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The Reserve Bank of India (RBI) believes there is a need to further liberalise agricultural trade to ensure the food economy doesn’t pose a major risk to non-inflationary growth.
“There is a need to further liberalise agricultural trade by modifying agricultural produce marketing committee (APMC) Acts by state governments and exempting perishables such as fruits and vegetables from the provisions of APMC to give wider access to both producers and traders for better price discovery,” said RBI Executive Director Deepak Mohanty. He added there was substantial wastage of agricultural produce, particularly perishables. This, he said, had to be reduced by improving supply-chain logistics — setting up cold chains and processing facilities at producing clusters.
“One important way of productivity expansion is through greater mechanisation. However, the dominance of small land holdings puts a constraint on the choice of technology. Therefore, contract farming and leasing of farmland, while protecting the ownership rights of small landholders, should be facilitated to enhance production and productivity,” he said.
Dispensation of social welfare benefits through cash transfers would not only help rationalise the demand for food products, but also limit the distortionary effect on the labour market, resulting in greater economic use of labour supply, Mohanty said.
According to Mohanty while the major policy actions to augment food supply may not be in the domain of monetary policy, it may have to perform a careful balancing act so that a sharp action does not choke off supply response and a weak response hardens inflationary expectations.
