agriculture nonviable for a majority of farmers, should contract farming and land leasing be promoted in agriculture? Critically evaluate the pros and cons. (UPSC 2015)

    Features of Indian Agriculture

    In the context of this debate, two long-standing characteristics of Indian agriculture are noteworthy:

    1. Indian agriculture is highly unremunerative
    2. It has been heavily regulated by the government and protected from the free play of market forces

    Why are the new legislation introduced?

    • According to the government, the new Bills passed by Parliament attempt to make it easier for farmers to sell to and produce for the private sector.
    • The hope is that liberalizing the sector and allowing greater play for market forces will make Indian agriculture more efficient and more remunerative for the farmers.
    • In this context, it is important to understand some of the basics of Indian agriculture.

    Basics of Indian agriculture

    (1) Workforce engaged

    • At the time of Independence, about 70% of India’s workforce (a little less than 100 million) was employed in the agriculture sector.
    • Even at that time, agriculture and allied activities accounted for around 54% of India’s national income.
    • Over the years, agriculture’s contribution to national output declined sharply. As of 2019-20, it was less than 17% (in gross value added terms).
    • And yet, the proportion of Indians engaged in agriculture has fallen from 70% to just 55% (Chart 1).
    • As the Committee on Doubling Farmers’ Income (2017) observes, “the dependence of the rural workforce on agriculture for employment has not declined in proportion to the falling contribution of agriculture to GDP”.

    (2) Land holdings

    • While the number of people dependent on agriculture has been burgeoning over the years, the average size of landholdings has become reduced sharply — even to the extent of being unviable for efficient production.
    • Data shows that 86% of all landholdings in India are small (between 1 and 2 hectares) and marginal (less than 1 hectare — roughly half a football field).
    • The average size among marginal holdings is just 0.37 ha which hardly provides enough income to stay above the poverty line.

    (3) Debts

    • The combined result of several such inefficiencies is that most Indian farmers are heavily indebted (Chart 2).
    • The data shows that 40% of the 24 lakh households that operate on landholdings smaller than 0.01 ha are indebted. The average amount is Rs 31,000.
    • A good reason why such a high proportion of farmers is so indebted is that Indian agriculture — for the most part — is unremunerative.
    • Chart 3 provides the monthly income estimates for an agriculture household in four very different states as well as the all-India number.
    • Some of the most populous states like Bihar, West Bengal and Uttar Pradesh have very low levels of income and very high proportions of indebtedness.

    (4) Buying & selling

    • Another way of understanding the plight of the farmers relative to the rest of the economy is to look at the Terms of Trade between farmers and non-farmers.
    • Terms of Trade is the ratio between the prices paid by the farmers for their inputs and the prices received by the farmers for their output.
    • As such, 100 is the benchmark. If the ToT is less than 100, it means farmers are worse off.
    • As Chart 4 shows, ToT rapidly improved between 2004-05 and 2010-11 to breach the 100-mark but since then it has worsened for farmers.

    (5) MSP

    • A key variable in the debate is the role of minimum support prices. Many protesters fear governments will roll back the system of MSPs.
    • MSPs provide “guaranteed prices” and an “assured market” to farmers, and save them from price fluctuations. This is crucial because most farmers are not adequately informed.
    • But although MSPs are announced for around 23 crops, actual procurement happens for very few crops such as wheat and rice.
    • Moreover, the percentage of procurement varies sharply across states (Chart 5). As a result, actual market prices — what the farmers get — are often below MSPs.

  • Redefining essential items: why it was needed, and who it will impact

    Recently, the Rajya Sabha passed the Essential Commodities (Amendment) Bill, 2020 which is aimed at deregulating commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes.

    Try this question:

    What are the salient features of Essential Commodities (Amendment) Bill, 2020?

    Essential Commodities (Amendment) Bill, 2020

    • It amends the Essential Commodities Act, 1955, by introducing a new Subsection 1(A) in Section 3.
    • After the amendment, the supply of certain foodstuffs — including cereals, pulses, oilseeds, edible oils, potato — can be regulated only under extraordinary circumstances, which include an extraordinary price rise, war, famine, and natural calamity of a severe nature.
    • In effect, the amendment takes these items out from the purview of Section 3(1), which gives powers to the central government to “control production, supply, distribution, etc, of essential commodities”.
    • Earlier, these commodities were not mentioned under Section 3(1) and reasons for invoking the section were not specified.

    How is an ‘essential commodity’ defined?

    • There is no specific definition of essential commodities in the Essential Commodities Act, 1955. Section 2(A) states that an “essential commodity” means a commodity specified in the Schedule of the Act.
    • The Act gives powers to the central government to add or remove a commodity in the Schedule.
    • The Centre, if it is satisfied that it is necessary to do so in the public interest, can notify an item as essential, in consultation with state governments.

    Which are those commodities?

    • According to the Ministry of Consumer Affairs, Food and Public Distribution, which implements the Act, the Schedule at present contain seven commodities.
    • They are drugs; fertilizers, whether inorganic, organic or mixed; foodstuffs including edible oils; hank yarn made wholly from cotton; petroleum and petroleum products; raw jute and jute textiles; seeds of food-crops and seeds of fruits and vegetables, seeds of cattle fodder, jute seed, cottonseed.
    • By declaring a commodity as essential, the government can control the production, supply, and distribution of that commodity, and impose a stock limit.

