Endgame for relationship between farmers and commission agents in Punjab?

Commission agents say directly transferring money into farmers' accounts could put their loans in jeopardy

The Narendra Modi government seems to have pulled a rabbit out of the hat right in the midst of the ongoing farmers’ protest. The Punjab government has been virtually forced to directly transfer payments of the minimum support price (MSP) to farmers’ bank accounts for the upcoming wheat procurement season. This is the first time Punjab will be doing so. Till now MSP payments were being routed through commission agents (arthiyas) who would then transfer it to farmers. This comes at a time when one of the major concerns of the farmers protesting on Delhi’s borders is that the new farm laws will destroy the arthiya system in Punjab and therefore deprive them of a crucial non-institutional and trusted source of personal and crop finance. Punjab also becomes the last state to fall in line with the central government’s directions to all states to transfer money for crops directly into the farmers’ bank accounts.

 
Sanjeev Dhammi, one of the thousands of commission agents at Khanna, Asia’s largest grain market says this would lure many farmers to go rouge. “I have already lent lakhs of rupees to farmers. I used to deduct my dues and then forward the payment received from the government to the farmer. Now if the farmer is getting the money directly, he may refuse to pay back loans. All loans given by arthiyas are in good faith and without paperwork. The new system has jeopardised our loans to farmers” said Dhammi.
 
“Punjab has its own Agriculture Produce Marketing Committee (APMC) Act under which arthiyas get a fixed commission on MSP. This won’t be affected by direct transfer to farmers since arthiyas are still entitled to commission as per law. This would also be a big setback for tenant farmers who form a large chunk of the farmers in Punjab. Arthiyas are crucial to tenant farmers who never get loans from banks. I think the Punjab government failed to present its case with conviction before the centre” said Ravinder Cheema, president of the Arthiya Association in the state.

 

In effect, direct payments to farmers wouldn’t immediately end the commission agent system in Punjab but could deal a body blow to their financing activities and thereby threaten their major source of income. With the ‘auto-debit’ system knocked out of the picture with direct payments to farmers, commission agents could become more skeptical of lending to tenant and poorer farmers. At the same time, farmers would be more prone to loan defaults and could be forced to approach riskier sources of finance willing to lend without bothering about their credit-worthiness.
 
Punjab was forced into adopting this system after alarm bells rang in the Reserve Bank of India (RBI) over the state’s food credit accounts being classified as non-performing assets (NPA). In a letter written by Piyush Goyal, Union Minister of Railways; Commerce & Industry; Consumer Affairs, Food & Public Distribution to Punjab chief minister Amarinder Singh, reviewed by Business Standard, the minister told the CM that the state’s food credit accounts of Rs 89,920 crore would be classified as NPA by March 31, 2021. Punjab had been requesting the centre to procure 2.24 million tonnes of wheat of the 2018-19 season so that it could receive payment for the same and extend its credit line with the RBI. Food credit are loans given by banks to a state to fund procurement of food grains. This is then picked up by the Centre which pays the states. If the Centre doesn’t pick up a state’s stock, the state is unable to service its loans. Punjab has the highest share of food credit among all states. 

 
In the letter sent to Amarinder Singh on March 27 Goyal wrote, “In order to mitigate the hardship of the farmers of Punjab and possibility of food credit accounts of Rs 89,920 crore of Punjab becoming NPA, Food Corporation of India and Railways have accorded over-riding priority for evacuation of the 2018-19 crop considering the gravity of the situation. In the spirit of federalism, we are doing our best to ensure that Punjab does not face any financial problem in this regard.”
 
The letter further says that, “Government of India (GoI) has been requesting the Punjab government to streamline payment procedures in line with GoI guidelines of direct online payment to farmers since 2018. The state government has time and again sought extensions of these timelines. But despite giving sufficient time to comply and series of meetings held, the state has not implemented these provisions so far. All major procuring states have already implemented these guidelines. I would like to invite your personal attention towards this important issue and seek your cooperation in implementing this policy.”

 
Goyal’s letter to Amarinder was a follow-up to his ministry’s official communication to the state government on March 4. The Ministry of Consumer Affairs, Food and Public Distribution’s communication noted, “This department has regularly pursued with all states to implement online payment directly into farmers’ bank accounts. These guidelines are being followed in majority of the states except in Punjab where the MSP payments are still being paid through Arthiyas.” The centre had set June 15, 2018 as a timeline for all states to directly pay farmers in a bid to track payment data. The other objectives were “improvement in programme management, reduction of float in the system and greater transparency in use of public funds.”

 
While the Amarinder led Congress government in Punjab has vehemently supported the state’s 28,000 odd arthiyas with the CM himself saying that the traditional system would be protected at all costs in the state, the centre’s hard approach left the state with “no choice”.
 
After meeting central government officials on April 8 and trying to convince them about the role of arthiyas, Punjab finance minister Manpreet Badal said, “The GoI had asked us to implement direct payments for farmers. We had sought more time because in Punjab there is a traditional arthiya system. But the GoI dismissed our demand. We tried a lot but they did not listen. The central government was arguing that the food stock procured belongs to it and the state government is just an agent and should make payment directly to farmers.”

 
Punjab has asserted that despite the new system in place, it would formulate a mechanism to protect commission agents. The state has maintained that commission agents serve as a crucial bridge between farmers, purchasers, transporters and labourers. The commission agents have maintained they act as caretakers of government food stock till it is procured in addition to transporting farmers crops to markets where the government provides no help. Additionally, farmers themselves have stated that they get loans at any hour of the day without any collateral from commission agents.
 
Cheema said, “In Punjab many farmers live abroad and their land is cultivated by tenants. But no written document is given by NRI farmers to tenants to avoid any litigation under the Indian Tenancy Act which confers perpetual rights on tenants. 40 per cent of the state’s farmers are tenants. With no revenue records or documents of these tenant farmers, direct payment will be problematic. The government needs to review its decision to directly pay farmers. We have ensured that when payment is made to us, entire MSP goes to the actual cultivator.”

 
The state government too has raised the issue of tenancy with the centre. By the central government has asked Punjab to follow neighbouring Haryana’s model of solving the problem. The Bharatiya Janata Party (BJP)-ruled state uploads the details of the tenant farmer on the procurement portal with a disclaimer that the uploaded details would not be “a legal document for claiming ownership through tenancy.”