Budget 2022: Is the BJP government’s economic reform momentum dying?

The government enacted and notified the Trade and Commerce in Agricultural Products (Promotion and Facilitation) Act 2020 in September 2020. This Act introduced reforms in the marketing of agricultural products by striking at the root of the monopoly of the committees marketing of agricultural products (APMC) on the wholesale trade of agricultural products.

In terms of marketing reforms, this law was truly revolutionary.

The law gave farmers complete freedom to sell their products in the AMPCs or anywhere outside. It also enabled any businessman to establish a physical trading station outside the APMC market or establish an e-commerce system anywhere in the country.

The law effectively abolished the mandi fee system by exempting businesses created outside the APMCs from paying mandi fees.

Together, these two measures allowed farmers and traders to conduct interstate and intrastate transactions without any restrictions.

As there was a distinct comparative advantage in locating outside the APMCs, both in terms of freedom of trade and non-payment of mandi fees, it was expected that trade in agricultural products would soon shift outside the APMC markets.

There were two other pieces of legislation as part of the farm bill package.

The Farmer Price Insurance and Agricultural Services (Empowerment and Protection) Agreement Act, 2020 sought to institutionalize a centrally controlled and regulated contract farming regime in the country.

The amendment to the Essential Supplies Act sought to circumscribe the government’s power to impose restrictions on the storage, pricing and export of agricultural products.

States risked losing significant mandi tax revenue. Agricultural trade would also have moved outside of the APMCs controlled by them. However, with the exception of some opposition-led states, which also passed meaningless resolutions in their assemblies, the states didn’t wince much.

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