Several key reforms were stalled and reversed when agri-business was about to take off.
Column By S. Sivakumar , Divisional Chief Executive, ITC – ABD
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 consumer to-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, consumer oriented 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.
