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Unpacking the Reform

Unpacking the Reform


Last week the President of India promulgated the following Ordinances to boost up rural India and the farmers engaged in agriculture and allied activities:

  • The Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance 2020
  • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance 2020

The ordinance came into effect after the landmark decisions by the Government of India for reforms in the agricultural sectorto raise the income of the farmers as part of the ‘Aatmanirbhar Bharat Abhiyan.

This article presents a critical analysis of the ordinances.


  • India has shown exemplary fortitude to contain the menace of COVID-19 situation. That all of this has been done with a spirit of self-reliance only makes this achievement all the more praiseworthy.
  • In these trying times, the Hon'ble PM has given a call to convert the COVID-19 situation into an opportunity for India to become Aatmanirbhar(self-reliant) to enable the resurgence of economy.

2.1 The Five pillars of Aatmanirbhar Bharat focus on:

  1. Economy
  2. Infrastructure
  3. System
  4. Vibrant Demography and
  5. Demand

2.2 The Five phases of Aatmanirbhar Bharat are:

  1. Phase-I: Businesses including MSMEs
  2. Phase-II: Poor, including migrants and farmers
  3. Phase-III: Agriculture
  4. Phase-IV: New Horizons of Growth
  5. Phase-V: Government Reforms and Enablers


The ordinances aim to provide additional trading channels for farmers and traders, the scope of which goes beyond the APMC markets, to make the trading of produce more remunerative for the farmers.

3.1 The Farmers’ Produce Trade And Commerce (Promotion & Facilitation) Ordinance 2020”

  • Creation of an ecosystem giving more freedom of choice to farmers and traders with respect to the sale and purchase of agricultural produce by the farmer.
  • The ecosystem will provide better remunerative prices due to competitive alternative trading channels
  • The ordinance aims to provide more efficient, transparent and barrier free inter-State and intra-State trade and commerce of the produce outside the realm of physical markets or deemed markets notified under various State agricultural produce market legislations.
  • The ordinance will also provide a facilitative framework for electronic trading

3.2 “The Farmers (Empowerment and Protection) Agreement On Price Assurance and Farm Services Ordinance 2020”

  • This ordinance will provide for a national framework on farming agreements that protects and empowers farmers to engage with agri- business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce at a mutually agreed remunerative price framework in a fair and transparent manner.


  • The writer believes that the bureaucracy and State Governments for a variety of reasons have historically opposed the ordinances introduced.
  • It was because of the multiple failed attempts to raise the incomes of Indian farmers, combined with the urge to deliver reforms instantaneously, that the government has introduces ordinances and not bills.
  • Bills would require an elaborate procedure like
    • placing them in the public domain for comments
    • holding consultations farmers
    • holding discussions and states and getting them inboard as with the introduction of the bill,  the revenue opportunities and powers of the states would be curtailed
  • However, in the haste of instantaneous and overhauling implementation, the ordinances are ill conceived, comments the writer.

4.1 Exposing the farmers to an unregulated market

  • Unionisation of intermediaries and their financial and political influences have deterred state government to amend the exploitative agriculture marketing laws and help farmers realize the true monetary value for their produce.
  • The writer suggests that instead of persuading the states with financial help to regulate these markets the government has created an unregulated market and exposed 15 crore farmers to skulduggery of traders from all over the country.

4.2 Revenue Loss for States

  • The Constitutional validity of the ordinance is already under doubt and beyond that, it also raises questions on the spirit of federal polity in India.
  • With the execution of the ordinance, the states will lose an important source of revenue to even support, upgrade and repair rural infrastructure.

4.3 Apprehensions with the Ordinance

  • The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance 2020, aims to assure both, the farmers and the contractor by providing legal support to the agreement.
  • The legal recourse is not a viable option for small and marginal farmers in India given a poor judicial setup in the country and persuasive power and influence of aggregators with deep pockets.
  • The long drawn tedious and high litigation expense will discourage farmers to seek legal recourse or settle for unfavourable terms. 


