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  • 08 Dec 2020 GS Paper 2 Polity & Governance

    Recent farmer’s protest demand for a deeper analysis of the mandi system in India and associated reforms. Analyse (250 words)

    Approach
    • Explain the context of recent farmers' protests and their main demands.
    • Discuss the issues with replacement of mandi system in India.
    • Highlight the associated reforms that need to be undertaken.
    • Conclude suitably.

    Introduction

    • Recently, the massive farmers’ protests erupted in New Delhi and adjoining areas against the newly introduced Farm Acts. According to the government, these new farm laws (particularly Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020- FPTC Act) are intended to benefit farmers by establishing private markets, elimination of middlemen and farmers would be free to sell to any buyer.
    • However, the protesting farmers do not accept these claims. They believe that if mandis weaken and private markets with no commitment to MSPs expand, this would lead to a gradual erosion of the guaranteed pricing i.e. Minimum Support Price (MSP) system.

    Body

    Intended Benefits of Liberalising Mandis.

    • Level playing field
    • Transfers the risk
    • Attracts private sector
    • Eliminates intermediaries

    Issues With Replacement of the Mandi System

    • Large Proportion of Produce Sold Outside Mandi: Official data show that for paddy and wheat, respectively, only 29% and 44% of the harvest is sold in a mandi, while 49% and 36% is sold to either a local private trader or an input dealer.
      • In other words, de facto, a large proportion of Indian harvest is not directly sold in a mandi.
    • Inadequate Number of Mandis: The National Commission on Agriculture (NCA) had recommended that every Indian farmer should be able to reach a mandi in one hour by a cart. Thus, the average area served by a mandi was to be reduced to 80 square kilometres.
      • However, there were only 6,630 mandis in 2019 with an average area served of 463 square kilometres.
    • Marginal Farmers Domination: Small & marginal farmers, given their small marketable surplus, do not find it economical to bear the transport costs to take their harvests to mandis.
      • Even if private markets replace mandis, small and marginal farmers will continue to sell to traders in the village itself.
    • Poor Private Investment In Liberalised Agricultural Markets: The freedom to sell outside mandis already exists in many States.
      • The reason for poor private investment in markets is the presence of high transaction costs in product collection and aggregation. Moreover, due to a large number of small and marginal farmers, this cost will be higher.
      • This is why many retail chains prefer purchasing bulk quantities of fruits and vegetables from mandis rather than directly from farmers.
    • No Evidence of Higher Prices: In the existing private markets too, there is no evidence of farmers receiving higher prices than in the mandis.
      • In fact, if transaction costs exceed mandi taxes, the costs would be transferred to the farmers at a lower price.

    Reforms That Should Be Undertaken

    • Quantitatively Improving Mandi Infrastructure: At the current stage of agricultural marketing in India, there is a need to increase in the density of mandis, expansion of investment in mandi infrastructure and a spread of the MSP system to more regions and crops.
      • For this to happen much of the mandi taxes should be properly reinvested by APMCs to improve market infrastructure.
      • In this context, the Punjab Mandi Board example is worth emulating, whereby it uses these revenues to construct rural roads, run medical and veterinary dispensaries, supply drinking water, improve sanitation, expand rural electrification and provide relief to farmers during calamities.
    • Qualitative Improving Mandi Infrastructure: There is a need for not just more mandis, but also better mandis.
      • APMCs need internal reform to ease the entry of new players, reduce trader collusion and link them up with national e-trading platforms.
      • The introduction of unified national licences for traders and a single point levy of market fees are also steps in the right direction.
    • Improving Economies of Scale: The bargaining power of Indian Farmer’s vis-a-vis corporates will change only if economies of scale rise substantially at the farm-level.
      • In order to achieve this, there is a need to strengthen Farmer Producer Organisations.

    Conclusion

    Therefore, these farmer’s protest demand for a deeper analysis of the mandi system in India and associated reforms to ensure the viability of agriculture for Aanadata (Farmers) of India.

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