A national common market is needed for agricultural commodities, said the Economic Survey for 2014-15 which was tabled in parliament by Finance Minister Arun Jaitley Friday.
The annual report card on the state of the country's economy said that un-integrated and distortion ridden agricultural market is one of the most striking problems in agriculture growth.
Read our full coverage on Union Budget
The survey, which was tabled a day ahead of the union budget suggested 3 incremental steps as possible solution to the problem.
"Recognition for setting up a national market, farmers' markets and need for the central and state government to work closely to reorient their respective APMC Act (agricultural produce market committee act)," the survey said.
The survey suggested that all states should drop fruits and vegetables from APMC schedule of regulated commodities.
"State governments should also be specifically persuaded to provide policy support for alternative or special markets in private sector," the survey suggested.
The survey said that liberalisation in foreign direct investment (FDI) in retail could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies.
As a last resort constitutional provisions can be used to create a national common market for agricultural commodities, the survey said.
Currently, markets in agricultural products are regulated under the APMC Act enacted by respective state government which notifies agricultural commodities produced in the region.
The APMCs charge multiple fees, of substantial magnitude, that are non-transparent like a market fee of buyers, a licensing fee from the commissioning agents and fees from a whole range of functionaries.
In addition, the commissioning agents also charge a commission fees on transactions between buyers and farmers.
"These statutory levies, mandi tax, vaule added tax varying from state to state are the major source of market distortion," the survey said.
"Such high level of taxes at the first level of trading has significant cascading effects on the price," the survey added.