State interventions distort agricultural markets

NEW DELHI: State intervention in agricultural markets is counterproductive, promotes harassment of traders and makes government the biggest “hoarder” of grains, crowding out the private trade, the Economic Survey said. While the country has surplus farm output, the sector is governed by antiquated laws drafted in an era of scarcity, the survey said, taking an aim at the Essential Commodities Act (ECA) and the Food Corporation Act (FCA).

“Government has emerged as the single largest procurer and hoarder of food grains,” the survey noted. Direct cash transfers would be far more effective than the current inefficient procurement system, it said.

The waiver of farm debt by states is a bad idea, it said. The analysis of such waivers showed that full-waiver beneficiaries consume, save and invest less than partial ones. They are also less productive.


“Debt waivers disrupt the credit culture and end up reducing the formal credit flow to the very same farmers, thereby defeating the very purpose of the debt waiver provided to farmers,” the survey said.

The ECA—which empowers the government to regulate the production and supply of drugs, oils, kerosene, coal, iron, steel and pulses —had outlived its utility and become a hurdle to private investment in storage and warehousing, it said. Contrary to its aim, the law stokes price volatility, the survey said, blaming it for the recent surge in the cost of onions.

“Lower stock limits (on onions) must have led the traders and wholesalers to offload most of the kharif crop in October itself which led to a sharp increase in the volatility from November 2019 onwards,” it said.

It highlighted the 2-4% conviction rate of those accused under the ECA, as per state data. “This indicates that the raids under ECA may be only leading to harassment of traders, thereby adversely affecting the role of trade in the marketing of the given commodity,” the survey said.

The law had been enacted when markets were fragmented and food was scarce. “The utility of the Act is dubious and is incompatible with development of an integrated competitive national market for food,” it said. “The anti-hoarding provisions of ECA discourage open reporting of stock holdings, storage capacities, trading and carry forward positions.”

The survey said the FCA, under which Food Corporation India (FCI) was created, should be scrapped. It said the government was crowding out private trade from the grain markets.

“With a comfortable production scenario of foodgrains, the role of FCI, with a total storage capacity of more than 80 million tonnes, must be re-examined,” the survey said. “Procurement operations of wheat, paddy and rice need to be given to states. FCI should primarily focus on creating competition in every segment of foodgrain supply chain, from procurement to stocking to movement and finally distribution in TPDS (targeted public distribution system). This would reduce costs and plug leakages in the food management system.”