National Common Market in Agricultural Commodities – Need of the hour : Economic Survey 2014-15

By Sarkaritel February 27, 2015 12:52

National Common Market in Agricultural Commodities – Need of the hour : Economic Survey 2014-15

Remove distortions in agricultural market inhibiting growth of farm sector 

By TN Ashok     Economics Editor

New Delhi, Feb 27 : The 2014-15 Economic Survey , which chronicles economic growth in the past fiscal year identifying  weaknesses and suggests solutions, has emphasised the need for constituting a National Common Agricultural Market  to tackle the problem of  an un-integrated and distortion ridden agricultural market that stalks agriculture growth.
The Economic Survey, tabled in parliament today by the Finance Ministre Arun Jaitley,  suggests three  incremental steps as possible solution, building on the budget 2014 recognition for setting up a national market, farmers’ markets and need for the Central Government and the State Government to work closely to reorient their respective APMC Act.

1. It may be possible to get all States to drop fruits and vegetables from APMC schedule of regulated commodities and followed by other commodities.

2. State governments should also be specifically persuaded to provide policy support for alternative or special markets in private sector.

3. In view of the difficulties in attracting domestic capital for the setting-up marketing infrastructure, liberalization in FDI in retail could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies.

As a last resort, the Economic Survey suggests using Constitutional provisions to create a national common market for agricultural commodities. The Concurrent List Entry 33 covers trade and commerce and production, supply and distribution of food stuff including edible oilseeds and oils, raw cotton, raw jute etc. Entry 42 of Union List, viz., ‘Interstate trade and commerce’ also allows a role for the Union.

Presently, markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by respective State Government. This Act notifies agricultural commodities produced in the region such as cereal, pulses, edible oilseed and even chicken, goat etc. The first sale in these commodities can be conducted only under the aegis of APMC through the commission agents licensed by the APMC. The typical amenities available in or around the APMC are: auction halls, weigh bridges, godowns, shops for retailers, farmer’s amenity center etc. Various taxes, fees/charges and cess levied on the trades conducted in the Mandis are also notified under the Act.

Currently, APMCs charge multiple fees, of substantial magnitude, that are non-transparent. They charge a market fee of buyers, and they charge a licensing fee from the commissioning agents and licensing fees from a whole range of functionaries. In addition, commissioning agents charge commission fees on transactions between buyers and farmers.

These statutory levies/mandi tax, VAT etc. varying from state to state are the major source of market distortion. Such high level of taxes at the first level of trading has significant cascading effects on the price.

The APMC Act treats APMC as an arm of the state and the market fee as the tax levied by the state, rather than fee charged for providing services. This provision acts as a major impediment to creating national common market. The APMC operations are hidden from scrutiny as the fee collected is not under State legislature approval.

Also the commissions charged by commission agents are exorbitant as they are often charged on entire value of product sold rather than the net value. There is a perception that the positions in market committees and market boards are occupied by the politically influential and leading to the formation of cartels in APMC.

Ministry of Agriculture developed a Model APMC Act, 2003 for the freedom of farmers to sell their produce. The farmers could sell their produce directly to the contract-sponsors or in the market set up by private individuals, consumers or producers. The Model Act also increases the competitiveness of the market of agricultural produce by allowing common registration of market intermediaries. Many of the States have partially adopted the provisions of model Act and some states such as Karnataka have adopted changes to create greater competition within State. Karnataka Model provides for a single licensing system, offers automated auction and post auction facilities. It also facilitate warehouse-based sale of produce, facilitate commodity funding, prices dissemination by leveraging technology and private sector investment in marketing infrastructure.

However, the Model APMC Act does not go far enough to create a national or even state level common market for agriculture commodities. The Act retains the mandatory requirement of the buyers having to pay APMC charges even when the produce is sold directly outside the APMC area. Though the Model Act provides for setting up of markets by private sector, this is not adequate to create competition even within the state since the owner will have to collect fees/taxes on behalf of the APMC in addition to their own charges.

Economic Survey reemphasize that India needs a national common market for agricultural commodities by making the Agricultural Produce Market Committee just one among many options available for the farmers to sell their produce.

By Sarkaritel February 27, 2015 12:52