Recast APMC Act to boost agro sector: Survey

Huge investment in areas like research and setting up of a national common market needed

The Economic Survey emphasizes on the need for a national common agricultural market and identifies un-integrated and distortion ridden agricultural market as the one of the most striking problems in agriculture growth.

It suggests three incremental steps as possible solution, building on the Budget 2014 recognition for setting up a national market, farmers’ markets and need for the Central Government and the State Government to work closely to reorient their respective Agricultural Produce Market Committee Act.

1. It may be possible to get all States to drop fruits and vegetables from APMC schedule of regulated commodities and followed by other commodities.

2. State governments should also be specifically persuaded to provide policy support for alternative or special markets in private sector.

3. Due difficulties in attracting domestic capital for the setting-up marketing infrastructure, liberalization in FDI in retail could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies.

Currently, APMCs charge multiple fees, of substantial magnitude, that are non-transparent. They charge a market fee of buyers, and they charge a licensing fee from the commissioning agents and licensing fees from a whole range of functionaries. In addition, commissioning agents charge commission fees on transactions between buyers and farmers.

These statutory levies/mandi tax, VAT etc. varying from state to state are the major source of market distortion. Such high level of taxes at the first level of trading has significant cascading effects on the price.

The APMC Act treats APMC as an arm of the state and the market fee as the tax levied by the state, rather than fee charged for providing services. This acts as an impediment to creating national common market.

Also the commissions charged by commission agents are exorbitant as they are often charged on entire value of product sold rather than the net value.

Ministry of Agriculture developed a Model APMC Act, 2003 for the freedom of farmers to sell their produce. The farmers could sell their produce directly to the contract-sponsors or in the market set up by private individuals, consumers or producers. The Model Act also increases the competitiveness of the market of agricultural produce by allowing common registration of market intermediaries. Many of the States have partially adopted the provisions of model Act and some states such as Karnataka have adopted changes to create greater competition within State.

As a last resort, the Economic Survey suggests using Constitutional provisions to create a national common market for agricultural commodities. The Concurrent List Entry 33 covers trade and commerce and production, supply and distribution of food stuff including edible oilseeds and oils, raw cotton, raw jute etc. Entry 42 of Union List, viz., ‘Interstate trade and commerce’ also allows a role for the Union.

To boost farm and food sector, the Economic Survey prescribed huge investment in areas like research, irrigation and warehousing, besides calling for subsidy rationalisation and setting up of a national common market for agri-produce.

"Agriculture and food sectors need huge investment in research, education, extension, irrigation, fertilisers, and laboratories to test soil, water, and commodities, and warehousing and cold storage," the survey said.

Rationalisation of subsidies and better targeting of beneficiaries through "direct transfers" would generate part of the resources for the public investment, it said.

Pointing out that the public expenditure in agriculture is only one-fourth of expenditure towards food and fertiliser subsidies, the survey said: "Focus of public expenditure for agriculture so far has been on provision of subsidies and it is time it shifted towards investments to boost productivity."

This provides ample opportunity to increase production by bridging the yield gap, it added.

The survey also felt that the functioning of the Food Corporation of India needs to be revamped substantially and recommendations of the Shanta Kumar Committee on FCI restructuring provide useful suggestions for the future road-map of food-policy.