Quick fix for the farmer

Quick fix for the farmer

News:

Thousands of farmers from different parts of India marched to Delhi to register their protest against the government’s perceived apathy and neglect of farmers’ demands.

Important Facts:

  • Three Demands of the farmers:
  • Debate in Parliament to discuss farm distress.
    • Accepting the demand for a debate in the Parliament is easy and it would help in understanding the real causes of farm distress, and the policies which could best help to tackle the issue.
  • One-time loan waiver
    • Although it is well known that loan waivers will not solve the problems of farmers, yet this demand is also likely to be met basically for votes.
    • States that have already announced loan waivers, only a few budgeted them while many others have done just lip service so far.
    • These loan waivers will hit public investments in agriculture adversely and may even worsen farm distress in due course
  • Three, raising minimum support prices (MSPs) to 50 per cent above comprehensive cost (Cost C2) of production, and making MSPs legally binding on private traders.
    • Setting higher MSPs and making them legally binding could not be a good idea. MSP formula based on just cost, be it A2+FL or C2, ignoring its demand side, is patently in It will cost the nation heavily in due course.
    • Making it legally binding will turn out to be anti-farmer as private trade will exit for fear of being jailed, and market prices will collapse even further.

 

As per Agricultural Costs and Prices (CACP), there are three definition of production cost which includes A2, A2+FL and C2.

A2 covers all paid-out expenses, including cash and in kind. It includes costs on seeds, chemicals, hired labour, irrigation, fertilisers and fuel.

Similarly, A2+FL cover actual paid cost and also unpaid family labour.

And C2 cost includes all actual expenses in cash and kind incurred in production by actual owner and rent paid for leased land and imputed value of family labour plus interest paid.

Issues with penetration of Agriculture Credit

  • Every year the Centre announces an increase in the agriculture credit limit, but not even half of this reaches small farmers.
    • Loans between ₹2 lakhs and ₹1 crore accounted for 47 per cent of the disbursals, and around 13 per cent of the total agriculture credit was accounted for by loans of ₹1 crore or more.
  • Banks are not willing to lend small farmers because:
    • The waivers scheme of government has destroyed the credit culture in rural India.
    • They are unable to price the loan as per the profile of the farmer or the commodity.
    • Internationally, loans against riskier commodities are given at higher rates of interest compared to safer commodities.
    • But banks in India cannot apply such differentiated pricing to farmers in the same region as it is a sensitive issue. So they keep away from small farmers.
  • A loose definition of agriculture credit has led to the leakage of loans under Priority Sector Lending (PSL) at subsidised rates to many large companies.
    • Though the RBI had set a cap of 4.5 per cent (under the overall 18 per cent target for agriculture in PSL) for indirect loans, bank advances through indirect loans routinely breach the limit.
    • Such indirect loans were made to dealers/sellers of fertilisers, pesticides, seeds and agricultural implements, and companies that maintain a fleet of tractors, threshers, etc., and undertake work for farmers.

Recent Steps taken:

  • PM’s AASHA (Annadata Aay Sanrakshan Abhiyan) tried to give support through three sub-schemes — the Price Support Scheme, Price Deficiency Payment (PDP) and Private Procurement & Stockist Scheme.
  • However, none of the states has implemented the scheme. Even MP, which had piloted the PDP scheme in kharif-2017, has discontinued it.
  • Maharashtra and 14 other states, have removed fruit and vegetables from ambit of APMCs. Such competition could help pare intermediation costs, offering a choice and better price to farmers who are short-changed by commission agents.

Best Practices

  • Recently, Maharashtra decided to denotify all products from APMC Act purview.
    • Broken APMC Monopoly – After removing wholesale trade in fruit, vegetables and spices from the purview of the Agriculture Produce Market Committee (APMC) framework in 2016, Maharashtra has now decided to extend this to all agriculture produce.
    • All farm items can then be sold in bulk either by way of contract farming, direct selling or in private wholesale markets.
    • Maharashtra will be the second State after Bihar to do so (Bihar went ahead in 2006).
    • The APMCs have done little to improve their infrastructure, except perhaps in Madhya Pradesh where the introduction of private wholesale markets (such ITC’s e-choupal) helped to lift the efficiency of APMCs and enabled farmers realise better values.
  • Case study of M.P
    • Role of cooperative banks was enhanced to provide credit and inputs to farmers.
    • The State initiated that bolstered the output of wheat, supported by State-level procurement agencies.
  • Case study of Bihar:
    • Bihar has abolished the APMC Act, back in 2006 and private markets of a different kind have come up.
    • There are wholesale markets in all major fruit and vegetable pockets of the State without any infrastructure.
    • Participants include farmers from nearby villages, wholesale buyers and sellers including local fruit and vegetable vendors who come on bicycles, rickshaws, auto-rickshaws, motorbikes and small pickup trucks.
    • Thus, these private unregulated wholesale markets have provided easy access to small farmers who wanted to sell directly.

Way Forward:

  • Financial Inclusion: What is needed is financial inclusion of these small and marginal farmers in institutional credit at reasonable interest rates and not outright loan waivers. These loan waivers will hit public investments in agriculture adversely and may even worsen farm distress in due course. It is a vicious circle.
  • Reforming APMC – India needs large reforms in its agri-markets, from reforming APMC markets to abolishing the Essential Commodities Act and rolling back all export restrictions.
  • Promoting Investments: Major investments need to follow in improving the functioning of markets and building efficient value chains, especially of perishables. This can be done through the PPP mode, creating millions of jobs.
  • Reforming Market: Encouraging contract farming, allowing private agri-markets in competition with APMC markets, capping commissions and fees to not more than 2 per cent for any commodity at any place in India, opening and expanding futures trading, negotiable warehouse receipt system, e-NAM with due system of assaying, grading, delivery and dispute settlement mechanisms, are some of the necessary steps needed urgently.
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