The Change

For the last few years, various commodity market participants have been lobbying for removal of commodity transaction tax and for allowing foreign portfolio investors in the commodity derivatives market. The Finance Minister hasn’t given heed to this even this time. However, some of his announcements were in the right direction of achieving the goal of doubling farmers’ income. In addition to increase in farm credit and more funds for irrigation, the Budget also stated that the Centre will bring in more APMCS under eNAM- the electronic national agri market. Each APMC that moves under eNAM will be given a cash assistance of Rs 75 lakh to set up grading and assaying facilities. This will help ensure that farmers get a better price for their produce. Currently, farmers rely on the middlemen for selling their produce as they do not have the wherewithal to sort or grade the stocks. The middlemen buy the stock for a bargain price, do the assaying and sell the produce for a higher price to large agri companies.

The Budget also seeks to give a thrust to the crop insurance scheme- fasal bima yojana. The total cropped area under insurance is currently 30 per cent (up from less than 20 per cent in 2015). The FM has said that effort to increase this to 40 per cent in 2017-18 and 50 per cent in 2018-19 will be taken with a total fund of Rs 9,000 crore. Further, a model law for contract farming will be framed said the FM, which the States will adopt. This is a welcome move. Not all states today let their farmers sell the produce outside the APMC. The move will help small farmers earn better as it provides a guaranteed market for them. The budget also said that perishables will be denotified from APMC helping farmers get a better price for their fruits and vegetables.

The Background

In the last Budget in 2016, the Finance Minister announced a slew of measures for the commodity market. Of these, only the Pradhan Mantri Fasal Bima Yojana, has seen progress in the last one year with a significant increase in the area under insurance (mainly because it was pushed through banks to farmers who had a crop loan). However, in all others, the implementation has been happening only at a snail’s pace. Since the launch of eNAM in April, only 250-odd markets have been covered, and in most of these even today only the gate entry is happening electronically. The auction of the agri produce in the e-NAM is still on an open outcry system. Following the Budget announcement, SEBI gave a go ahead for launch of option contracts by commodity derivative exchanges in September. However, even after three-four months now, neither MCX nor NCDEX have launched a single option contract. The features of options contract including methodology to arrive at the settlement price haven’t been finalised yet.

The Verdict

The thrust given to improve farmer incomes is welcome, but, it will help if the Centre includes the various stakeholders in the commodity value in chain before designing the framework of policies so that there is better implementation.

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