Can a national market save agriculture?

Mon, 21 Jul Pre-Open

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India's agricultural sector is in need of serious reforms. Even today, about 60% of the Indian population's income, either directly or indirectly, depends on agriculture. What's worse is that the majority of arable land is still not irrigated. This leaves India at the mercy of the monsoon every year. If the rainfall is deficient, as it might be this year, the economy will be adversely impacted. Higher food prices and lower rural incomes combine to depress GDP growth and keep interest rates high. It is high time that India's farmers received a better deal.

As an article in The Hindu Business Line suggests, an interesting solution could be a national market for agriculture. At the moment, food products are largely sold locally as regulations hinder the transport of food produce over long distances. Different states impose a variety of rules that prevent farmers from receiving the best prices. Thus a national market could help to address this problem. An integrated market with similar rules across states would certainly help reduce losses. It would also help farmers discover the best prices available in the country. It would also lead to a reduction of the influence of middlemen. However, setting up such a market would be easier said than done.

There cannot be a one-size-fits-all approach. The government will have to frame the rules keeping in mind the economics of each commodity. This would eliminate inter-state issues as one commodity will be governed by similar rules across the country. A pan-India cold-storage infrastructure will also have to be created for transportation and storage of agri products. State governments may also need some handholding initially as there might be some concern over the loss of control to the Centre. If such a system were to be set up in the country, then the legal system will also need to keep pace. Quality issues of agri products must also be governed strictly.

It is important to note that such changes have the potential to revolutionize Indian agriculture. However, implementation will be a big challenge. It will require a lot of political will. Many vested interests have kept the Indian agri sector in the doldrums for a long time now. We believe that the time for drastic changes has come. This sector is vital for the health of the economy and a large section of society. Productivity reforms in the agri sector will help improve the livelihoods of millions in the country. It will also keep inflation in check which will be a huge long term positive for the economy as well as for the markets.

Do you think that a national market for agriculture can positively impact Indian agriculture? Do share your views on the Equitymaster Club.