I. Introduction
As part of tranche III of the package to revive the economy, Finance Minister on 15th May 2020, also announced that the ECA, 1995, would be amended. The relevant text of which is reproduced below:
1. Amendments to Essential Commodities Act to enable better price realisation for farmers. The Government will amend Essential Commodities Act. Agriculture food stuffs including cereals, edible oils, oilseeds, pulses, onions and potato shall be deregulated. Stock limit will be imposed under very exceptional circumstances like national calamities, famine with surge in prices. Further, No such stock limit shall apply to processors or value chain participant, subject to their installed capacity or to any exporter subject to the export demand.
Previous amendments to the ECA 1955 are reviewed along with exemptions extended to certain groups. Some new changes to the ECA, 1955 are also recommended. While changes in the ECA, 1955 may help the farmer to get a higher price, there are other changes also required for a higher net income. This is a summary analysis backed by a detailed one, which covers law and the market structure, along with the interplay of law and markets. The second section spells out the theoretical basis for the suggested changes. The third section covers suggested changes to the EC Act 1955. Section four extends the analysis to the revenue equation of the farmer also incorporating the input costs. Section five suggests other changes that will increase the income of the farmer followed by a conclusion.
II. Theoretical Basis for the suggested changes
There are two markets, which the farmer has to interact with, the market for inputs and the market for produce.
The market for produce has the individual farmer faced with demand and supply curves, with an inset MSP horizontal line. Any step to push outward the demand for farm produce by augmenting demand from exporters/processors/ bulk buyers will help the farmer and also reduce the quantity of procurement by the government. This, in turn, will also push up the price of the market segment outside the MSP procurement, since MSP is available to only 25 percent of the farm produce in the case of pulses, which (pulses) is adopted as a reference commodity for the analysis. The analysis can be extended to other commodities taken into account the difference in parameters.
An important goal of any reform for the farm sector should be to increase the demand for farm produce or to push outwards the demand curve. Suggestions in respect of changes in the ECA, 1955 that shall push outwards the demand curve are in the next section. Some other suggestions are listed in section five.
III. Suggested changes in the ECA, 1955
As stated earlier this is a summary analysis backed by a detailed one where the suggested changes have been arrived at. During 2019, some changes in the removal order of 2016 were made restricting the order’s applicability to contract farming (6th August 2019) and WDRA accredited warehouses (16th December 2019). These changes are in tune with Finance
Minister’s announcement referred to earlier.
The suggested changes in the ECA, 1955 and the removal order are listed below:
Changes in the ECA 1955
i. There is a provision under Section 2A of the ECA, 1955, in vogue since 2007, which facilitates addition or removal in the schedule of the essential commodities and needs to be continued preferably in the present form. This also has a provision for consultation with state
governments and allows urgent changes at a short notice and without the approval of parliament.
ii. The proposed changes in the ECA, 1955 should consider inserting Entries 20 (Economic and Social Planning) and 34 (Price Control) of list III of Schedule VII of the Constitution of India, alongside Entry 33 in Section 2 A (4) of the ECA, 1955. Presently Entry 33 is in Section 2 A (4) of the ECA, 1955, however, the three Entries -20, 33 and 34 of list III of Schedule VII of the Constitution of India along with any other, should be in the preamble of ECA, 1955 to ensure applicability to all sections/ provisions.
iii. Dilution/ removal of provisions of arrest, making offences under ECA, 1955 non-cognisable; removal of seizure of vehicles, stock, property, etc.; revision of financial penalty parameters needs to be done.
Expanding the scope of the Removal of Licensing requirements, Stock limits and Movement Restrictions on Specified Foodstuffs Order, 2016
iv. Revision of the 'Removal of Licensing requirements, Stock limits and Movement Restrictions on Specified Foodstuffs Order', 2016 issued on September 29, 2016 and effective October 1, 2016 with the following changes :
a. After clause 3 (1) of the removal order 2016, may consider adding another item as a proviso, which allows the blending of a combination of any of the above. This will boost the food processing industry.
b. Clause 3 (3) of the removal order 2016 has relaxation for transport, distribution or disposal of sugar, edible oils and edible oilseeds to places outside the State. This relaxation for transport to places outside the state under clause 3 (3) needs to be extended to all Foodstuffs, with an option of the imposition of specific restrictions under situations of national calamities, famine with the surge in prices.
c. Clause 3 (2) (iii) (a) of the removal order 2016 has an exemption for export related stock subject to a DGFT code number. Ideally, a self-declaration should suffice with a sharp increase of penalty for an individual defaulter. If, however, the present system is to continue, other export certification agencies/ documents should also be added to the list.
d. Conditions under clause 3 of the removal order 2016 for some commodities should be replaced with periodic declaration or online filing of data. A suggestion to have a unified data reporting format and software and an integrated database, instead of individual states
having them should be considered. This shall offer a national picture at a click rather than resort to updating from states.
e. At any point of time, the consolidated version of the removal order 2016 (or later) should be available on the website along with a tabular presentation on the applicability to each commodity.