    Under what circumstances can the government impose stock limits?

    • While the 1955 Act did not provide a clear framework to impose stock limits, the amended Act provides for a price trigger.
    • It says that agricultural foodstuffs can only be regulated under extraordinary circumstances such as war, famine, extraordinary price rise, and natural calamity.
    • However, any action on imposing stock limits will be based on the price trigger.
    • Thus, in case of horticultural produce, a 100% increase in the retail price of a commodity over the immediately preceding 12 months or over the average retail price of the last five years, whichever is lower, will be the trigger for invoking the stock limit.
    • For non-perishable agricultural foodstuffs, the price trigger will be a 50% increase in the retail price of the commodity over the immediately preceding 12 months or over the average retail price of the last five years, whichever is lower.

    Why was the need for this felt?

    • The 1955 Act was legislated at a time when the country was facing a scarcity of foodstuffs due to persistently low levels of foodgrains production.
    • The country was dependent on imports and assistance (such as wheat import from the US under PL-480) to feed the population.
    • To prevent hoarding and black marketing of foodstuffs, the Essential Commodities Act was enacted in 1955. But now the situation has changed.
    • The production of wheat has increased 10 times while the production of rice has increased more than four times since five decades.
    • The production of pulses has increased 2.5 times, from 10 million tonnes to 25 million tonnes. In fact, India has now become an exporter of several agricultural products.

    What will be the impact of the amendments?

    • The key changes seek to free agricultural markets from the limitations imposed by permits and mandis that were originally designed for an era of scarcity.
    • The move is expected to attract private investment in the value chain of commodities removed from the list of essentials, such as cereals, pulses, oilseeds, edible oils, onions and potatoes.
    • While the purpose of the Act was originally to check illegal trade practices such as hoarding, it has now become a hurdle for investment in the agriculture sector in general, and in post-harvesting activities in particular.
    • The private sector had so far hesitated about investing in cold chains and storage facilities for perishable items as most of these commodities were under the ambit of the EC Act.
    • The amendment seeks to address such concerns.

    Why is it being opposed?

    • This was one of the three ordinances/Bills that have seen protests from farmers in parts of the country.
    • The Opposition says the amendment will hurt farmers and consumers, and will only benefit hoarders.
    • They say the price triggers envisioned in the Bill are unrealistic — so high that they will hardly ever be invoked.

  • Putting farmers first

    The faremers have been protesting against the agri bill. This article explains the rationale behind the bill and how it could help the farmers.

    Challenges Indian agriculture face

    • Indian agriculture has been characterised by fragmentation due to small holding sizes, weather dependence, production uncertainties, huge wastage and market unpredictability.
    • This makes agriculture risky and inefficient with respect to both input and output management.

    Recent steps to help farmers

    • The  government has taken various steps in this direction, for example-
    • The implementation of the Swaminathan committee’s recommendation regarding fixing MSP at least 50 per cent profits on the cost of production.
    • Increasing the agri budget by more than 11 times in the past 10 years.
    • Establishing e-NAM mandis.
    • An Agriculture Infrastructure Fund of Rs 1 lakh crore under the Atmanirbhar Bharat Package, the scheme for the formation of 10,000 FPOs, etc.

    What the agri bills seek to achieve

    • The bills will create an ecosystem where farmers and traders enjoy the freedom of choice of sale and purchase of farming produce.
    • This freedom of choice will help to facilitate remunerative prices to farmers through competitive alternative trading channels.
    • This will promote barrier-free inter-state and intra-state trade and commerce of farming produce outside the physical premises of markets notified under state agricultural produce marketing legislation.
    • The farm bills also lay the ground of a legal framework for fair and transparent farming agreements between farmers and sponsors.
    • This framework will facilitate greater certainty in quality and price, adoption of quality and grading standards, linkage of farming agreements with insurance and credit instruments and also enable the farmer to access modern technology and better inputs.
    • These recommendations have been made by the Swaminathan Committee, which suggested the removal of the mandi tax, creation of a single market and facilitating contract farming.

    Safeguard in the bill

    • The bill have several safeguards such as the prohibition of sale, lease or mortgage of farmers’ land and farmers’ land is also protected against any recovery.
    • Farming agreements cannot be entered into, if they are in derogation of the rights of a sharecropper.
    • Farmers will have access to flexible prices subject to a guaranteed price in agreements.
    • The sponsor has to ensure the timely acceptance of delivery and payment of produce to farmers and farmers’ liability is limited to only the advance received and cost of inputs provided by the sponsor.
    • Disputes will be resolved through a Conciliation Board, to be constituted by the sub-divisional magistrate (SDM), failing which an aggrieved party may approach the concerned SDM for the settlement of the dispute.

    Consider the question “What are the changes introduced by the two recent bills passed by the government related to agri markets and contract farming how will these changes be helpful to the farmers?”

    Conclusion

    These farm bills will bring transformative changes in our agricultural sector and reduce wastage, increase efficiency, unlock value for our farmers and increase farmers’ incomes.