[Eco-Survey] Ch8: National market for Agriculture, Reforms in APMC, Commodities market, NSEL crisis

Economy60 Comments

India Yearbook
  1. Prologue
  2. Indian Agriculture: Strength/potential
  3. Why focus on Agriculture
  4. R1: APMC Act
  5. Why do we need a National Market for Agriculture?
    1. How to setup national market for Agriculture?
    2. Budget 2014 announcement
  6. R2: Commodity market
    1. What is NSEL crisis?
    2. Who is Jignesh Shah?
    3. Steps taken to fix NSEL crisis
    4. Why do we need Commodity markets?
    5. Commodity trading Policy uncertainty
    6. WDRA
  7. R3: Productive vs Production
  8. R5: small-marginal farmers= less productive?
  9. R6: Farm Mechanization = why necessary in India?
  10. Overall Reforms required

Prologue

Economic Survey 2013: Chapter 8 on Agriculture. 4 subparts.

  1. Schemes and budget 2014 announcements
  2. Food Subsidies: MSP, Nutrient based subsidy, FCI, Bali problem.
  3. Overall reforms- APMC, National market, Commodity market etc. (Mostly, mains fodder but not much for prelims, so you may skip this one for now.)
  4. El-Nino, its impact on Indian agriculture. (Old article but updated with points from Economic Survey).

Indian Agriculture: Strength/potential

  1. Share in GDP: 14% (Service > Industries > Agriculture)
  2. Share in employment: ~49% (Agri > Services > Industries)
  3. 1st rank in Milk (17% of world production)
  4. 1st rank in Mango, banana, coconut, cashew, papaya, peas, cassava and pomegranate
  5. Largest producer and exporter of spices
  6. Overall, second largest producer of vegetable, fruits and fishes
  7. Weather permits multiple crops throughout year.

Why focus on Agriculture

  • BRICS study: 1% Growth in Agro=2-3 times more effective in poverty removal (than equivalent growth in industries or service sector).
  • Canada, US: mechanized agriculture, large track of land = they lead in wheat and corn production.
  • India has large population = can focus on labour intensive high value agriculture example saffron, fruits and vegetables.
  • India can be a producer and exporter in all these areas = high income for everyone=a livelihood in agriculture does not have to be a promise of poverty.
  • Aids in women empowerment.  HOW?
    • ~10% of total rural households headed by a woman.
    • Women play productive roles in all facets of the agriculture, dairy and sericulture.
    • Therefore agri reforms => income rise => women empowerment.

R1: APMC Act

APMC Act reform national market budget 2014

What is APMC act, how does it lead to harassment of farmers, what is Model APMC act….all topics covered in detail under [Food processing] series, click me.

Why do we need a National Market for Agriculture?

  • After LPG reforms in 1991, Industrial sector allowed to buy from, and sell to, anyone in the world
  • But Under State APMC Acts, the Indian farmers are still required to buy and sell only in the government-designated “Mandis” known as Agricultural Produce and Marketing Committees (APMC).
  • Farmers are not allowed to sell their produce directly to the consumers.
  • The monopoly of government-regulated mandis has prevented development of a competitive agriculture marketing system in the country.
  • These Mandis don’t even have proper physical infrastructure = fruits/veggies damaged + nuisance of middlemen = they charge commission and involve in hoarding of onions and potatoes.
  • Ultimate result: food inflation.
  • To solve this issue- union Government circulated the model APMC Act 2003 to states. Some states adopted it, but overall, even the “reformed” APMC act has not solved the problem.
  • Therefore, Survey recommends a national market for food / agriculture
  • Jaitley budget promises to do the same.
  • Challenge: 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 APMC.

How to setup national market for Agriculture?

