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The many facets of the liberalization of India’s internal trade regime

Abhishek Raghuwanshi, a young grower from Vidisha district in Madhya Pradesh, is a keen follower of any policy announcement that affects agriculture. Being a large farmer, with over 80 ha of land, Raghuwanshi often stock grains and pulses for months in order to sell them at a later date, unlike small growers who sell their produce at harvest time when prices are often low. In short, Raghuwanshi tries his best to time the market for a better price.

However, the timing of a new set of laws liberalizing India’s internal trade regime in agriculture surprised Raghuwanshi. Growers like him were anticipating more immediate relief, instead of long-term reforms which may take many months or even years to begin impacting lives.

On 5 June, a set of three related ordinances came into effect—which amended the Essential Commodities Act, allowed barrier-free trade and movement of farm produce across state lines, and introduced a new model of contract farming which could potentially result in assured prices on harvest for growers based on a pre-decided contract.

The ordinances came on the back of supply disruptions due to the covid-19 pandemic which has devastated fruit and vegetable growers’ business.

On paper, India’s 145 million growers now have legal backing to look beyond the nearest state-regulated wholesale markets, where they were forced to sell until now, and find a new set of buyers and more remunerative prices. The reforms in the Essential Commodities Act, the government hopes, will lead to more investments in storage infrastructure leading to stable prices, while the new law on contract farming will reduce price risks for growers.

But all of these are mere hopes for now and will take time to show any results, Raghuwanshi said. “Just because the government has allowed buyers to directly purchase from growers, they are not going to queue up in front of my farm. In a depressed market, when demand is already low, traders are unwilling to even stock," Raghuwanshi said.

What disappointed Raghuwanshi more was this: even as the government framed a new set of laws to empower growers, it also reduced import duties on lentils, a winter pulse, which has immediately led to lower farm gate prices.

The scepticism of growers like Raghuwanshi is not misplaced—they bore the brunt of long years of low crop prices, lost their harvests to recurrent climate events like droughts and floods, and paid a heavy price for a consumer-centric food policy which depressed grower incomes.

Of course, the new set of reforms may eventually benefit growers by eroding the monopoly of trader cartels which control the wholesale markets. The question is: how long will growers have to wait? Can they expect better prices by October when kharif crops are ready to harvest?

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