Agri sector reforms to empower farmers, boost foreign trade

India’s Union Cabinet has approved a number of reforms in the agriculture sector that will empower farmers, improve access to essential resources, enable the development of agri infrastructure, and boost trade of agricultural commodities in the international market

June 8, 2020

Driven by the volume and variety of the output of the agriculture sector, the Indian food industry is expected to break into new markets, increasing contribution to the global food value chain

India’s Union Cabinet has approved 'The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020' which removes restrictions in the marketing of agricultural output

The Essential Commodities Act has been amended as a step towards the transformation of the agriculture sector with investment and raising farmers’ income in the post-Coronavirus economy

The Union Cabinet has approved ‘The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020’ which will balance the risks in agri activities

India’s Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved a number of reforms in the agriculture sector that will empower farmers, improve access to essential resources, enable the development of agri infrastructure, and boost trade of agricultural commodities in the international market. The reforms follow the Government’s Rs.21 trillion (US$277 billion) stimulus package which was announced in May to tackle the impact of the Coronavirus (COVID-19) pandemic. The stimulus package, worth equivalent to around 10 per cent of India’s GDP, includes an extensive set of reforms, including improved liberalisation, policy amendments, relaxed regulations, investment in infrastructure and skill development, etc, to aid the people worst hit by the pandemic and open up new avenues of investment, trade, and employment. Herein, agriculture is a key sector for reforms to drive socio-economic growth. 

Agriculture is the main source of income for over 55 per cent of India’s 1.3 billion population. The gross value added by agriculture, forestry, and fishing was estimated at around Rs.18.6 trillion during the fiscal year 2019 while foodgrain output was measured at record 283.4 million tonnes. Horticulture, dairy, and fisheries sectors also reported record output. During FY 2020, the foodgrain output is estimated to have crossed 291 million tonnes. Driven by sheer volume and variety of the output of the agriculture sector, the Indian food industry is expected to record steady growth in the coming years, breaking into new markets, and increasing supply to the global food value chain. Besides the agricultural output, India’s food processing sector has also expanded its market with high-margin and high-quality offerings. As a result, India’s total agri exports grew at a CAGR of 14.6 per cent over FY 10-19 to reach US$38.5 billion.

A new set of reforms now aim to further boost the output and income potential of the agricultural sector and the farmers. These reforms include: 

Barrier-free Trade in Agriculture Produce

India’s Union Cabinet on June 3 approved ‘The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020’ which removes the restrictions in the marketing of agricultural produce. The ordinance aims to create trading opportunities outside the APMC market yards to help farmers get remunerative prices due to additional competition. This will supplement the existing MSP procurement system which is providing stable income to farmers. The ordinance is expected to help set up One India, One Agriculture Market – an integrated ecosystem to empower agriculture and allied activities.

Advantages 

  1. The Ordinance will create an ecosystem where the farmers and traders will enjoy the freedom of choice of sale and purchase of agri-produce. 
  2. The Ordinance will promote inter-state and intra-state trade and commerce outside the physical premises of markets (notified under State Agricultural Produce Marketing legislations). 
  3. The Ordinance will open more choices for the farmer, reduce marketing costs for the farmers, and help them in getting better prices. 
  4. It will also help farmers of regions with surplus produce to get better prices and consumers of regions with shortages, lower prices. 
  5. The ordinance also proposes electronic trading in the transaction platform for ensuring a seamless trade electronically.
  6. The farmers will not be charged any cess or levy for sale of their products under this Act, and they will have a separate dispute resolution mechanism.

Through the PM-KISAN programme, over 95.4 million farming families (as on first June 2020) have benefited and an amount of Rs.195.2 billion has been disbursed so far during the lockdown period.

Amendment to Essential Commodities Act

India’s Union Cabinet on June 3 approved an amendment to the Essential Commodities Act, a step towards the transformation of the agriculture sector and raising farmers’ income in the post-Coronavirus economy. The act will help the Indian agriculture sector commercialize its massive annual output with the backing of the necessary infrastructure and resources and easing of restrictions. The move will provide better economics to exporters and investors in the agriculture trade and infrastructure space. 

Advantages

  1. With the amendment to Essential Commodities Act, commodities like cereals, pulses, oilseeds, edible oils, onion, and potatoes will be removed from the list of essential commodities, thus offering improved liberalisation to private investors.
  2. The freedom to produce, hold, move, distribute, and supply will lead to harnessing economies of scale and attract private/foreign direct investment into the agriculture sector. It will help drive up investment in cold storages/food supply chains.

Safeguarding consumers’ interest

The Government, while liberalizing the regulatory environment, has ensured that the interests of consumers are safeguarded.  

  • It has been provided in the Amendment, that in situations such as war, famine, extraordinary price rise, and natural calamity, such agricultural foodstuff can be regulated.  
  • However, the installed capacity of a value chain participant and the export demand of an exporter will remain exempted from such stock limit imposition to protect investors.
  • The amendment will help farmers and consumers while bringing in price stability by creating a competitive market environment and also preventing the wastage of agri-produce.

Farmers empowered to engage in the market

India’s Union Cabinet on June 3 approved ‘The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020’ which will balance the risks in agricultural activity. The ordinance will help Indian farmers, the majority of whom operate on small landholdings, better manage the impact of factors such as weather, production uncertainties, and market unpredictability.

Advantages

  1. The ordinance will empower farmers for engaging with processors, wholesalers, aggregators, wholesalers, large retailers, exporters, etc., on a level playing field without fear of exploitation. 
  2. It will transfer the risk of market unpredictability from the farmer to the sponsor and also enable the farmer to access modern technology and better inputs. It will also reduce marketing costs.
  3. The Ordinance will help attract private investment in supply chains to send Indian farm produce to global markets. Farmers will get access to technology and advice on products and markets.
  4. Farmers will engage in direct marketing thereby eliminating intermediaries resulting in full realization of price. To ensure success, farmers have been provided adequate protection. 
  5. Sale, lease, or mortgage of farmers’ land is prohibited and farmers’ land is also protected against any recovery. An effective dispute resolution mechanism has been provided.

Commitment to farmer welfare

A series of steps have been announced as part of the Government’s stimulus programme to boost the agriculture and allied sectors. These include –

  • Concessional credit through Kisan Credit Cards
  • Financing facility for agri-infra projects
  • Pradhan Mantri Matsya Sampada Yojana to strengthen fisheries
  • Vaccination against Foot & Mouth Disease and Brucellosis, 
  • Herbal Cultivation promotion
  • Boost to beekeeping, Operation Green, etc.

Through the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) programme, over 95.4 million farming families (as on first June 2020) have benefited and an amount of Rs.195.2 billion has been disbursed so far during the lockdown period. Additionally, Rs.80.9 billion has been paid during the lockdown under the Pradhan Mantri Fasal Bima Yojana (PMFBY).