Survey recommends following steps:

  1. Parliament should pass a new law, to setup a national market for agriculture.
  2. Parliament should also create a statutory Commission to monitor this national market, to prevent any cartels and anti-competitive practices.
  3. It’ll override statewise APMC laws.
  4. Farmers and traders will be free to buy/sell across state borders.
  5. APMC mandis can continue functioning but farmers will have no legal obligation to sell produce in them.
  6. Also, Permit sale and purchase of all perishable commodities such as fruits and vegetables, milk and fish in any market, and exempt market fees on them.
  7. Reduce commission charges on agricultural/ horticultural produce.
  8. Encourage self-help groups (SHGs) to organize farmers markets near urban centres, malls, etc. that have large open spaces.  – At least one agriculture market within 5 km radius.
Existing direct marketing initiatives
Apni MandiPunjab
Uzhavar SandhaiTamil Nadu
Shetkari BazaarMaharashtra
Hadaspur Vegetable MarketPune
Rythu BazarAndhra Pradesh
Krushak BazaarOdisha
Kisan MandiRajasthan
  • If company helps setting such ‘direct agriculture markets’, count it under corporate social responsibility (CSR) activities under Companies Act 2013. (so company can fillup their mandatory 2% CSR quota).
  • Setup supply chain infrastructure- similar to the e-Choupal initiative of ITC Ltd.
  • Tie-up with commodity exchanges’ to help farmers know spot and futures prices of agricultural commodities. So, they can decide next crop accordingly.

Budget 2014 announcement

  • We will work closely with the State Governments to re-orient their respective APMC Acts.
  • This will help setting up private market yards/ private markets.
  • We’ll encourage state governments to develop Farmers’ Markets in town areas to enable the farmers to sell their produce directly.

R2: Commodity market

Commodity trading explained

  • Farmer deposits his wheat in a warehouse.
  • He gets a warehouse receipt.
    • He can “mortgage” this warehouse receipt to a banker to get loans. OR
    • He can trade this WR @Commodity exchange.

In commodity exchange there are variety of trade agreement

Typewheat priceinterpretation
T+2Rs.1400I’ve to pay within 2 days to farmer, and he gives me the WR.
T+20Rs.1800I’ve to pay within 20 days, this much money and farmer must be give WR.
  • Usually, longer duration contract has higher price.
  • But Farmers usually sell on shorter duration because they need quick money for next crop. So if I bought a WR in T+2 and sold to another guy @T+20, I would make profit. Well and good.

What is NSEL crisis?

NSEL crisis explained

Game collapsed when FMC ordered them to settle all contracts within ten days (T+10)

  • NSEL is a commodity exchange platform. In BSE, shares are bought and sold. Similarly @NSEL, the warehouse receipts are bought and sold.
  • NSEL launched an “E-series” platform to do online trading of commodities.

Problem comes with entry of “middlemen”- they asked investors to give money, with following promise

  1. We use your money to buy WR (from farmers @cheap cost).
  2. We sell those WR to other parties (when prices are favorable), and make big profits for you. (This is one way how “hoarding” happens, because someone has stock in warehouse, but not selling it in hope of higher prices in future).

Who is Jignesh Shah?

  • NSEL => parent company FTIL => its boss Jignesh Shah.
  • Jignesh Shah and the middlemen connived and began make contracts using fake warehouse receipts e.g. T+20, T+30…. etc.
  • Their gameplan was to arrange “genuine” receipts within those 20-30 days (using investors’ money).
  • This scam ran for long. Something like this- you go to a bookstore, owner lies to you “I’ve book in godown, just wait for 20 minutes”….and in the meantime, his assistant arranges book from another store.
  • NSEL CEO Anjani Sinha & other executives turned blind eye, because NSEL would earn ~2% commission on every contract. (And Jignesh was boss of their parent company.)

How did the scam collapse?

  • July, 2013: FMC sensed some wrongdoing ,and felt long duration contracts to be culprit behind food-inflation.
  • FMC banned such 20-30 days-walla contracts. Ordered the traders to settle within 10 days i.e. T+10 system.
  • Obviously Jignesh gang couldn’t arrange genuine receipt within short time, thus the game collapsed.

Size of the NSEL crisis

  • Brokers such as Motilal Oswal, Indiainfoline have made contracts worth Rs.700
  • Total contracts worth 5500+ crore
  • Total investors more than 15000.

