Banking Article, Banking Finance 2022, Banking Finance May 2022


The above question has come to the foray, as the farm bills passed by the parliament has become an Act with the assent of President Sri Ram Nath Kovind.

If we go by the history, the situations and circumstances which were prevailing then have necessitated for formulation of certain guidelines or systems with regard to providing necessary infrastructure for farmers to sell their produce by establishing APMC/MANDIS, Assured payment of minimum support price and see that certain section of commodities are put under Essential Commodities list .

With the passing of farm bills, there has been considerable doubt and worry in farming community. Their main concerns are whether the APMC/Mandis will exist, Whether the Government will abolish the concept of Minimum Support Price and with the new provisions, whether influence and dominance of corporates will be more.

Let us try to understand, whether the above are merely apprehensions of farmers, or they are really threats which are looming on them or these new changes will bring the desired growth in their income levels and will be definitely a right and big step towards better future.

Essential Commodities (Amendment) Act, 2020

If you consider one of the farm bills which is The Essential Commodities (Amendment) Act, 2020 has certainly diluted the main purpose of the act which was enacted way back in 1955. The Act which has been an effective tool, where in the Government could intervene and control the rise of prices of essential commodities which are coming under the act. The commodities which are covered under the act are essential drugs, fertilizers, pulses, edible oils and petroleum and petroleum products.

The recent bill has deregulated commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes. Whether this will rekindle the habit of hoarding which was prevalent in previous times and black-marketing, which were the route cause for the then Government to bring the Essential Commodities Act, 1955. There were number of incidences in the past where the prices  of essential commodities was in rise and Government has stepped in and took measures to control the hoarding and  export of such items and made the commodity available to general public at a reasonable or affordable price.

In the economy survey 2019-20 presented by the Chief Economic Adviser

Mr.K V Subramanian. It was expressed that

“The Indian economy is replete with examples where Government intervenes even if there is no risk of market failure, and in fact, in some instances its intervention has created market failures”.

 The Survey has also expressed that the measures to control stocks and prices of essential commodities like vegetables, pulses and medicines had unintended effects like market distortions and price hikes of these products. It also has been felt that the main purpose for which Essential Commodities Act, 1955 was brought in to see that the poor get commodities at reasonable prices and restrict hoarding, but this resulted in creating market distortions that have prevented the efficient development of agricultural markets.

The recent incidents where restrictions were imposed in holding stock limits to prevent hoarding of Onions due to rise in prices in September, 2019 had limited success, as there was no effect in controlling the prices. There is also a view point that with the imposition of limits of stock that a producer or wholesaler can store has discouraged investment in warehousing and storage facilities, which could otherwise be very effective method of overall development in rural areas.

The above incidents might be some of the reasons which have definitely promoted the Government in coming up with recent amendment to the Essential Commodities Act ,2020 and the new amendment has also  made a distinction between the hoarders and the firms that genuinely need to hold the stock for further processing  or adding value. The act has also made it clear that

“any action on imposing stock limit shall be based on price rise and an order for regulating stock limit of any agriculture produce may be issued under this Act only if there is –

  • Hundred per cent increase in the retail price of horticultural produce or
  • Fifty per cent increase in the retail price of non- perishable agricultural food stuffs.

Over the price prevailing immediately preceding twelve months, or average retail price of last five years whichever is less”.

With the above amendments to the Essential Commodities (Amendment) act, 2020it is pretty clear that Government wants to give the corporate players a greater scope in building the agriculture infrastructure and also give more freedom in dealing with the agriculture produce. This can be viewed as a big opportunity for agriculture sector, but may create a situation wherein this may give rise in corporate monopoly in dictating the prices of these commodities as they have resources and machinery to build facilities to hold the stock as there is no restriction in storage as per the present amendment.

The Government has come up with another act –


The Act is about  “ to provide for the creation of an ecosystem where the farmers and traders enjoy their freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels ; to promote efficient, transparent and barrier-free inter-state and intra-state trade and commerce of farmers ‘produce outside the physical premises of markets or deemed markets notified under various State agricultural produce market legislations; to provide a facilitative framework for electronic trading and for matters connected therewith or incidental thereto”..

