A welcome move

Farm trade needs private wholesale markets, too

The recent direction by Congress Vice-President Rahul Gandhi to chief ministers of the Congress party in various states to exempt fruit and vegetables from the purview of the Agricultural Produce Market Committee Act, or APMC Act, is an important and useful step. Mr Gandhi's intent, he said, was to attack the problem of food inflation, which has become persistent in recent years and has severely constrained macroeconomic policy in addition to causing widespread distress. Congress President Sonia Gandhi also pointed to rising prices as a major political problem for the party after it was routed in recent Assembly elections. However, several major questions still exist. First, what hurdles remain in place even after Mr Gandhi has summoned the political will to address this long-standing problem? And, second, why has it taken so long for the Congress to address a basic reform in agricultural marketing?

The APMC Act is a relic of a pre-liberalisation India that was paranoid about profit-making, and believed that market transactions were necessarily exploitative. It restricts agricultural trade to varying degrees to within state-controlled centres for produce marketing, called "mandis". Like most such market-unfriendly moves, it had problematic consequences that defeated its purposes. Something meant to protect farmers from exploitation, and to cut out the middleman, in fact created a leaky and overly complicated supply chain that ensured high produce prices in urban centres while not compensating farmers to the extent that a fully functioning market would. As befits a remnant of the licence raj, traders holding a licence to trade at mandis frequently became a cosy and comfortable cartel, with considerable control over prices that they used to pad their own profits. Ending this cartel needs to allow farmers to sign contracts with end-users like big retail chains that will compensate them properly. However, one big hurdle remains in terms of the political effects of modifying the APMC Act: these cartels are frequently important local political players. Mr Gandhi's intent may run into that ground-level reality.

In 2003, the National Democratic Alliance attempted to reform agricultural procurement through a model APMC Act. Some states have acted to implement the model APMC Act. None of these amended statutes, barring Maharashtra and Karnataka, have stayed with the spirit of the original law. Most do not permit privately owned, regulated wholesale markets as competition for the public mandis. Mr Gandhi should have also insisted on the adoption of the APMC Act, suitably updated for 2013. BJP-ruled Madhya Pradesh, for one, has already implemented Mr Gandhi's suggested reform. Which leads to the second question: given the political resistance to such an obvious and necessary reform, why has the central Congress leadership only now bestirred itself to ask its states to make some overdue changes to produce marketing? The Centre, including Prime Minister Manmohan Singh, has repeatedly asked states to make the necessary changes. But Congress-led states ignored the Centre: it apparently needed Mr Gandhi to take a stand. This is unfortunate, and summarises the problems that the United Progressive Alliance has faced in economic reform.

Existing APMC Acts are largely dangerous and outdated. Mr Gandhi's statement is welcome, even if belated. But the Congress must go further. It needs to ensure that a thriving wholesale market develops for agricultural produce, to benefit both farmers and consumers.