ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Fixed Fate, Free Will

Abeyance of the Essential Commodities Act is easier said than done.

 

The fifth governing council meeting of the NITI Aayog, held on 15 June 2019, had called upon the state governments to undertake 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). In the context of the agrarian distress across the country, reforming these acts is expected to provide a breather, especially to the deteriorating farm incomes. The idea for reforming the ECA, particularly at a time when surplus management has emerged as a pressing problem for the farm sector, deserves mention. With the ECA being a deterrent for market integration—a necessary condition for Pareto optimality of spatial competitive equilibrium—its relaxation would imply that excess demand (supply) and hence price signals from one market will be transmitted to other markets. In other words, farmers will get the right price for their produce, while increase in availability will give (price) relief to consumers.

However, in the absence of further clarity from theNITI Aayog or the government on the trajectory of the reforms, scepticism pervades the commoner’s mind. Will the commoner lose protection against irrational spikes in food prices if the government does not exercise its direct control over these? Recall that, even with the ECA, governments have not been able to control price volatility effectively. Historically, the retail prices of the “essential” food items had largely escalated with government declarations of stockholding limits. For instance, the tightening of the government-determined quotas and releases of sugar in 2003 saw a rise in sugar prices by ₹ 250 a tonne, and the stocking limits enforced between January and July 2014 saw an escalation in the retail prices of urad, moong and masur by₹ 14 a kilogram (kg),₹ 8 a kg and₹ 9 a kg respectively, and that of rice by ₹ 1– ₹ 2 per kg. Given such evidences, while (buffer) stocking and trade appear to be potentially better instruments for regulating prices, there is much cynicism about the feasibility of implementing any deregulation/abeyance of the ECA.

Amending the ECA is a contagious issue, especially for such crops that have a well-entrenched political practice of fixing an administered price. Once the government commits an assured price to the growers, an essential corollary is that it must ensure the offtake of whatever is produced. In the case of crops such as sugar cane, there is a political clout within the sugar milling industry that would resist any relaxation of control over the movement and marketing of the cane in order to hike the retail prices of sugar, delimit the mills’ offtake on the grounds of low demand and hence refuse paying the administered prices—whether the central government’s statutory minimum prices (SMP) or the state-advised prices (SAP)—to the growers. While a government would underwrite buffer stock at public cost (by levying a cess on the mills, which is effectively paid by consumers), it may not prevent such mala fides when its political fortunes are riding on the sugar industry. With such examples at hand, “cooperative federalism” for agricultural reforms seems more notional than practical. How can one forget the experience of implementing the Model APMC Act, which has been impeded by the tardy and varied state-level adoption of both the magnitude and content of the amendments? Likewise, whether and/or to what extent a state government would concur to the central government’s recommendations for amending the ECA is a matter of its political expediency.

More disconcerting in this context is the official explanation of the purpose of modifying the act, especially the restriction on stocking limits. It is expected to encourage the much-needed investments (more specifically corporate investments) in agricultural marketing. Such an explanation is based on some classic tenets of “market romanticism.” First, that the private sector will act as an innovator/game changer for agricultural transformation and therefore needs to be integrated in the rural development strategy, and second, that the efficiency outcomes of the market, and particularly the role of the private sector in improving marketing efficiency are axiomatic. While these partially fit into Narendra Modi’s 2014 election promise of “minimum government, maximum governance,” 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. In fact, one cannot dismiss the fact that stockholding, bargaining advantage, risk-taking ability, and information control are among the key determinants of power behaviour in the market. And an extant strand of the literature on market romanticism has found that for market exchanges where the power behaviour forces the state into “defensive accommodation,” deregulation (here, the abeyance of the ECA), might only alter the distribution of rent-seeking between the public (government) and the private (corporate), but, will not reduce it. Given this, the re-elected government’s political will for “inclusive” agricultural reforms will stand the test of time only if it can create an “enabling environment” for making these reforms work in the coming days.

Updated On : 26th Jun, 2019

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