To actualise agricultural reforms, legal changes need to be complemented by market infrastructure
A highlight of last week’s stimulus package was the legal reforms proposed for agriculture. It has been likened to the 1991 reforms which transformed industry and financial markets. Agriculture remains shackled by antiquated (outdated) laws. Moreover, progress in creation of a national market for agricultural produce has been slow. Therefore, proposals to amend Essential Commodities Act (ECA), create a central law to expand marketing options through interstate trade and electronic trading platforms, and introduce a facilitative legal framework to enhance (increase) farmer engagement with retailers and aggregators have drawn praise. They signal reformist intent.
Given the delay in reforming agriculture, reforms shouldn’t be incremental. For instance, ECA needs to be repealed outright. It was a legislation framed in the backdrop of scarcity and gave the state enormous powers. It has simply no place in today’s context. Similarly the APMC Act created monopsony powers and erected entry barriers for new agents. A functioning market needs many buyers and sellers, making the Centre’s plans to create a legal architecture to facilitate it important. But laws alone will not unlock agriculture’s full potential.
Government needs to play a more proactive (enterprising) role, as it did in the 1991 financial sector reforms, to create market infrastructure. To illustrate, four years ago government launched e-NAM, an electronic pan-India link of wholesale markets. The aim is to connect the existing mandi system to create a national market for farmers. But in four years barely 9% of about 6,946 markets are linked to e-NAM. Market infrastructure for quality assessment, dispute redressal mechanism and logistics infrastructure are inadequate. Government needs to take the lead here. Markets evolve only when legal changes come with a complementary ecosystem. Government now needs to invest in the ecosystem. Only then will the Indian farmer be unshackled.