The Government of India (GoI) got the Farmers' Produce Trade and Commerce Bill, 2020, and the Farmers' Agreement of Price Assurance and Farm Services Bill, 2020, approved in Lok Sabha, despite opposition even from some allies. These structural reforms are essential to preserve the long-run growth potential of the agricultural sector.
Earlier, the GoI had passed the Essential Commodities (Amendment) Act, 2020, to deregulate cereals, pulses, oilseeds, potatoes and onions, and to do away with stock limits. It also put into motion an amendment of the Agricultural Produce Market Committee (APMC) Act. Bringing in a contract-farming Act will address structural weaknesses in the sector.
The agriculture sector has held up quite well in the Covid-induced GDP crash, even as the virus is spreading to smaller towns and the hinterland. Q1 GDP data bears testament to this. While India's GDP contracted by 23.9% YoY in April-June 2020, agricultural output grew 3.4% YoY. So, are there some important lessons that the GoI can learn from its own economic management and conduct for reviving the economy at large?
Timely interventions and thinking about the supply chain holistically are key. This is best illustrated by GoI's decision to rapidly scale up rabi procurement operations early on during the lockdown. The Centre, along with state governments, issued guidelines on facilitation, movement of man and machine, etc., in a timely fashion. The Food Corporation of India (FCI) and state procurement agencies together bought a record 39 million tonnes of wheat, about 14 % higher than levels a year ago, and even more than the earlier record procurement of 38.2 million tonnes in 2012-13 — this under the shadow of Covid.
Active cooperation between the central and state governments saw a sharp increase in procurement centres (from about 15,000 to about 22,000) to ensure farmers a market and prevent distress sales and wastage. As much as INR 750 billion was paid out to some 4.2 million farmers by way of minimum support price (MSP) for wheat during the current rabi marketing season.
GoI also attested that front-loading and targeting government spending are important to support economic activity. It front-loaded rural spending, pumping in INR 1.9 trillion during the first four months of FY2021. This was a sharp increase by 63.4% YoY against VA, YoY growth in other expenditure during the same period. This is likely to have played an important role in preventing distress, and even supporting the rural economy.