El Nino Likely to Impact Farm production, Food Prices: Economic Survey

India's agriculture production and food prices may be impacted this year if a likely El Nino torpedoes monsoon rains, the Economic Survey said while asking the Centre to use constitutional powers to break monopoly of wholesale markets and give farmers' freedom to sell anywhere.

The survey listed major challenges faced by the farm sector, including low crop yields, soil degradation, phased shifting to direct transfer of fertiliser-food subsidies and market distortions that prevent creation of a national market.

"In the monsoons for 2014-15, there are concerns about the likely occurrence of the El Nino, when surface temperatures in the Pacific Ocean continuously rise above average for several months which adversely affects weather in many regions. This is likely to have an impact on India's agriculture and consequently on food prices," said the survey, tabled in Parliament by Finance Minister Arun Jaitley on Wednesday.

However, it added that there appears to be "no cause for alarm on the El Nino impact" as the country is well placed on food-grain availability with record domestic production and huge stocks in the central pool.

The India Meteorological Department has projected below normal monsoon at 93 per cent of the long period average. Till June, rainfall is deficient by 43 per cent. As a result, sowing of kharif crops is also lower by 43 per cent till July 4.

As the government blames hoarders for the recent spurt in food prices, the Finance Ministry's economic report card said that high cost of intermediation have a cascading effect on prices and suggested reforms like creation of national market.

The state APMC (agricultural produce marketing committee) laws are a major hurdle to modernisation of the food economy as they have artificially created cartels of buyers who possess market power, the Economic Survey said.

"Parliament has the power to legislate a national market under the Constitution, which gives it the ability to legislate the freedom to buy and sell, for farmers and traders across state lines. This law can override state APMC laws and restrictions that have been placed on the farmer's right to sell food within and outside the state," the survey noted.

Under such a law, APMCs would become one among many trading venues in a competitive market. The Parliament can also legislate the creation of a Commission that monitors anti-competitive practices across the country.

"To create a national market the central government needs to use powers under the Union List and the Concurrent List of the Seventh Schedule of the Constitution to end the monopoly powers of the APMCs and replace other punitive and coercive state laws affecting the food market," the survey suggested.

With a spurt in prices of essential food items like onion and potato, the Centre has been asking states delist fruits and vegetables from APMC Act and has also decided to amend laws to make hoarding a non-bailable offence, among others.

The Economic Survey 2013-14 also suggested other measures that would facilitate the creation of a barrier-free national market. These include permitting sale and purchase of all perishable commodities such as fruits and vegetables, in any market. This could later be extended to all agricultural produce.

The Survey also pitched for exemption of market fee on fruits and vegetables and reduction of the high incidence of commission charges on agricultural/horticultural produce.

"The key to investment and productivity growth on the farm is liberalisation of agriculture...Farmers must have the same economic freedom, to buy and sell their produce, as do other producers," it said.

Noting that Indian agriculture has become more robust over the last decade with record output of foodgrains and oilseeds, the survey suggested that increasing the efficiency of the farm-to-fork value chain is crucial for eliminating poverty. Strengthening agriculture sector is crucial for poverty alleviation, ensuring food security, increasing employment opportunities and enhancing rural incomes, it added.

To address key challenges facing the farm sector, the survey called for "immediate attention" on marketing reforms, adoption of new technologies/inputs to boost crop yields and direct cash transfer of food-fertiliser subsidies.

"A shift to direct cash transfer system or food stamps would anchor our food policy to the requirement of people and would additionally reduce the fiscal deficit," it suggested.

Observing that government interventions in domestic and global marketing have served as a barrier to trade, the survey suggested removal of market distortions and to creation of greater competition.

Among key reforms, the survey suggested the government to review Agriculture Produce Marketing Committee (APMC) Act, Essential Commodities Act and Land Tenancy Act to encourage free trade to boost supplies and curb price rise.

It suggested direct marketing and contract farming, inclusion of agriculture-related taxes under the general Goods and Services Tax (GST) and establishing stable trade policy based on tariff interventions instead of non-tariff trade barriers.

"A plethora of government intervention for building marketing set up has in fact created barriers to trade. There is a need to facilitate a national common market for agricultural commodities with uniform taxes in the domestic market and to foster a long term stable trade policy for agricultural products," the survey further said.

"Without new technology and quality input, desired productivity level would be difficult to achieve."

To augment food-grain availability and cut food subsidy, it suggested that the government encourage states to undertake procurement of wheat and rice instead depending on Food Corporation of India alone.

"There is a need to expand the adoption of decentralized system of procurement for the PDS from 11 states and union territories at present to all states."