Panel calls for tax reforms in mandis to tackle farm distress
The government is preparing for a fresh round of reforms in “agricultural marketing,” or the mandi system that controls buying and selling of farm produce, part of a five-year agenda to turn around the distressed farm sector, two officials familiar with the development said on condition of anonymity.
The interministerial panel for rural and agriculture sectors, one among 10 such committees formed to suggest various reforms, has identified persistent trade barriers within the mandi system that continue to hurt traders dealing in food commodities, which, in turn, affects farmers. This has been cited as a major reason for depressed agricultural markets, responsible for lower farm profits.
Farmers need freer access to markets to sell their produce, according to those familiar with the development. Therefore, it has suggested a single mandi tax for the country and removal of levies charged to traders and farmers when farm goods are sold from one state to another, known as interstate mandi tax.
Such barriers discourage traders from buying sufficient quantities of commodities that can suck out surpluses from the farmers’ end.
Agricultural marketing in India is a complex system, with a mix of organised and unorganised markets. Farmers mainly sell in mandis, which are state-run market yards known as agricultural produce marketing committees (APMCs). There are about 585 such highly regulated APMCs in 16 states and two union territories.
India’s full-year gross domestic product (GDP) estimates for 2018-19 summarise the country’s agrarian crisis: the farm growth rate adjusted for inflation is the same as the farm growth not adjusted for inflation. Both stood at 3.8%. This simply means income growth in agriculture has been flat because inflation in farm produce is virtually zero.
Ushered in during the 1960s, APMC regulations require farmers to only sell to licensed middlemen in notified markets, usually in the same area as the farmer, rather than directly to buyers elsewhere.
These rules were meant to protect farmers from being forced into distress selling. Over time, they have 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 many middlemen.
The panel has also proposed a warehousing network, where farmers could store their stocks longer in anticipation of better prices. They would be given a receipt for their stocks, which farmers can show to banks to take out farm loans. It has been said that farmers could be allowed to sell their stocks by showing samples stored in these warehouses.
The government has already created a chain of electronic national agricultural markets, called e-NAM, but this hasn’t taken off in many states, one of the officials cited in the first instance said. To address this, the panel has proposed a pan-India licence valid across all such markets.
“The project to electronically link agricultural mandis may look fine on paper. But walk into any such e-NAM market, and you will find that there is no actual interstate trading taking place. There are no qualified technicians or essayists in attached labs who can carry out quality checks on farm produce samples. In many, the required equipment isn’t there. How will it work then?” asked Ram Ratan of the All India Kisan Sabha, a farm organisation.
To usher reforms in agricultural markets, the Narendra Modi government, in its first term, had passed two model laws. These were the Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2018, as well as Model Agricultural Produce and Livestock Contract Farming (Promotion & Facilitation) Act, 2018. “These have not yielded much on the ground,” a second official said.
According to a report being prepared by a few ministries, reforms initiated in the mandi system by the first Modi government had alarmed vested interests — mainly monopolistic traders who control these APMCs — which thwarted their purpose.
These reforms were supposed to allow private markets outside the mandi system, which means a farmer could sell at any market of his choice. The reforms also officially declared warehouses or cold storages as “markets”, a legal change necessary because it allowed farmers and traders to sell and buy at warehouses across locations.
A key change was that the very concept of “market areas” was done away with. All of these were aimed at enabling agricultural trade at any place of choice for those in the trade.