Steps taken to fix NSEL crisis

  1. NSEL began auctioning commodities from its warehouses. But it’s not generating sufficient money to settle the claims of investors.
  2. Government banned E-series system of NSEL and formed panel under Arvind Mayaram.
  3. Forward market commission started investigation against NSEL. Gave directives to all commodities exchanges regarding board of directors’ appointments and investment limits.
  4. Chindu transferred the control of FMC from consumer affairs ministry to finance ministry.
  5. Income tax department began investigation against NSEL board members, and their allied companies.
  6. NSEL CEO, Anjani Sinha arrested and chargesheeted.
  7. May 2014: Jignesh Shah arrested.

Anyways, back to the topic. so far we learned that commodity market leads to speculative hoarding and scam. So, should be ban commodity market system altogether? Answer is no.

Why do we need Commodity markets?

  • Gives bargaining power to farmer.
  • Commodity market, acts a messenger of future price trends.
  • The contracts for successive months- they signal future price trends. Government can take pre-emptive action, whenever required
  • BUT Information asymmetry is a major market barrier. Big traders know world agro-price movement, farmers don’t. Thereby traders buy cheap and sell high.
  • If we want the farmers to take informed decisions about cropping pattern, marketing strategies, price bargaining….then they MUST know the price movements in commodity market.
  • Therefore, the FMC is implementing the Price Dissemination Scheme via AGMARKNET system.
  • It provides real-time prices on 1700 Mandis, Kisan Vikas Kendra and other places where farmers make frequent visits.

Commodity trading Policy uncertainty

  • In recent years, Government suddenly puts ban and lift bans on future trading of onion, potato, sugar etc.
  • This has hampered the development of commodity market as a platform for price discovery. Consequently,
    • Farmers cannot make rational decision on cropping pattern and investment intensity of cultivation or price bargaining.
    • And food processing companies cannot get necessary supply of raw material.
  • Thus, despite being a leading producer major agricultural commodities, India has not taken on the role of a global price setter.
  • Economic survey recommends Government to have a stable policy on commodity trading and export.

WDRA

  • Warehousing Development and Regulator Authority (WDRA)
  • Statutory body to regulate warehouses and their Negotiable warehousing receipts for 40 agricultural commodities including cereals, pulses, oilseeds, and spices.
  • FMC directed all commodity exchanges to register with the WDRA. (Because NSEL crisis = traders used fake warehouse receipts to make future contract.)
  • Warehouse Development and Regulatory Authority (WDRA) has begun setting a public information setup. So all farmers, traders, public can get information about performance of warehouses across the country.

R3: Productive vs Production

  • Our agriculture productivity are far below global standards
  • Rice-wheat has hardly increased after green revolution.
  • YET, rice-wheat production has increased. How? because more area under cultivation because of higher MSP + cheaper Urea.
So, is it good or is it bad?
Area
  • More Area under rice-wheat = less cultivation of oilseeds and vegetable = food inflation comes, anyways.
  • More area under cultivation = reduced forest cover, water table.
  • +mindless use of fertilizers = soil fertility declined in Punjab, Haryana.
  • Therefore, we must focus on R&D to increase agro. Productivity RATHER than bringing more area under cultivation.
MSP
  • Wheat + rice production increased because government raised MSP.
  • But this also increased the amount of rotten grains, due to inefficiency in FCI and PDS.
  • Therefore, DESPITE bumper production of foodgrains, 25% of all undernourished people in the world are living in India.
  • Besides, Government only focuses on giving rice-wheat to poor. But to combat malnutrition, you’ve to increase consumption of milk, fruits and vegetables as well.
  • THEREFORE, Survey recommends giving DBT / Food stamps to poors, to let them decide what to eat.

Focus on Agro research to raise productivity

  • >85% agriculture investment comes from private sector. But within that, Private sector doesn’t contribute much to investment in Agri.research.
  • Therefore Government needs to allot more money here and Empower Indian universities to produce world class research.

R5: small-marginal farmers= less productive?

