Noise around farm laws: Are we really reading the provision correctly?

While unregulated trade is definitely not healthy for India, a close reading of the legislation, with its accompanying provisions, seems to point towards something different

A dominant narrative of the three farm laws — particularly the one which regulates out-of-mandi transactions — is that, once fully operationalised, it will gradually lead to withering of the mandis and push farmers into the hands of big companies and agents. Also, when this happens, it would be difficult to keep track of transactions, since much of these will be outside the mandi regulations, and that would lead to hoarding, speculation and cheating of farmers.

A dominant narrative of the three farm laws — particularly the one which regulates out-of-mandi transactions — is that, once fully operationalised, it will gradually lead to withering of the mandis and push farmers into the hands of big companies and agents. Also, when this happens, it would be difficult to keep track of transactions, since much of these will be outside the mandi regulations, and that would lead to hoarding, speculation and cheating of farmers.
 
While unregulated trade is definitely not healthy for the country and there already are instances of unscrupulous traders fleecing farmers, a close reading of the Act along with its accompanying provisions seems to point that much more needs to be done to strengthen the registration of traders who will trade outside of the mandis.
 
That is something the government has now promised to do in its compromise offer to farmers. But it should have done that earlier.
 
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, also called the Trade Act, in short does contain a provision which says that the Centre may prescribe a system for electronic registration for a trader, modalities of trade transactions, and mode of payment of scheduled farmers’ produce in a trade area. A trade area has been defined as an area that is outside regular mandis.
 
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Such a registration should have been initiated alongside the Acts, with proper oversight by states to answer a lot of complaints regarding traders fleecing gullible farmers.
 
A better way to analyse this is to compare the current situation with the one that might evolve over time. At present, most data show that just 30-40 per cent of the total annual production of cereals, pulses, oilseeds and vegetables passes through the mandis.
 
The Ashok Dalwai committee on Doubling Farmer’s Income pegs mandi arrival of major pulses, cereals, oilseeds and vegetables as a percentage of their total production at 30-32 per cent. The rest, almost 70 per cent of the total production, ordinarily does not pass through mandis.
 
Even if we discount self-consumption and other requirements from this, it means that a significant portion of the annual farm produce does not pass through the mandis or regulated markets.
 
This means that much of this out-of-mandi trade is not fairly accounted for. A portion will certainty come under mandi regulations, because the jurisdiction of mandis at many places falls outside the physical boundaries, too. But a sizable portion of this trade does not fall within the regulated domain.
 
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To make things less complicated, let’s consider a situation that prevailed before the Ordinances (now Acts) came into force.
 
In several states, traders were free to purchase any amount of any commodity outside of mandis.
 
This did not require any documentation or receipt. Meaning, since traders did not provide any documentation for purchase, there was no way to track them.
 
But the new rules clearly mention in Chapter 2 (clause 4, sub-section 1) that no trader except a farmer producer organisation (FPO) can trade in any agriculture commodity in a trade area (area outside mandis) without producing a PAN card or any other document as specified by the central government.
 
It is here that the rules should be strengthened. The Centre could further tighten the requirement for additional documents to trade outside mandis. These, among other things, could be an authorisation letter from the local mandi.
 
An India Today investigation a few months ago showed that when procurement season is over, traders and commission agents refrain from paying minimum support price (MSP) outside mandis. Also, in some cases, traders are not willing to give any document for such out-of-mandi transactions. The same can happen to millions of tonnes of fruit, vegetables, oilseeds, pulses and other agricultural goods that will henceforth be transacted outside of mandis.
 
Therefore, to correct the common perception that the trade rules will lead to a proliferation of unregulated trade, the Centre has a lot of options. 
 
Also, once an Aadhar-linked PAN is made mandatory for such off-mandi transactions, taxing such transactions will not be difficult. But there is a chance of unscrupulous traders forging PAN to fleece farmers. To address this, safeguards need to be built into the rules.
 
According to latest data, around 65 per cent of the 510 million PAN cards in India were linked to Aadhar as of June 2020.