Recent figures on the performance of the Indian economy suggest that the modest growth rate in GDP in the April-June quarter is, in part, due to poor agricultural sector performance. This seems to confirm, yet again, the truism that when agriculture performs poorly, so does the Indian economy, notwithstanding its declining contribution to the GDP. While climatic factors influence these numbers a great deal, these numbers also put the spotlight on the status and direction of agricultural reforms in the country. For years, researchers have asked "what ails Indian agriculture?" It seems appropriate to also ask "what ails reforms in Indian agriculture?"
Agricultural reforms, for one thing, have moved at a glacial pace relative to reforms in other key sectors of the economy. It also seems however that policy efforts geared towards improving the sector sometimes simply miss the mark. The Unified Agricultural Market Programme (UAMPS) or electronic National Agricultural Market (e-NAM), an initiative aimed at creating a single seamless market for agricultural commodities, is a case in point.
When the Union Budget for 2016-17 allocated Rs 200 crore this year for the integration of 585 mandis on a single electronic platform, it was hailed variously as a "game changer" and a "harbinger of change". It was welcomed as a crucial piece of reform that could potentially bring about huge gains in efficiency and transparency, and ultimately benefit farmers via competitive prices for their produce that is also discerning of quality. The e-NAM has so far been implemented in 23 markets across eight states as of June 1, according to its dedicated website.
Despite the euphoric optimism around this initiative and its apparent progress, experts have been quick to caution that e-NAM's potential for success was perhaps overstated, since several preconditions required for successful market reform do not exist as yet. Indeed, the central problem with the current efforts with e-NAM is that they either presume or demand that these preconditions exist, rather than work towards establishing them. What are these preconditions and why would we expect e-NAM to fail in their absence?
The central drawback of e-NAM is that states are eligible for assistance under NAM only if they have already reformed their respective APMC Acts and made sufficient investments in the infrastructure required for such integration. These include a single-point levy of market fee, a single uniform licence and provision of electronic auctions as a mode of price discovery. It is well-known that even 13 years after the APMC Model Act of 2003 came into being, only a few states have successfully amended the APMC Act in substantive ways and that significant political or financial risks are associated with these reforms. Further, even the APMC Model Act 2003 fell short of provisions for full market integration within a state.
It seems that e-NAM is less a tool to enable reform than it is a reward for reform. In short, it is not clear what e-NAM provides beyond a software solution. The Small Farmers' Agribusiness Consortium - the implementing agency - and its strategic partner have the fairly limited mandate of customising and implementing the electronic platform, with crucial institutional reforms still left to the political whims and exigencies of state governments. At the same time, it is surprising that the government has failed to draw on Karnataka's pioneering reforms in this area, choosing instead to reinvent the wheel and establish a parallel structure.
The need of the hour is a road map that involves working with state governments to ensure that a new legal framework is in place that supports a new architecture for agricultural transactions in the country. What is required too, as a precondition for unification, is a regulatory framework that can settle disputes across states. Without systematic efforts at establishing this framework, market unification would be naturally restricted to a few markets in a few states - a far cry from what e-NAM ought to have as its goals.
Further, in order to truly unify markets, different stakeholders need to have incentives to participate in the new platform across multiple locations. Traders, in particular, who make the market, should be willing to place bids in distant mandis. To enable this, the government would have to build a comprehensive set of grades and standards for a diverse set of products and invest in assaying facilities that are quick, cost-effective and credible - as yet woefully inadequate across mandis.
Commission agents who mediate these transactions, on the other hand, have a strong disincentive to undermine state efforts at reform. In Karnataka, for instance, they have boycotted electronic platforms in some cases, approached the courts protesting new licences in others, and at other times colluded to quote low prices on the electronic platforms. Reforms of the mandis need to focus on reinventing the role of the commission agent, who today fills in for multiple market failures, notably in providing credit to traders and loans to farmers.
Mandi reform that seeks to render middlemen irrelevant is therefore bound to fail, unless the failures of formal institutional credit to achieve financial inclusion are fixed simultaneously. For farmers, an electronic platform holds little attraction when they continue to depend on commission agents for credit, consumption loans, information and storage facilities.
If Karnataka's experience has taught us anything, it is that establishing a unified market is not just about propping up an electronic platform; nor is it merely a technological problem. Although agricultural output market reform can be challenging, the ingredients of successful reform are now reasonably well understood. The government would do well to focus on reforms that address these core prerequisites.
Unfortunately, it seems to have opted instead for the path of least resistance in proposing an intervention that has little bite or influence on the fundamental structural problems that underpin the functioning of agricultural markets. As long as this is the totality of efforts to improve the agricultural marketing context in India, we can routinely expect dismal news on the performance of agriculture well into the future.
The writer is an Associate Professor at the Indira Gandhi Institute of Development Research in Mumbai
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
