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Updated: December 5, 2010 12:53 IST

Flaw in subsidising at the cost of developing

D. Murali
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Over the last about a quarter century, India has not invested enough in raising agricultural productivity, writes Reshma Anand in one of the essays included in ‘State of India’s Livelihoods Report 2010: The 4P Report,’ edited by Sankar Datta and Vipin Sharma (www.sagepublications.com). “Government, the largest investor in Indian agriculture, sells seeds, fertiliser, water and extension services to farmers and also buys their products. But government’s investments have focused on subsidising not developing agriculture,” she adds.

Bottlenecks to productivity

Stating that both agricultural output and GDP could get a major fillip by reduction in wastages and inefficiencies in the marketing process, the author rues that wastage every year is estimated at over Rs 5,000 billion, as a result of bottlenecks such as rural road connectivity and other supporting infrastructure (e.g. cold storage network).

The essay informs that most mandis are typically located near important towns, centres of production, district headquarters or major trade centres, and that small farmers have limited access to the mandis. “Transactions take place between commission agents and wholesalers. Market intermediaries purchase the farm produce from farmers, often in advance, and bring it to mandis for sale to wholesalers.”

Poor linkages in the marketing channels and poor marketing infrastructure lead to high and fluctuating consumer prices; and only a small proportion of the consumer rupee reaches the farmers, Anand observes. She also notes that there is frequent mismatch between demand and supply spatially and over time. An anguishing statistic cited in the book is of CII, that ninety per cent of effort and investment in Indian agriculture is production-oriented, leaving just about ten per cent for marketing and post-harvest phases.

Interstate barriers to trade

Drawing again from CII studies, the author discusses interstate barriers to trade, under two heads, viz. taxation-related and physical. In the former category are variations in rates across states; though these have been rationalised after VAT introduction, these have not been eliminated and the result is evasion through paper trades by unscrupulous players, Anand mentions.

Other tax woes include high rates that act as an incentive to evasion (the common rate of 5 per cent may seem low but it does impact the already low margins in agribusiness); and multi-point taxation which has a cascading influence on prices (for instance, APMC cess is collected at multiple points).

The second category of barriers are physical controls through the Essential Commodities Act which can lead to long-term supply distortions; restrictions on movement of specific commodities which create a situation of uncertainty; multiple check-posts which cause serious wastage of perishable agri-produce; and APMC regulations that restrict movement of agri-produce to attractive markets over long distance.

On APMC

Anand is aghast that APMCs (Agricultural Produce Market Committees) – set up to protect farmers from exploitation of intermediaries and traders and to ensure better prices and timely payment for their produce – have become inefficient over a period of time. She is of the view that the APMC Acts have created monopolies and entry barriers and prevented disintermediation. “The monopoly of government-regulated wholesale markets has prevented development of a competitive marketing system in the country, providing little help to farmers in direct marketing, organising retailing, a smooth raw material supply to agro-processing industries and adoption of innovative marketing systems and technologies.”

Suggested study for policymakers.

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