Value Added Article: Fixed Fate, Free Will | EPW


Relevance: GS Paper III 

Source

ECONOMY


Theme of the Article

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


Why has this issue cropped up?

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.


Reforming ECA

  • 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.

A contagious issue

  • 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.
  • 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.

The private sector angle

  • The official explanation of the purpose of modifying the act, especially the restriction on stocking limits is that 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 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.

Conclusion

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.