  • It will start the formalization of the country’s largest informal sector.
  • New business models and a new class of aggregators will challenge the monopoly of local traders by creating multiple competing channels and trade avenues.
  • As farmers will be able to sell their produce outside the APMC markets, these markets will lose out on the commission on sale of farm produce. This will motivate the APMC markets to raise their standards, provide better infrastructure and opportunities and rationalize the commission charged.
  • The decision to shield the produce derived from contract farming operations from any obstructionist law is a very good and welcome step.
  • This will be very beneficial to the Farmer-producer organisations and encourage new aggregators to step and play in the market. This will directly benefit the small corners of rural India.


  • Instead of overhauling the whole market structure, the writer suggests that the government should have introduced changes in the Essential Commodities Act (ECA), 1955 to bring out the same result in a better-conceived way.
  • This amendment was supposed to allay the genuine fears of traders emitting from the bureaucracy’s draconian powers to arbitrarily evoke stockholding limits etc.
  • The trader’s uncertainty is compounded by the arbitrary import-export policy decisions which dilute the purpose of the amendment itself.


  • The ordinances are the first step to realize the Shanta Kumar Committee recommendations to dilute and dismantle FCI, MSP & PDS.
  • Though this is a welcome step but if ill implemented, will force the farmers to bear the brunt.
  • For example, the ordinance may be interpreted to imply that the sugar industry is not anymore required to pay farmers the central government FRP (Fair and Remunerative Price) or the state government SAP (State AdvisedPrice) price for sugarcane.
  • For farmers the bottom line is not as much about “markets” as much as about fair remunerative prices. Prices should not only cover the cost of production but also provide for a dignified living.
  • Both regulated markets like APMCs and unregulated markets like local mandis have failed to provide farmers with remunerative prices.
  • While the ordinance shoots the right bullets to provide new avenues for trade and new competing channels of commerce helping better realization of prices, these avenues need to have some oversight and protective mechanisms for farmers, especially given that the current market is highly unequally playing field skewed in the disadvantage of the farmers.

Additional Information: Shanta Kumar Committee

  • The Government of India (GOI) set up a High Level Committee (HLC) for Restructuring of Food Corporation of India (FCI) in August 2014.
  • The committee consisted of ShantaKumar as the Chairman, six members and a special invitee.

Major recommendations of the committee are:

On procurement-related issues

  • FCI should hand over all procurement operations of wheat, paddy and rice to Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab as they have sufficient experience and reasonable infrastructure for procurement.
  • FCI procurement should focus on eastern belt, where farmers do not get minimum support price.

On stocking and movement-related issues

  • FCI should outsource its stocking operations to various agencies such as Central Warehousing Corporation (CWC), State Warehousing Corporation (SWC), private Sector under Private Entrepreneur Guarantee (PEG) scheme.
  • It should be done on a competitive bidding basis, inviting various stakeholders and creating competition to bring down costs of storage.

On PDS and NFSA related issues

  • Restructuring the National Food Security Act (NFSA) by virtually diluting its scope and coverage from 67 per cent of population to about 40 per cent population.
  • In order to curtail leakages in PDS Government should differ implementation of NFSA in states that have not done end-to-end computerization.

On Buffer Stocking Operations and Liquidation Policy

  • One of the key challenges for FCI has been to carry buffer stocks way in excess of buffer stocking norms.
  • The underlying reasons for this situation are many, starting with export bans to open-ended procurement with distortions (through bonuses and high statutory levies), but the key factor is that there is no pro-active liquidation policy.
  • The current system is extremely ad-hoc, slow and costs the nation heavily. A transparent liquidation policy is the need of the hour, which should automatically kick-in when FCI is faced with surplus stocks than buffer norms.
  • Greater flexibility to FCI with a business orientation to operate in OMSS and export markets is needed.

On Labour Related Issues

  • HLC recommends that the condition of contract labour, which works the hardest and is the largest in number, should be improved by giving them better facilities.

On end to end computerization

  • HCL recommends end-to-end computerization of the entire food management system, starting from procurement from farmers, to stocking, movement and finally distribution through PDS.
  • It will help for real time basis monitoring in order to curb leakages.