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Fixed Rate Free Will

The recent Governing council meeting of the NITI Aayog focused undertaking structural transformations of the Indian agricultural sector through the reforms of the marketing regulations, such as the Essential Commodities Act (ECA), 1955 and the Model Agricultural Produce Market Committee Act (APMC Act).

Why these regulations need reformation? 

1. In the context of the agrarian distress across the country, reforming these acts is expected to improve agriculture and farm incomes.

2. Reforming the ECA gains significance as surplus management has emerged as a pressing problem for the farm sector.

3. ECA is being a deterrent for market integration which is a necessary condition for Pareto optimality of spatial competitive equilibrium.

4. Its relaxation would imply excess demand (supply) and hence price signals from one market will be transmitted to other markets.

5. Farmers will get the right price for their produce, while increase in availability will give (price) relief to consumers.

What are the challenges in amending ECA?

1. Amending the ECA is a contagious issue, especially for such crops that have a well-entrenched political practice of fixing an administered price.

2. Once the government commits an assured price to the growers, an essential corollary is that it must ensure the offtake of whatever is produced.

3. In the case of crops such as sugar cane, the sugar milling industry that would resist any relaxation of control over the movement and marketing of the cane.

4. This is done to hike the retail prices of sugar, delimit the mills’ offtake on the grounds of low demand and hence middlemen refuse paying the administered prices whether the central government’s statutory minimum prices (SMP) or the state-advised prices (SAP) to the growers.

5. So, cooperative federalism for agricultural reforms seems more notional than practical.

6. Even with the ECA, governments have not been able to control price volatility effectively.

Where do we need to focus?

1. With the modification to ECA the government aims to encourage the investments, specifically corporate investments in agricultural marketing.

2. It is based on the beliefs that:

a) The private sector will act as an innovator/game changer for agricultural transformation and therefore needs to be integrated in the rural development strategy,

b) The private sector will improve the efficiency in outcomes of the market.

3. But without a road map for governance it is not clear how such integration would pan out for the farmers in general and the smallholders in particular.

4. Stockholding, bargaining advantage, risk-taking ability, and information control are among the key determinants of power behaviour in the market.

5. So, the government should aim for “inclusive” agricultural reforms that can create an “enabling environment” for making these reforms work.