The repeal of central India’s farm laws is seen as so largely negative for the prospects for further economic reform that it may be appropriate at the start of this new year to set the record straight. The good news is that agricultural reform, defined as the opening up of agricultural product marketing channels, was already well advanced before the promulgation of the three central laws. The bad news is that there is still a lot of avoidable confusion as to exactly where this process is going.
States were the proper jurisdiction to legislate on trade in agricultural commodities, since it was state laws promulgated 50 years ago anyway that restricted the purchase of agricultural commodities from licensed traders at market prices in the world. ‘Agricultural Market Produce Committee (APMC). A model law to abolish the APMC-controlled regime was drafted for states in 2017 by the Center. The 2017 model is a beautifully comprehensive and carefully drafted legal provision, protecting farmers from any conceivable abuse of the move towards greater freedom of sale.
In December 2019, the 15th Finance Committee, in its interim report, urged states to enact legislation based on the 2017 model, with a reward promised in their final report. Since Ramesh Chand was a member of both the Finance Commission and Niti Aayog, the Center clearly agreed that states were the appropriate legislative authority. This thinking seems to have changed in 2020, with the enactment of three central laws.
How many states had already adopted the 2017 model by 2019? The Union Agriculture Ministry, at a conference of state agriculture ministers in July 2019, presented a detailed table showing that 22 states have given farmers the freedom to sell their produce to traders private, the key element enabled by the 2017 Model Law. Kerala and Manipur had never enacted an APMC law and Bihar repealed its APMC law in 2005. Only three states remained out of the current Indian total of 28 which did not allow farmers the freedom to sell to private traders: Haryana, Madhya Pradesh and Tamil Nadu. .
Unfortunately, we cannot conclude that the release of farmers from the clutches of the APMC monopsony was complete except for these three states, because in the same presentation from July 2019, only four states are named as having fully followed. the 2017 model: Arunachal Pradesh, Uttar Pradesh, Chhattisgarh and Punjab. Other states may not have followed the 2017 model in great detail. Another explanation could be that these States had not followed the promulgation of a notification of the rules. But without notification (the moment any law is administratively recognized), how could 22 states have been listed as having freed farmers to sell to private traders? The question remains mired in confusion.
I should explain why I rate the Model Act 2017 so high. Many laws, both in the Center and in the States, leave the details of the procedures to the rules, which can easily be changed by administrative notification, without having to refer back to the rules. legislative body for a modification of the law. The 2017 model was exceptional for having inserted procedures for setting market fees and specifying the uses to which the income from these fees could be allocated, directly into the law itself without being deviated from the rules.
States were not required to enact their own legislation based on the 2017 model. There are previous and very successful examples of States having voluntarily followed a standard model on which to base their own legislation. The Fiscal Responsibility and Fiscal Management Laws (FRBM), promulgated by states from 2005, were part of it. Another example is the model VAT law proposed to states in the same year. In the case of farm laws, too, it was only a matter of time before all states saw the benefits of enacting (and notifying) laws based on the 2017 model.
The equivalent central law of 2020 is much shorter than the 2017 model because it does not go into the kind of minute detail like the 2017 model does in order to secure farmers’ rights.
There were also two major exemptions from the 2020 law. One was that it explicitly excluded the collection of market fees. It was very confusing, as a lot of upfront investment and maintenance is needed for agricultural markets. If no market charges are levied, the investment and maintenance should be fully borne by the government or private traders. If it is the latter, an agricultural market could easily degenerate into a local monopsony. This possibility was what the 2017 model law guarded against.
The second waiver was that the central law required all traders of agricultural products, except farmer organizations, to have a permanent account number (PAN) for income tax. Regardless of the merits of this requirement, it should have been included in a budget bill rather than in a farm bill.
I only dealt with the law on marketing, the three enacted, for lack of space. The bottom line is that the 2017 model is still in place, providing a secure legal basis for opening markets to farmers on a non-farm basis.
Indira Rajaraman is an economist
Never miss a story! Stay connected and informed with Mint. Download our app now !!