12 Market Friendly Agriculture Reforms And How Indian States Rank on Them

The Central government think tank Niti Aayog has come out with a study report [PDF] on agriculture marketing and farmer friendly reforms implemented by various states and Union Territories (UTs). The report authored by Niti Ayog member Ramesh Chand and Jaspal Singh also ranks states based on how many reforms these states have implemented out of 12 that it had suggested to them.

The study notes the contrast in growth of agricultural and non-agricultural sector, a divergence that’s been taking place since the last decade of 20th century. While the latter sees a regular surge, the growth rate of the agricultural sector can be said to on a cyclical growth path that hovers around a long term average of 2.7 per cent per year.

The brunt of this is borne by the farmers and agricultural workers whose income is nowhere close to the income of non-agriculture workers. This disparity, among other reasons, can be accorded to the asymmetry in the implementation of reforms pertaining to economic liberalisation and deregulations which by their efficient execution did a great deal of good to the non-agricultural sector by boosting private sector investments, but have been conspicuously absent or insignificant in the agricultural sector.

Other factors that works in an antagonistic fashion for the agricultural sector include it being on the state list which puts the onus of reform on the states, many of whom resent or refuse to accept reforms rolled out by the centre, slow and partial reforms in marketing and regulatory restrictions.

Here is a list of important areas for reforms in agriculture on which various states have been ranked by the Aayog.

1. Contract Farming: The study notes that this is crucial to promote food processing and to provide technical and financial support and quality input to smallholders. It also addresses scale and market constraints faced by producer farmers. Chand and Singh are not in favour of putting agricultural produce market committee (APMC) in charge of registration or dispute settlement for contract farming. They suggest that a district level authority can be set up for registration of contract farming without levying a market fee.

2. Direct Sale by Producers to Processing Industries/Exporters/ Bulk Buyers: Currently the farmers’ produce is required to be channeled through regulated market according to provisions of the APMC Act in various states. The paper says that farmers should be free to enter into direct sale without the involvement of other middlemen.

3. De-link the provisions of compulsory requirement of shop/space for registration of traders /market functionaries: At present only the traders and commission agents owning a shop or godown in the regulated market are allowed to purchase produce in the market. Chand ans Singh say that licensing should be replaced by simple registration at nominal fee without any such mandatory requirements.

4. Take fruits and vegetables out of APMC Act: The paper calls for letting producers sell to anyone they choose including integrator, village cooperative, or in APMC Mandi.

5. Setting up of private mandis

6. Single point levy on agriculture produce

7. E-trading

8. Single license for traders applicable in the whole state

9. Rationalisation of taxes on agricultural commodities

10. Implementation of e-NAM in all States

11. Model Land Lease Law: Chand and Singh believe that the model law will raise the scale of operational holdings, bring efficiency and reduce fallow land. It will also facilitate the exit of interested cultivators to the non-farm sector, attract investments in land and entitle tenants to get benefit of public policies support for agriculture.

12. Exempt all kind of tree species grown on private land from felling and transit regulation: Felling and transit of certain trees species even if they are grown on private land is subject to a lot of restrictions. This discourages farmers to grow trees on their land. The paper calls for their exemption.

Agricultural Marketing and Farmer Friendly Reforms Index (AMFFRI)

The Aayog has constructed an index to compare the status of above mentioned reforms in agriculture sector across states and Union Territories.

Different variables included in the index along with their weightage are represented in Table-1.

Ranking of States based on AMFFRI

No state in the country has implemented the entire set of suggested reforms. The state of Maharashtra came close and achieved first rank, followed by Gujarat, Rajasthan and Madhya Pradesh. The performance of various states in terms of adoption of market reforms and farm friendly policies can be seen from Table 2 and 3.

While Karnataka considered progressive in implementing market reforms, did not figure among the top states as it lags in liberalization of land lease and restrictions on felling of trees on private land. and has not yet integrated with eNAM, Punjab despite being agriculturally developed ranks 14 owing to its poor implementation of market reforms in the state.

While many a states like Uttar Pradesh, Punjab, West Bengal, Assam, Jharkhand, Tamil Nadu and Jammu and Kashmir do not even reach the halfway mark of the reforms score, few others do not have an APMC act, making it difficult for them to be ranked on the scale of market reforms.