IV. Input costs in the farmers revenue equation
Some extracts of Economic Survey 2016-17 are reproduced below :
7.27 The Minimum Support Price (MSP) announced by the Government for 23 crops attempts to cover the price risks faced by the farmer.... 7.28 However, for an individual farmer who produces one or two crops, the benefits of MSP is more than offset since he consumes other crops also, for which he pays a higher price. In respect of the crop that he sells at MSP, in case he is a net buyer or a buyer at the margin, he ends up paying a higher price for the quantity purchased. 7.29 The entire focus of remunerating a farmer with a higher income in the equation below is on increases in P. Previous section on production risk suggests large room for increasing Q. There is a need to shift the focus to Q and may entail a revisit on the present mechanism of CACP recommending MSP, on the assumption that input costs cannot be decreased and most, if not all increases in farmer income are to come from increases in P. Net Revenue = Price x Quantity – Input Costs (NR = P x Q – IC)
The Net revenue equation of a farmer is detailed and explained below :
The net income of the farmer can increase if :
(i) Po increases. All efforts are being made to increase the MSP but the benefits of this are restricted to the crops for which MSP is announced and to the extent of the procurement. There is a market segment outside the MSP procurement and one that has crops not conforming to FSSAI standards.
(ii) Qo increases. Given the limited scope of increasing cropped area, increases in Q can come largely through increases in productivity.
iii) Both Pi and Qi decrease. This can happen unless if the market for inputs is freed up and some of the legislation relating to inputs are diluted or repealed. An indicative list of such legislation in respect of Punjab is at Annexure A.
As stated in the Economic Survey increases in P for a commodity (pulses) can be offset by an increase in the price of other crops for an individual farmer or by the same crop if he is a net buyer or a buyer at the margin.
But the greater fear is when
In such a case, the benefits to the farmer because of MSP are more than offset by an increase in input costs. Accordingly, there is a need to increase the efficiency of the market for farm inputs and the quantity used.
Some case studies on this need to be done by government and non-government organization for several crops/regions to assess the vulnerability of the farmer.
V. Other suggested changes
There is a need to remove all restrictions on internal and external trade on farm produce and dismantle/ dilute fragmented legislations that govern agriculture and include :
i. Remove restrictions on mandatory sale through APMC markets. These relate to spot sale.
ii. Purchases for contract farming, bulk purchases, for the food processing industry, etc. should also be exempt from mandatory sale through APMC markets. These relate to long term contracts.
iii. Transactions through e-NAM should be exempt from APMC markets.
iv. Perishable farm produce should be outside the purview of APMC markets as stated in the Budget Speech (2017-18), in para 29, by Finance Minister,
Market reforms will be undertaken and the States would be urged to denotify perishables from APMC.
vi. Remove all restrictions on the export of farm produce.
vi. Remove all restrictions on the inter-state movement of farm produce, which would require an omnibus order covering several acts.
There are questions of political economy on implementing the above suggestions, which need to be addressed.
VI. Conclusion
To conclude there is a need to continue with the provision under Section 2A of the ECA, 1955 which allows adding or removing a commodity. Entries -20 (Economic and Social Planning), 33 and 34 (Price Control) of list III of Schedule VII of the Constitution of India along with any other, should be in the preamble of ECA, 1955 to ensure applicability to all
sections/ provisions. There should be dilution/ removal of provisions of arrest, making offences under ECA non-cognisable.
The ECA should facilitate a unified data reporting format and software and an integrated database, instead of individual states having them should be considered. This shall offer a national picture at a click rather than resort to updating from states.
The removal order 2016 should extend the relaxation for transport under clause 3 (3) to all Foodstuffs. A consolidated version of the removal order 2016 (or later) should always be made available with every amendment.
There is a need to expand the demand for farm produce and can be done by removing several restrictions. Similarly, the market for farm inputs needs to be freed up by diluting/ repealing the legislation.
Annexure A
An indicative list of laws relating to farm inputs for Punjab
i. Seed Act, 1966 Seed Control Order, 1983
ii. Fertiliser Control Order 1985
iii. Fertilizer Quality Control And It's Related Forms
iv. Dangerous Machine Control Act
v. The Punjab Preservation Of Subsoil Water Act, 2009
vi. The Insecticides Act, 1968 (Act No.46 Of 1968)
vii. The Insecticides Rule 1971
viii. Quality Control Of Insecticides
Source URL: https://agri.punjab.gov.in/?q=acts
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