Business Today

Reform to Re-farm

Several key reforms were stalled and reversed when agri-business was about to take off.

S. Sivakumar | Print Edition: April 5, 2009

The unfolding story of Indian agriculture over the past few decades has given us plenty of food for thought. On the one hand there is the spectacular success story that has seen a nation move from crippling shortages to self-sufficiency in food, while on the other hand, there are contradictions and paradoxes that few will find easy to reconcile. The crucial thing though, at this juncture, is to realise that some important changes are occurring around us that impact Indian agriculture. For one, there is a growing need for a more market-aligned production in terms of variety or quality that the “new” consumer is seeking. Given that so many people rely on agriculture for their livelihood it requires us to achieve such a market alignment in an inclusive manner.

This transformation is more fundamental than what is commonly believed. Producing what the consumer demands is an entirely different ball game from consuming whatever is produced by the farmer. The technology now has to shift focus to bringing consumer preferred traits into crops, in addition to the yield improvement work done in the past. ITC’s integrated consumerto-farmer business model became a celebrated case study of a new demand driven value chain. Such new models by several companies became possible to a large extent because of an enabling environment provided by the government through the reform of Agriculture Produce Marketing Act (APMC Act) to permit contract farming, direct marketing and private mandis to improve the linkages between the farmer and the agri-business companies.

A more important role has been played by the tax structure reforms to make the rates across states uniform, reducing the points of taxation along the chain and moderating the tax rates. The new VAT regime is a step in the right direction. One of the biggest sources of margin for several unscrupulous fly-by-night agri commodity players has been tax evasion. It is next to impossible for any long term, consumeroriented agri business to first offset this tax element, and then create value. The tax structure was one main reason for the fragmentation of our agri-business industry.

Equally significant have been measures aimed at promoting new institutions and mechanisms such as commodity derivative markets, weather insurance etc., to reduce risk and transaction costs in agriculture and agribusiness. While the sector was just about to take off, unfortunately, many of these reforms have been pushed back in several knee-jerk reactions over the last two years, either in the process of controlling inflation —partly rightly so—or possibly under pressure from vested interests.

For example, Essential Commodities Act resurfaced and the stock limits were reintroduced. Physical movement across states was restricted in some commodities. Futures trading has been suspended in many commodities. Several local taxes and offsetting structures in many states defeat the common tax regime. The new Food Law is still not implemented pending operationalisation of the Regulatory Authority. Most importantly, the APMC Act—a basic enabler—is still not amended in several key states even five years after the model Act was formulated. Where it is amended, the rules are not yet in place. I do realise that any change process is bound to be slow in a complex country like India, but one is not sure whether agriculture can wait that long.

— S. Sivakumar is Chief Executive (Agri Businesses), ITC Limited

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