  • Empirical studies indicate that small land holdings are not a deterrent to increasing productivity.
  • Because productivity depends on modern inputs, appropriate technology, and innovative supply chain….rather than on farm size.
  • Therefore, Government should organize the small and marginal farmers through farmer producer organizations (FPOs) and provide market linkages to them.

R6: Farm Mechanization = why necessary in India?

  • Although India is one of the top countries in agricultural production, farm mechanization ~25%, against >90% mechanization in first world.
  • Farm mechanization can raise productivity by ~80,000 crore rupees per year. (ICAR report).
  • Farm mechanization can generate employment for rural youth and artisans for the production, operation, service and maintenance of farm machines.
  • Farm labour wages have increased (due to MNREGA created labour shortage). Therefore, higher levels of farm mechanization are necessary for sustaining productivity and profitability.
  • although easier said than done because
    • Different soil and climatic zones,
    • Small land holdings with limited resources.

Overall Reforms required

  1. a National Common Market for agricultural commodities with uniform taxes in the domestic market
  2. Stable policy for agricultural export and commodity trading.
  3. Focus on the rural non-farm sector, manufacturing sector, and labor-intensive segments of services. This will reduce no. of farmers => land consolidation =>Mechanization.
  4. Crop protection and insurance schemes need to be revamped.
  5. Fresh look at policies towards FCI procurement, marketing, transport, storage, and processing.
  6. To farmers: give subsidy via Direct Benefit Transfer (DBT). Bring Urea under Nutrient Based subsidy regime.
  7. To poors: food stamps / DBT, instead of giving rice+wheat.

If above steps taken then possible to sustain the 4% growth rate in agriculture.

Mrunal recommends

  1. (free) NCERT, NIOS, TN-Books
  2. Environment by ShankarIAS
  3. Indian Polity M.Laxmikanth (Hindi | English)
  4. Art & Culture by Nitin Singhania (Hindi | English)
  5. Spectrum: Modern History (Hindi | English)
  6. Bipin Chandra: Post Independence
  7. Fast-track to Arithmetic Rajesh Verma
  8. MK Pandey’s Analytical Reasoning
  9. Disha’s Topicwise Paperset (Hindi | English)
  10. School Atlas
  11. Mains: Language papers
  1. (free) NCERT, NIOS, TN-Books 4 History,Geo,Sci
  2. Indian Polity M.Laxmikanth (Hindi | English)
  3. Spectrum: Modern History (Hindi | English)
  4. Maths: Quantam CAT Sarvesh Kumar
  5. Objective General English SP Bakshi
  6. Word Power made Easy -Norman Lowe
  7. Topic wise Solved Paperset by Disha


So far 60 Comments posted

  1. Pankaj Vatsa

    Sir, Please share your thoughts about CSAT Paper II English Comprehension questions.
    Should we skip them, or we have to still attempt them, as UPSC has said nothing on this?

  2. Deepak vijayalu

    Thanks a lot Sir.

  3. shikha

    thanks ….god bless you…

    1. sikandar

      so sweet of you 😛

  4. luv

    thanks a lot!!!!!!!!!

  5. basavaraj nayak

    Thanks sir

  6. manmohan

    thanks sir

  7. SKY

    THANKS A LOT SIR

  8. sachin

    You are great sir….thanx a ton sir

  9. parth

    @mrunal ji cpf se aapki kon si dushmani he ….

  10. lazyfrog

    thanks mrunal sir.
    can we expect a seprate article for global economy.??
    atleast a list of imp. topics??

  11. preeti

    thanks a lot sir….ur work is really awsom…

  12. Amol

    Sir after economic survey plz post some article on RBI Phase 2.

  13. chennai

    thank u sir but this word is not enough to ur involvement sir

  14. arvind shukla

    mrunal sir , please provide important sea mammals list (prelims)

  15. Bajrangi

    Dear All, I could not study INDIA 2014 due to shortage of time. I will be highly obliged if somebody can share the important chapters which has to be read from the year book from the perspective of coming CSAT 2014 exams. Please guide.

