The FM unveiled the third tranche of Prime Minister Modi’s special economic package of 20 lakh crore on Friday. The third set is worth Rs.1.5 lakh crore
[You may read- What does Modi’s 20 lakh crore package mean?]
The third tranche of the PM’s package is mainly focused on agriculture and allied activities like fisheries, dairy, husbandry, and bee-keeping.
[You may also read about the first tranche & second tranche of the economic package]
Let’s discuss the measures announced in the package.
Measures related to strengthening infrastructure, capacity, and logistics
- Agriculture infrastructure fund: Creation of a ₹1 lakh crore agriculture infrastructure fund to strengthen farm-gate infrastructure for small and medium farmers. (Farm-gate basically means near to a farm). This fund intends to set up a cold chain and post-harvest management infrastructure in the vicinity of the farm gate.
- Micro food enterprises: The Government has launched an Rs.10000 crore scheme for micro food enterprises to help them get access to global food markets. This scheme will follow a cluster-based approach. It means that it will organise let’s say mango growers in UP (or bamboo shoots growers in Assam) into a cluster and help them to reach untapped export markets. The key focus areas would be organic, herbal, nutritional, and health-based food items.
- PM Matsya Sampada Yojana: This scheme was announced in the budget of 2020 and will be implemented immediately. The scheme aims at plugging critical gaps in fisheries value chain. Rs 11,000 crore has been allocated for Marine, inland fisheries, and aquaculture, while Rs 9,000 crore has been earmarked for the development of infrastructure such as fishing harbors, cold chains, etc. The scheme will lead to additional fish production of 70 lakh tonnes over 5 years.
- Animal husbandry development fund: Rs.15000 crore has been allocated to this fund. This amount will be spent on building dairy infrastructure.
- Promotion of herbal plants: Rs.4,000 crore will be allocated to the National Medicinal Plants Board to promote herbal cultivation. 10 lakh hectares of land has been earmarked for herbal cultivation. 800 hectares of land on the banks of Ganga have been proposed to be converted into an herbal corridor. The Government has also proposed to establish regional mandis for medicinal plants.
- National Animal Disease Control Program: This program aims at vaccination of livestock against foot and mouth disease and brucellosis. This scheme was introduced in the budget of 2020-21. The Government has launched an Rs.13,343 crore fund to ensure 100% vaccination of 53 cr cattle for foot-and-mouth disease.
- Beekeeping initiative: The government will promote beekeeping initiatives with a ₹500 crore fund. This will lead to an increase in income for 2 lakh beekeepers and add quality honey to consumers.
- TOP to Total scheme/ Operation greens: This is an existing scheme to ensure the supply of tomato, potato, and onions (TOP) through managing supply chains. This will be extended to all fruits and vegetables (TOP to total) to repair broken supply chains. Additional 500 Cr rupees will be allocated in this scheme to prevent distress sales for all vegetables. Further, a 50 % subsidy will be provided for transportation and 50 % for storage including cold storage. This is a pilot project for 6 months.
Governance and Administration reforms
- Amendment in the Essential Commodities Act 1955: The amendment has been done to deregulate cereals, edible oils, oilseeds, pulses, onions, and potato. It means there will be no stock limit requirement on these items. It will make it easier for food processors or value chain participants to buy and stock these farm products. The stock limit will only be imposed in cases of extreme emergencies like natural calamities and price surge of perishables by 100 % and non-perishables by 50 %. A framework of e-trading will also be developed to connect farmers with buyers to ensure better price realisations.
- No barriers to inter-state trade: Currently, farmers can sell agriculture produce only to licensed agents of the designated mandis within their states. Therefore, it is difficult to trade freely even within the states. The center has proposed to enact a law to let farmers transport their products across the state and sell to whoever they want. It will let farmers bypass intermediaries and maximize value for their produce.
- Legal framework to enable contract farming: This will enable farmers to work out a contract directly with big retailers, exporter, and other food processors. This will help in bypassing intermediaries and also provide a guaranteed buyer to the farmers at a fixed price.
The above measures have been criticised by some analysts because of its focus on long term reforms and not addressing the immediate need of the farmers reeling under an unprecedented crisis.
That said, the governance and administrative reforms were long overdue. If it requires a crisis to push through sweeping reforms, then so be it.
Beside ensuring maximum value to the farmers by cutting intermediaries, the amendment to ECA, will help bring some predictability to exporters as well. This is because arbitrary restrictions on exports create uncertainties. The amendment will enable free trade in cereals, edible oils, oilseeds, pulses, onions, and potato.
The reforms also seek to undermine the monopoly of the mandis by dismantling inter-state trade barriers. Many states have already undertaken reforms in agriculture (APMC act), but they haven’t actually taken follow-up measures to facilitate free trade.
The Centre came out with a draft model APMC law in 2003 and has been pushing for its enactment by states. Around two dozen states have enacted the model APMC law, though with some modifications, but others are reluctant to replace their existing legislation.
Among the major states, Maharashtra, West Bengal, Odisha, Gujarat and Andhra Pradesh have complied with the four key reforms mooted in the Centre’s model law, namely deregulation of fruits and vegetables trade, facility for anyone to set up private market outside the purview of APMC mandis, single trading licence to enable inter-mandi trade and single-point levy of market fee. However, even these states haven’t taken all the follow-up actions required to actually meet the reform objectives — for example, even as the state’s APMC law provides for it, Maharashtra is yet to issue unified (all-mandi) licence for traders, whereas less than 1% of licences in Uttar Pradesh and Gujarat are unified ones. Rajasthan, Telangana and Uttarakhand are the only three states that have issued unified licences to all traders.
Source: Financial Express
It must be because of the lack of necessary reforms by the states that the center decided to facilitate inter-state trade to undermine local mandis. Lastly, contract farming can also prove to be a game-changer if it takes off.
As the sale of their produce is guaranteed, they (farmers) don’t have to fret about drought, excessive rains, floods or other acts of gods.
Companies currently involved in contract farming in India not only provide farmers with the inputs like seeds and fertilisers and technical know-how but have also been providing loans to them.
Once this system becomes widespread, farmers will be freed from the clutches of moneylenders and move into a transparent system of contracts.
Contract farming will do more to stop farmer suicides than any government loan waiver did in the past seven decades
Source: swarajyamag
All these reforms intend to cut intermediaries and let farmers get a larger share of what we spend on food.
To conclude, these agricultural reforms were due for a long time. Especially considering that while 60 % of India’s population is engaged in agriculture, it contributes only about 15 % to GDP.
I’d highly recommend you to read this separate post on these agricultural reforms- Agricultural reforms 2020: All you need to know
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“Amendment in the Essential Commodities Act 1955”
Hi, wouldn’t this hike food inflation(especially after recently we had an double digit figure)? Its a very good reform, but the RBI has used multiple rate cuts to make the economy flush with liquidity and an increase of Repo seems improbable at this juncture
As they say, the proof of the pudding is in the eating. Anyway, I will try to answer your question.
We cannot look at the agricultural reforms in isolation. These reforms together intend to enable better price realisation through market forces of demand and supply. Also, cut down intermediaries and let farmers take a larger share of what we spend on food.
When onion prices climbed up last year, the consumers had to shell out a higher amount, but it didn’t benefit the farmers. Most of the consumer surplus was taken away by the intermediaries without doing any value-addition. Removing such distortions should ultimately benefit consumers.