Ginners and spilling mill owners in Punjab favour the Narendra Modi government’s three ordinances promulgated on 5 June this year, ushering in huge reforms in the agricultural sector.

The user industry’s views come ahead of the arrival of the new crop. Some of the users such as Oswal Spinning and Weaving Mills and Nahar Spinning Mills are listed on stock exchanges.

The spinners and ginners have said that if the state government does not allow the cotton growers to sell as per the ordinance allowing them to sell to buyers of their choice or anywhere across the country, they could stand to lose Rs 300-400 per quintal (100 kg) of cotton.

Some officials in the user industry say the loss for the farmer on his/her return could be up to nearly 10 per cent, particularly if the sale is routed through the Agricultural Produce Marketing Committee (APMC) mandis and commission agents (arhatiyas).

This means they could lose out on getting the minimum support price (MSP) for cotton and probably lower than last year’s support price.

For this crop year (July 2020-June 2021), the Centre has raised the MSP for medium staple cotton by Rs 260 a quintal to Rs 5,515 per quintal. The MSP for long-staple cotton has been fixed at Rs 5,825 per quintal, up by Rs 275.

The stand of the cotton user industry comes on the heels of the Capt Amarinder Singh government passing a resolution in Punjab Assembly against the ordinances.

In the resolution, the Congress-ruled government said it would hit the farmers hard, especially those growing crops for which the Centre has fixed MSPs.

Capt Singh government's stance is in line with the Congress stand opposing the ordinances. The party's fear is that these agricultural reforms will loosen its hold in the rural areas, where its leaders call the shots in APMC mandis.

Union Agriculture Minister Narendra Singh Tomar told Parliament yesterday (14 September) that MSP procurement will not be affected by the promulgation of these three ordinances.

As part of the Atmanirbar Bharat Abhiyan (self-sufficient India programme) to help spur the economy hit by the novel coronavirus pandemic, the Centre promulgated The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 and The Essential Commodities (Amendment) Ordinance, 2020.

These ordinances allow farmers to sell to buyers of their choice and enter into contract farming if they need an assured price even before they begin cultivation.

The amendment to the Essential Commodities Act will help growers sell their produce to buyers even during peak harvest season. Some vested interests point to the Essential Commodities Act to stop purchases and force them to resort to panic sales.

According to the Cotton Corporation of India, Punjab is projected to have produced 13 lakh bales (of 170 kg each) cotton during the current cotton year ending this month. This is 3 lakh bales more than last year.

Haryana and the Ganganagar tracts of Rajasthan together with Punjab form north India’s cotton-growing areas. Together, this year the region is projected to have produced 60 lakh bales of the 360 lakh bales in the country. Rajasthan has topped the production in the region with 25 lakh bales.

The ginners are the main buyers of cotton as they process raw cotton to separate the seeds and gin the cotton into bales of 170 kg. The spinning mills buy the ginner cotton and convert them into yarn.

One of the reasons that Punjab is opposed to direct sales of farm produce to buyers is that it stands to lose some 4.5 per cent it receives as tax for sales of agricultural products. The 4.5 per cent is comprised of mandi fee and rural development cess (total 2 per cent) and a 2.5 per cent commission that growers pay to commission agents.

The user industry has questioned the need to pay the mandi fee, cess and commission when the Centre has allowed growers to sell their produce to anyone.

Indian Express quoted a spinning mill official as saying that the 4.5 per cent tax would be deducted from the payment due to farmers, who would then have to settle for a lower payment.

The Cotton Corporation of India (CCI) purchases a huge amount of cotton but its procurement in the northern region is minimal. Thus, farmers in Punjab, Haryana and Rajasthan have to depend on ginners and spinners to sell their produce.

This will likely result in farmers near the borders of Haryana crossing over to sell their produce there. The user industry has also decided to protest against the imposition of mandi fee and development cess.

The Centre has made it clear that while farmers would have the freedom to choose their buyers, the APMC mandis will exist side by side.