The contention in this Act was to allow farmers to sell their produce anywhere so that they get better remunerative price, this have given a reason for worry for farmers and also arthiyas. There has been lot of confusion and views expressed by many they feel that structure of APMC/MANDIS will be removed slowly and also the main issue that Government will dispense with giving Minimum Support Price and also there will not be procurement by Government on the basis of MSP. Arthiyas and commission agents are other section of people who are most affected and especially the State Government who are generating substantial income by way of levy, cess or fee.

If we go little bit into history and understand what made the structure of APMC/MANDIS to come up , the main reason was to safeguard farmers from large retailers, moneylenders or creditors, because these people used to compel farmers to sell their produce at the farm gate for an extremely low price ,so to protect farmers from this exploitation it was decided that farmers need a  common place where they can sell their produce  not less than the  pre-determined  price(MSP) and get the proceeds without any delay.

The idea of implementation of MSP was started in mid –sixties, when India was food deficit. One of the steps that Government took at that time to boost domestic production through Green revolution and make farmers grow input intensive high yielding crops such a wheat or Paddy and assured that they get better or minimum support price, this has encouraged and given confidence to many farmers to produce more .

Now as per the new Act, farmers are free to sell as well as traders can procure the produce outside the APMC/Mandis, as per this large corporate players enter the market and with their financial strength and available resources can reach out to farmers and procure the produce at farm gate. This will be a beneficial step for the farmers but when we go by the farm census in India nearly 85% of farmers own less than two hectares of land, such farmers will not have scope to negotiate directly with large scale buyers, because of which they may be forced to sell at a less price.

Farmers feel that APMC/Mandis have till now played a crucial role and ensure timely payments, they also feel that it is the responsibility of the Government to see that large number of farmers get the benefit of MSP and also need to plug the so called loopholes like exploitation by middlemen/arthiyas in these APMC/Mandis, rather make them redundant. They also feel that any person who is having a PAN card can be a trader and no licence is required for such a person to trade ,this may lead to unscrupulous traders enter the market  by which they may get cheated.

Farmers also feel that, If any dispute arising out of a transaction with trader ,the grievance mechanism is complicated because they have to initially approach  sub-Divisional Magistrate  and not satisfied with the order of Sub-Divisional Magistrate can refer an appeal before Appellate Authority ( Collector or Additional Collector) .The act   expressly bar the jurisdiction of civil courts in entertaining disputes arising under the operation of these legislations, Farmers fee that this makes  their position more vulnerable as they can’t approach civil court for justice.

There is another most important section in this chain who are most affected ,they are arthiyas or commission agents who are in large numbers and under whom work large number of labourers , with the introduction of this Act, these people feel that most of them will lose their  lively hood. The structure of arthiyas has interwoven so much in this setup that farmers feel more comfortable to sell at MANDIS/APMC through arthiyas so that they can sell at MSP and get money immediately, also arthiyas will be providing finance to them when needed. Government feels that with the opening of farm sector private investment will come and the influential role of middle men will go away and farmer will be freed from the exploitation and can sell their produce wherever they get good price.

The other party who are most affected are state Governments who have been generating huge revenue through the Mandis ,not only with regard to this they feel that since agriculture and markets are state subjects, the present Act of centre is a direct encroachment upon functions of states and against the co-operative federalism enshrined in constitution .

Most affected are Punjab and Haryana, where in More than 85% of wheat and paddy grown in Punjab, and 75% in Haryana, is bought by the government at MSP rates. These states are also most invested in the APMC system, with a strong Mandi network, a well-oiled system of arthiyas or commission agents facilitating procurement, and link roads connecting most villagers to the notified markets and allowing farmers to easily bring their produce for procurement. The Punjab government charges a 6% Mandi tax (along with a 2.5% fee for handling central procurement) and earns annual revenue of about Rs.3500 crores from these charges. They also feel that there will be greater impact on the development activities as the state has been spending there venue generated through this mandis for various development activities in the state.

The expectation of every aggrieved party with this Act is that Government has to give confidence to them and come up with clear-cut guidelines that the interest of all will be taken care. With regard to farmers assure them that MSP will remain and such assurance if made part of the Act, will generate lot of confidence in them. With regard to other section such as arthiyas or commision agents, who are fearing of losing their livelihood, assurance should be given that they will be shown some alternative or will be made to continue to be part of this mechanism in a better way and State Governments who will be losing revenue from APMC/Mandis have to be shown some avenue where the generation of income can be substituted so that the development of the states will not get affected.

