On 31 January 2019, Late Ramvilas Paswan, then then Minister for Consumer Affairs, Food and Public Distribution (CAFPD), wrote to Captain Amarinder Singh, Chief Minister of Punjab, urging him to adopt the online system for procurement and payment to farmers for crops procured under the Minimum Support Price (MSP) regime.
This was yet another attempt to bring Punjab’s agriculture procurement onboard the Public Finance Management System (PFMS).
The PFMS was launched in 2009 as a platform to track funds released under the Plan expenditures of central government schemes.
The central government started direct payment of MSP to farmers in 2012. By 2013, the PFMS was put in use for direct benefit transfers for central schemes for both Plan and Non-Plan schemes.
It was, however, only in October 2017, that Late Arun Jaitley, then Finance Minister, made it mandatory to use PFMS for payments and expenditure tracking for all central government schemes.
The objective of using the PFMS was simple. It became the backbone of all government finance, including planning, fund release, integration with national core banking systems, payments, fund flows, tracking, monitoring and decision support.
The PFMS also interfaces with the treasury systems of states and union territories.
As the adoption of PFMS became mandatory, the central government started following up with all its departments to ensure compliance. It was in this context that agriculture procurement by the central government was sought to be included under PFMS, where the money is transferred directly in the account of the farmers selling their crops under the MSP regime.
Most states have their own procurement portals, with online payments to farmers going as far back as 2014-15 in Andhra Pradesh and 2015-16 for Bihar, Rajasthan and Telangana.
Many states have already integrated their land records for validation with the procurement portals. Even where such integration was not made, states put in place processes to validate land records before the farmers were paid.
Punjab remained an exception all along to this process.
Punjab pays its farmers through the arhatiyas — the middlemen who facilitate the purchase and sale of agriculture produce in the mandis.
The state agencies procure wheat and paddy on behalf of the Food Corporation of India (FCI), the nodal central agency for procurement. The FCI pays respective commissions to state agencies and arhatiyas and the MSP to the farmers, except in Punjab, where the farmer payments are made by arhatiyas.
Even this leg of payments is electronic and the use of cash and cheques continues.
Late Minister Paswan reminded the Punjab government of facilitating online payments to the farmers in June 2020 again. However, given the Covid-19 outbreak, the Ministry released part commissions of the arhatiyas as an exceptional measure, with the expectation that the farmer payments will be brought online.
In this background, when the CAFPD Minister, Piyush Goyal, wrote to the Punjab government about implementing the online integration, it was neither a new expectation, nor an unreasonable one.
This conversation took political colours, getting linked to the ongoing farm agitations in Punjab and Haryana against the three central farm laws.
The Amarinder Singh government and other Congress leaders like Navjot Sidhu have taken an aggressive stance against Minister Goyal. But the fact is the central government has been trying to get Punjab to adopt the PFMS-based fully digital process for three years now.
The main contention of the Punjab government is that the land-owners and the tillers may not be the same. The ‘absentee landlord’ characteristic of Punjab has been highlighted as a key concern by the state government, leaving it to the local arhatiyas to ensure that payment reaches the right individuals.
However, Haryana, where the same concern existed till last year, has modified its procurement system to indicate whether the farmer was a land owner, tiller, share cropper or part of some contract farming network. This classification does not lead to any land ownership claims in the way Haryana has implemented the system, while the payment still goes to the intended beneficiary.
The other objection raised by the Punjab government is that the arhatiyas are key middlemen. That middlemen are an essential part of a supply chain is a no-brainer.
However, the productive middlemen are supposed to perform an economic function, which cannot be done by either party between whom they are making the market.
If they fail to add this economic value in the chain, their elimination may lead to generation of producer or consumer surplus.
The state government cites local ties of arhatiyas with the farmers, who honour “verbal land contracts”. Even if that were true, it is not a greatly transparent or efficient process, especially for tillers who may be doing all the hard work in the cropping season, without necessarily reaping the commensurate benefit of their labour.
The mandis and the arhatiyas in the state also get amongst the highest – 4-4.5 per cent amount of the transaction value – as commission, relative to other states in India.
It is this lack of transparency and efficiency which is now the bone of contention between the state and the central government.
It is not the case that the Punjab households do not have bank accounts. Punjab was in fact the third state in 2014 to ensure a bank account for all its households under the Pradhan Mantri Jan Dhan Yojana.
The lack of a digital procurement implementation is not out of lack of resources; it is due to the fear of the arhatiyas.
An Indian Express article in October 2019 explained the role of these 50,000 odd arhatiyas, who are politically powerful. The article stated that many farmers wanted to link their accounts directly to the PFMS.
It is this small but tremendously influential lobby which controls the politics of Punjab, which is preventing the direct payment of MSP to the farmers.
Going beyond the current impasse, it is also the same lobby, which has been protesting against the three central farm laws vociferously. With the backing of large, rich, in-absentia farmers, many with overseas links, whose land is rented out to tillers through these middlemen, the arhatiyas continue to punch above their weight in the state politics.
The rabi Marketing Season (RMS) 2021-22 is upon us — this procurement season runs typically in April and May. The irony is that despite an ongoing refusal of the state government to adopt automation, in the 2020-21 kharif Market Season (KMS), the contribution of Punjab alone in paddy procurement has been 29.37 per cent (202.82 LMT) of the total procurement (690.51 LMT).
With the central government insisting on the full adoption of the PFMS for the upcoming RMS, the Punjab government will have to choose between finally acquiescing to the ask or risk getting a lower share of the procurement.
Either way, the arhatiyas will stand to lose — which in turn will reduce the momentum of the farmer protests in the state.
Aashish Chandorkar is Counsellor at the Permanent Mission of India to the World Trade Organization in Geneva. He took up this role in September 2021. He writes on public policy in his personal capacity.
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