    @ Mrunal……..Dear Almighty if you could find some time to suggest, It will be very-very much helpful for me.

    1. B+ve

      Go for Chap 4, 10, 12, 13, 16, 21, 23(must), 24, 28 in the last hour.
      I hope you will go only for plan and policies and institutional set up by govt.

      Cheers,

      1. Bajrangi

        @ B+ve….Thanks a lot dear !!

    2. vk

      @bajarangi…you can search this site…mrunal sir has written articles on how to read yearbook…i remember those articles, sir has explained with sample of MCQ’s also…search in yearbook section, you will get it

  16. Dheeraj

    Somebody please suggest me which one is better
    INDIAN EXPRESS or HINDUSTAN TIMES…
    please do reply…

  17. arvind shukla

    sir english comprehension ko attempt kare ya nahi??????????????????

  18. mir mudasir

    weather u attempt it or not ,in any case it’ll not be evaluated.

  19. mohan

    instead of APMC or national market, wouldn’t it be better if co operatives are promoted. apmc was created to safeguard farmers from market cheating. monopoly of apmc is problem but opening the entire market might once again go for under valuation to farmers. instead allowing farmer to go either to apmc or let them sell things through co operatives will be more optimal. specially with perishable things like fruits. what happened in milk with amul can be done here too.

  20. kiran

    Respected sir,

    sir, economic survey chapters 1,2,3, 5,6,7 are in youtube lectures..
    I KINDLY REQUEST YOU TO UPLOAD THE SUMMARY ARTICLES FOR 1,2,3,4,5,6,7 CH.. IT WOULD BE OF GREAT HELP ..

    EXPECTING A FAVOURABLE REPLY..

    THANK U
    KIRAN
    B’LORE

  21. SHITAL

    Thank you sir.

  22. neha

    mrunal sir pls explain M1 and M3 money supplier..

    1. B+ve

      Money supply, like money demand, is a stock variable. The total stock of money
      in circulation among the public at a particular point of time is called money
      supply. RBI publishes figures for four alternative measures of money supply,
      viz. M1, M2, M3 and M4. They are defined as follows
      M1 = CU + DD
      M2 = M1 + Savings deposits with Post Office savings banks

      Money and Banking
      M3 = M1 + Net time deposits of commercial banks
      M4 = M3 + Total deposits with Post Office savings organisations (excluding
      National Savings Certificates)
      where, CU is currency (notes plus coins) held by the public and DD is net
      demand deposits held by commercial banks. The word ‘net’ implies that only
      deposits of the public held by the banks are to be included in money supply.
      The interbank deposits, which a commercial bank holds in other commercial
      banks, are not to be regarded as part of money supply.
      M1 and M2 are known as narrow money. M3 and M4 are known as broad
      money. These gradations are in decreasing order of liquidity. M1 is most liquid
      and easiest for transactions whereas M4 is least liquid of all. M3 is the most
      commonly used measure of money supply. It is also known as aggregate
      monetary resources

      1. Aanya

        Don’t attempt English comprehension for which there is no hindi translation, approx 8-10 questions. Rest attempt all in the same two hours.

  23. Sidhartha

    Ministry of Personnel, Public Grievances & Pensions16-August, 2014 20:18 IST
    Instructions from the Department of Personnel & Training (DoPT); Civil Services (Preliminary) Examination, 2014

    Candidates taking Civil Services (Preliminary) Examination, 2014, being conducted by the Union Public Service Commission on 24 August, 2014 may note the following:-

    1. The Paper II of the CSE (Preliminary) is of 200 marks and 2 hours duration. It contains a section on English Language Comprehension Skills (Class X Level). It contains some questions based on a few paragraphs in English.

    2. The Union Government has decided that for the Civil Services (Preliminary) Examination, 2014 to be held on 24th August, this section on English Language Comprehension Skills (Class X Level) will not count for gradation or merit.

    3. The Paper-II would contain a section on English Language Comprehension Skills (Class X Level). Candidates must therefore note that they do not have to answer the questions on this English Language Comprehension Skills (Class X Level) section. These questions will not be evaluated.

