Tuesday, 25 March 2014

Status of Reforms in APMC Act

Photo Source: The Indian Express
Over the years Indian economy has changed both in terms of its structure and outlook. The sectoral changes have become broader and continue to expand in terms of output generations. More than half of India’s population still relies on agriculture as its main source of income for their living. During the last decade, there has been a record production of foodgrains in the country.
In the so called reform era, the outlook of industry and services sector have been seen with considerable attention to re-structure or to move away from traditional way of governing them. At the same time, the agriculture sector is continued to be seen from outside of any attempt to initiate or unleash the potential structural reforms. More than a decade ago, Dr.Y.V.Reddy said that “There is some merit in the argument that the reform process has bypassed agriculture so far and that this is best illustrated by the co-existence of segmented and overregulated domestic markets with liberalised export–import regime in agricultural commodities.” This he said in 2001 and we are now in 2014. More than a decade has been bypassed yet again and this situation still continues.
The time has come now that some of the extremely crucial aspects of the agriculture sector have to be recognized and need to be addressed systemically. Dr. Reddy stressed that “the agenda for reforms virtually encompasses a thorough change in mindset and overhaul of legal and institutional mechanisms to enable a growing, healthy and efficient agriculture sector.” The issues and challenges faced by the Indian agriculture marketing are enormous and needs changes through institutional reforms. The domestic market regulations in agriculture is an important one such issue which merits for structural reforms. To be more specific, there is an urgency to re-boot the State’s institutional delivery mechanism for completing the reforms already initiated in the Model Agriculture Produce Marketing Committee (Development and Regulation) (APMC) Act, 2003. The APMC Act was designed to focus on protecting farmers from the vagaries of the market, mainly to ensure remunerative prices for the farmers.
The present agriculture marketing regulatory mechanism involves licensing and control on marketing, storage; creation of facilitating centres in the form of regulated markets; encouraging co-operative marketing; etc. The key issues are information asymmetry, lack of transparency in price discovery and collusive behaviour among distribution agents are common problems in our agricultural markets which have prevented competition to existing licensees. One of the main issues is that there is a large difference between the prices at retail level and those at wholesale level due to multiple intermediaries and high taxes ranging from 13% to 15.5% advalorem apart from other Market Charges which need to be rationalized.
In fact, there is a classic case, the delisting of some of the essential (perishable) commodities which are at present part of the APMC Act needs to be removed. The Act makes it mandatory for farmers to sell their produce only to licensed merchants at mandis set up by state agriculture marketing boards. According to a recent report by ICRIER on the food processing industry, about 15% to 25% of the total agriculture produce sold through the APMC route gets wasted due to multiple intermediaries and poor quality of mandi infrastructure.
In order to bring structural and institutional reforms in the agriculture sector the model Agricultural Produce Marketing (Development and Regulation) (APMC) Act was passed in the Parliament in 2003; the Act’s Rule has been implemented since 2007. The Model Act, inter-alia, provides for direct marketing, contract farming, establishment of markets in private and cooperative sectors, etc. Agriculture market reforms at the State level essentially provide farmers an alternative competitive marketing channel for transaction of their agricultural produce at remunerative prices.
Hence, all the State/UT governments have been urged to bring amendments/reforms in their own APMC Acts. The process of market reforms has been initiated by several states through either amendments or completely repealing the Act. So far, 16 States (Andhra Pradesh, Arunachal Pradesh, Assam, Goa, Gujarat, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra, Mizoram, Nagaland, Odisha, Rajasthan, Sikkim, Tripura and Uttarakhand) have amended their respective APMC Acts. Bihar has repealed its APMC Act in 2006. Other States have either done reforms partially (MP, Chhattisgarh, Haryana, Punjab & Delhi) or initiated administrative actions (UP, J&K, and WB. etc.). So far, 9 States have amended their APMC Rules in line with the Union government.
Seven Congress-ruled States have amended their respective APMC Act in line with the model Act of the Union government. On 27th December, 2013, the Vice-President of Congress Party had discussed the possibility of bringing urgent reforms in the APMC Act with the 12 Congress-ruled States including Manipur, Mizoram, Assam, Karnataka, Andhra Pradesh, Haryana, Himachal Pradesh, Uttarakhand, Maharashtra, Arunachal Pradesh, Kerala and Mizoram. The specific reforms- it seems- they all agreed was delisting of fruits and vegetables from the APMC Act. By January 15, 2014, 5 Congress-ruled States (Uttarakhand, Assam, Arunachal Pradesh, Meghalaya and Haryana) have delisted the two items (fruits and vegetables) from the APMC Act. According to Vice-President the delisting will eliminate these licensed merchants or middlemen who raise the prices for profits.
According to ICRIER Professor Arpita Mukerjee, the “Delisting of fruit and vegetables from the APMC Act is a positive step as only 7 per cent of the total fruit and vegetables sold are through the mandis. Even though organised retailers could buy directly from the farmers, yet they had to pay the mandi charge. The delisting will benefit organised retailers as also food processing firms.”
However, even after all the initiatives being taken, there have been various issues which have been quite persistent in the history. It is only hoped that the issues get addressed in coming years.
B.Chandrasekaran and Shruti Issar

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