The National Agriculture Market Is A Big-Bang Reform - But Can The Government Pull It Off?

If the government manages to overcome some of the hurdles and create an efficient and transparent national agriculture market, it will be the biggest political victory and economic reform at the grassroots level of any government.

– A lot of rural local political leaders and political agents are entrenched in APMCs and draw funding/support from it.

– The current agricultural trading system, with large amounts of cash transactions, is a major generator of black money. The government will need a lot of political will to abolish cash transactions in agriculture commodities.

– If the government succeeds it will be the biggest reform for the benefit of rural population and will be the biggest driver in investment in rural India.

A market is ‘an actual or nominal place where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries) to trade goods, services, or contracts or instruments, for money or barter.’

Markets include mechanisms or means for:

‘(1) Determining the price of the traded item,

(2) Communicating the price information,

(3) Facilitating deals and transactions, and

(4) Effecting distribution’.

The market for a particular item is made up of existing and potential customers who need it and have the ability and willingness to pay for it.

An agriculture market also needs these features in order to benefit all the stakeholders in the agriculture produce value chains. The central government now proposes to create a national agriculture market. On the face of it, this is a good idea. In fact, this is the one reform which will not only touch the lives of the rural population but each and every consumer of agriculture produce across India.

However, the proposed structure suggests the creation of a common electronic platform deployable in selected regulated markets across the country, one licence for an entire state, single point levy, electronic auctions for price discovery, the entire state will become a market and the fragmented markets within the states would be abolished. Under the scheme, 585 selected regulated markets would be covered. The plan is to cover 250 mandis in the current fiscal, 200 mandis in 2016-17 and 135 mandis in 2017-18. It also proposed there will be seamless transfer of agriculture commodities within the state. The market size for farmers would increase as they will not be limited to a captive market.

Some Questions

With all these proposed reforms, for buyers of agriculture commodities, the immediate questions that come to mind with regard to the National Agriculture Market Scheme are:

1. Can a farmer sell to customers outside the state of production, if she/he is getting good price from the buyer?
2. A valid licensee of the National Agriculture Market should get access to any market in India; why is it restricted to within a state? This does not reflect national character of the market.
3. When the transaction is on an electronic platform, what is the infrastructure required by the buyer to make her/him eligible for trading in the National Agriculture Market? That is not clear.
4. Will state governments levy any export tax if the consignment is moving out of the state?
5. Will there be a uniform tax across states?
6. What will be the role of the Agricultural Produce Marketing Committees (APMCs) under the proposed National Agriculture Market?
7. Will there be any exemption from local APMC taxes for companies planning to export agricultural/food commodities under the Make in India policy to help them remain competitive in the global market?
8. Who will coordinate warehousing and logistics on behalf of the buyer, if he is not in the same city, but is bidding on electronic platform.
9. Since transactions will be on an electronic platform, who will ensure the quality and grade till it reaches the buyer?

These questions need to be addressed if the government is really serious about agriculture marketing reforms in the country.

The Problems in Addressing Them

Based on my experience in trade in agricultural and food products, I can say that it will not be easy for the central government to bring in an efficient National Agriculture Market. Here’s why:

1. The existing APMCs are parking places for local political leaders and political agents.
2. Tax collections by APMCs are a major source of revenue for state governments and they are unlikely to give these up.
3. The local political system and state governments use APMCs as political tools to encourage or discourage certain commercial activities. The proposed market will put an end to  this
4. Most of the political funding comes from the trading community; by making the trading system transparent, the National Agricultural Market will restrict this source of funding for political parties.
5. The current agricultural trading system, with large amounts of cash transactions, is a major generator of black money. The government will need a lot of political will to abolish cash transactions in agriculture commodities. This can be done because the Jan Dhan banking system is a success now. Mobile based transactions will make things easier.

Considering the money power and political clout involved in the agriculture trading system, if the government manages to overcome these hurdles and create an efficient and transparent national agriculture market, it will be the biggest political victory and economic reform at the grassroots level of any government.

The Way Forward

The government can look at many operating principles of the World Trade Organization (WTO) and try to adopt these to make the local agriculture market more efficient and transparent. This is not to say that we have a fair trading system globally under the WTO, but many principles are quite logical and fair in nature. The biggest problem is that member-countries are not following these in true spirit, due to local political and economic reasons and this is leading to a distortion of the world trading system in a global market.

Will the government be able to bring all state governments on one table and ensure that an efficient and transparent National Agriculture Market emerges?

If this happens, which I doubt, it will be the biggest reform for the benefit of rural population and will be the biggest driver in investment in rural India. It will lead to the creation of infrastructure and give a push to skill development and will revitalize the Indian economy. This will also ensure a 3-5 percent jump in GDP and the tax revenues for all state governments will also go up. This will provide better insight to planners at the state level and investors. Indeed, it will not be an exaggeration to say this will be the single biggest achievement of any government since independence.

The only question that remains unanswered is will it happen and by when? Who will take the credit for it – the central government or the state governments? Unless this political issue is resolved, the required agriculture market reforms will remain a dream and may not move ahead.

Vijay Sardana, an alumnus of IIM Ahmedabad, is an experienced professional in the field of consumer-agri-food products and rural and bio-economy and has in-depth understanding of the complex dynamics of commodity markets and agribusinesses. He is, among many things, member of the advisory committee of the Forward Market Commission.