    4. However, the duration of the Paper II would remain 2 hours and candidates can utilize the entire time in answering all questions except those in the Section containing English Language Comprehension Skills (Class X Level).

    5. The maximum marks for Paper II would be “200 minus the marks earmarked for the English Language Comprehension Skills (Class X Level)”.

    6. Candidates must note that the section on English Language Comprehension Skills (Class X Level) would not count towards gradation or merit. Even if they attempt it, marks will not be counted for gradation or merit.

  24. Hriti

    this has actually made the situation worse..becoz nw more ppl will be able to reach high marks in paper 2, reducing the value of GS(paper 1) further and raiseing the cut off bar higher!!( 241, wat next??)

    Equity is needed to handle this..and not equality..

  25. Hriti

    article more for MAINS than prelims..thode graph cereals and pulses ke growth ke hote..and some govt schemes cud have helped more..still provides clarity..thanks

  26. B+ve

    what kind of Granite is?
    sedimentry. metamorphic, igneous

    1. Avijeet

      Granite, Gabbro, pegmatite, Basalt, Volcanic Breccia & tuff=Igneous Rocks
      Source NCERT XI Pg 42(Fundamentals of Physical Geography)

      1. B+ve

        foliated rocks and non-foliated
        rocks. Gneissoid, granite, syenite, slate, schist,
        marble, quartzite etc. are some examples of
        metamorphic rocks. Page 43 in same book same chapter

        1. Good !!!

          TRy to understand the rock cycle on the same page. 43…. You’ll understand why granite is placed under both….

        2. Avijeet

          Both igneous rocks and sedimentary rocks can be metamorphic rocks.
          There is no metamorphic rock as such.
          But, at first Igneous rocks are formed then only metamorphic can exist.
          Go thorough the diagram of Rock Cycle.
          also, dynamic metamorphism.

    2. ashika

      Granite is igneous rocks

      1. ashika

        Igneous rocka are of two types
        Intrusive rocks are those which are formed inside the earth , these are acidic in nature ex. Granite , gabbro , diorite
        Extrusive rocks are those which are formed in upper part of earth and are basic in nature for example basalt , rhyolite

  27. themountaineer

    please tell us something abot how to prepare sci and tech…………!!!!!

  28. Madhu Babu

    thank you

  29. B+ve

    please anybody mention what exactly a canyon and meander is? really confusing for me. pls anybody it wd be great help

    1. Good !!!

      Watch for explaination on youtube…… Without checking out munni badnam hui video…..

      1. B+ve

        Limited 3G data doesn’t allow me to watch 😉

        Somewhere I read Meander is channel pattern and canyon is erosional landform but became confused when entrenched meander, but now its k.

  30. kiran

    Respected Mrunal sir,

    sir, economic survey chapters 1,2,3, 5,6,7 are in youtube lectures..
    sir , pleease please please UPLOAD THE written SUMMARY ARTICLES FOR 1,2,3,4,5,6,7 CH.. IT WOULD BE OF GREAT HELP ..

    EXPECTING A FAVOURABLE REPLY..

    THANK U
    KIRAN
    B’LORE

  31. piyush ranjan

    Realy nice material, easy to understand

  32. Sinhshi

    Direct marketing initiatives like apni mandi fall under APMC law?

  33. Prakash Chougala

    Thank you very much sir
    Its very exclent topic and work I realy astonished by reading your article thank you sir

  34. sunantha

    friend I m preparing for bank exams kindly suggest which topic should I cover from this article. u suggested not to concentrate on micro economies. which is micro and which all topics r macro
    kindly help me.
    mrunal sir u r really fantastic.

  35. Raman

    Anybody please tell…

    Under Nsel crises how fake receipt is generated as all the system is online?

  36. deepika

    can any1 tell me what R STANDS FOR in the whole article
    like R2,R3 R4 n soooo on plssssss…

  37. deepika

    can any1 jst tell me that what does R1 R2 R3 n soo on stand for in the whole article

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