Another act which was brought is


The act “to provide for a national framework on farming agreements that protects and empowers farmers to engage with agri-business firms, processors, wholesalers, exporter or large retailers for farm services and sale of future farming produce at mutually agreed remunerative price framework in a fair and transparent manner and for matters connected there with or incidental thereto”.

If we go by the status of contract farming in India it has been prevalent in only some states like Punjab Haryana, Karnataka, Madhya Pradesh, Maharashtra, Gujarat and Tamil Nadu. The agri-based and food industry, who are active in promoting contract farming as they require timely and adequate inputs of good quality agriculture produce. There were initial difficulties to the companies or sponsors to convince the farmers to this model and also the produce was not as per the required quality and quantity, this led to companies to think of backward linkage, where the companies have started to provide necessary inputs like seeds saplings usage of modern technology regular inspection of crops and provide advisory services on crop management.

There are various advantages of contract farming for the farmers such as

  1. They get considerable production support in addition to the supply of basic inputs such as seed and fertilizer. Sponsors may also provide guidance and support farmers in land preparation, field cultivation and harvesting as well as free training and extension.
  2. Farmers access to some form of credit to finance production inputs. Arrangements can also be made with commercial banks or government agencies through crop loans that are guaranteed by the sponsor, i.e. where the contract serves as collateral.
  3. Use of new production techniques which are necessary to increase productivity as well as ensure that the commodity meets the market demands
  4. There can be considerable improvement in skill development, such as use of efficient use of farm resources, innovative methods of applying chemicals and fertilizers, knowledge of the importance of quality and requirements of various markets.
  5. As there will be written farming agreement, The farmers can get guaranteed returns.

Farmers are foreseeing various fears and disadvantages while engaging through contract farming

  1. As the farmers are tying up with agribusiness ventures, there maybe necessity or compulsion to go for cultivation of new crops in the area because of which there may be production risks, particularly where prior field tests are inadequate, resulting in lower than expected yields for farmers.
  2. With the sponsors will be impressing on use of technology and use of sophisticated machines, for better and quality and output this may result in loss of local employment and overcapitalization of the contracted farmer.
  3. If the survey by field staff of the sponsors has not been properly done and the sponsors fix an unrealistic expectations, because of which there may be production loss or may not reach the agreed level.
  4. Farmers also fee that if the market for their produce cripple unexpectedly the sponsors may manipulate quality standards in order to reduce prices which may result in unrest.
  5. If there is any dispute, there are apprehensions of losing substantially, if they are not getting relief at Sub-Divisional Authority or Appellate Authority, as civil courts will not entertain any suit under this Act.
  6. There may be a situation when there is a rise in price in the open market for the product, they will be losing the benefit of selling in open as they are bounded by contract agreement.


Indian farmer is like Karna in Mahabharata, who suffers with curses in spite of having so many virtues

Whenever there is good rain before sowing of crop it is a blessing for him as this will result in taking timely agricultural activities. This year fortunately there has been good monsoon and also due to the COVID – Pandemic, there has been lot many people who have migrated to cities have returned to their home towns/villages, because of which there has been sufficient labour for agricultural activity and as per the estimates this year the sowing has been 88% more than the last year. But if the same rains come during the time of harvesting as most of times it happens , the farmers will be at losing end.

Farmers also feel that even though they have got good crop yield, they are not getting better price to their produce, because of which only there has been constant demand of enhancement of MSP, which should be fixed after taking in the actual costs involved in cultivation, rather fixing it mechanically.

There are many such issues which farmers are already facing and with the enactment of these bills they see they are not been taken care.

The Government has been very positive and confident that the farms bills will usher a new life of Indian farmers and   Prime Minister Mr. Narendra Modi has felt that this is a watershed movement for agriculture sector. The Government has to make all-out effort to create confidence and show that their intentions are very clear that the farmers interest are protected and should make every effort to drive out all misconceptions.

Even though it seems the wheel has completed its full circle, the assurance and intentions of Government has to create an environment that there will not be reoccurrence of any issues of the past.

Let the vision of Government come true and wishing that there will be a beacon of light for a new beginning of real growth in farm sector and the goal of Government to see that farmers’ income will be doubled by the year 2022 comes true.

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