Agriculture Economics

CMs’ agriculture panel favours linking FinComm grants with reforms

In News:
  • The Committee of Chief Ministers on agriculture is considering a proposal for grants and allocations made by the Finance Commission to states should be linked with reforms in the agriculture sector.
  • In June, soon after his reelection, Prime Minister Modi created a high-powered committee in agriculture with some Chief Ministers, for a complete transformation of the agriculture sector in India.
  • Maharashtra Chief Minister Devendra Fadnavis acts as the Convernor of the ‘High-Powered Committee of Chief Ministers for Transformation of Indian Agriculture’.
  • It was constituted with the aim of undertaking structural reforms in agriculture, including strengthening logistics, produce marketing, food processing as well as changes to the Essential Commodities Act.
News Summary:
  • At just 3-4 %, the ariculture sector growth is a cause of serious concern.
  • The problem is compounded by the lower investment flow in the agriculture, which is not exceeding 1 per cent.
  • The primary task would be work for a dynamic system to ensure higher agriculture growth along with higher capital investment.
  • During the deliberations of the committee on agriculture, certain key reforms were identified, which were necessary and integral for the higher agriculture growth and farmers livelihood
Key reforms deliberated:
  • FC grants: Grants of the Central government and fund allocation of the Finance Commission should be linked with the agriculture reforms undertaken in states.
  • Agriculture credit: The Centre provides Rs 13 lakh crore crop loan for farmers. Unfortunately, large number of farmers, especially small and marginal, remain outside the institutional credit mechanism. High on the committee’s agenda is to bring all the farmers within the credit ambit.
  • Syncing agriculture produce demand and supply: The mismatch between agriculture produce demand and supply often results in farmers incurring huge financial losses. There should be greater coordination between the ministries of agriculture and commerce, as the former deals with production, while the latter with marketing.
  • ECA: Some committee members also questioned the utility of the Essential Commodity Act (ECA), 1955, in the food sector. Some CMs called for the scrapping of this act.
  • Use of technology: Effective use of technology, digitisation of entire process from sowing to marketing, use of drones and satellites were also discussed.
  • Private investment: The committee also pitched for promoting contract farming in states. There is a need for boosting private investment in the agriculture sector and promoting contract farming.
  • Others: focus on groupfarming for sustainable farm practices, promotion of food processing industry etc.
Image result for essential commodity act
Essential Commodity Act (ECA):
  • The ECA was enacted way in 1955.
  • “Essential commodity” means a commodity specified in the Schedule to the Act. The Central Government may add or remove a commodity from the schedule in consultation with the State Governments.
  • The list of items under the Act include drugs, fertilisers, pulses and edible oils, and petroleum and petroleum products.
  • It enables the Government to regulate the production, supply and distribution of, and trade and commerce, in certain commodities. It declares ‘essential’ in order to make them available to consumers at fair prices.
  • The ECA gives consumers protection against irrational spikes in prices of essential commodities.
How it works:
  • If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
  • The States act on this notification to specify limits and take steps to ensure that these are adhered to. A State can, however, choose not to impose any restrictions.
  • Anybody trading or dealing in a commodity , be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity. This improves supplies and brings down prices.
  • Stocking is essential: Given that almost all crops are seasonal, ensuring round-the-clock supply requires adequate build-up of stocks during the season. So, it may not always be possible to differentiate between genuine stock build-up and speculative hoarding.
  • Farmers lose on profits due to price control: Also, if prices are always monitored, farmers may have no incentive to farm.
  • Storage infra gets affected: With too-frequent stock limits, traders also may have no reason to invest in better storage infrastructure.
  • FPI industry suffers: Also, food processing industries need to maintain large stocks to run their operations smoothly. Stock limits curtail their operations. In such a situation, large scale private investments are unlikely to flow into food processing and cold storage facilities.
  • Not needed today with food surplus: The Act is not in tune with present times. Earlier, with poor transport infrastructure across the country was poor and markets not integrated, a production shock in one part of the country could lead to hoarding and black marketing anywhere. That’s not the case any more. Shortages in one part of the country can be countered if there is ample supply somewhere else.

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