Friday, December 3, 2010

Decentralization of Corruption

It took more than 120 years for India to reach the present level of decentralization, started with the Resolution on Local Self-Government in 1882. The 73rd Amendment to the Indian Constitution in 1993 is a significant milestone in this regard.

In simple terms, decentralization is the transfer of resources, power and responsibilities to democratically elected local governments (Panchayats). Idea behind decentralization is to be responsive to needs and preferences and involve people at grass root level in decision making process which can be better achieved through the devolution of functions, functionaries and finances to local governments.

The degree of decentralization is varied across the States due to willingness / unwillingness of State governments to transfer their powers to Panchayat Raj Institutions (PRIs). Irrespective of the level of decentralization, people’s interest and participation in PRIs is increasing across the States which is visible in terms of higher voting percentages in PRI elections compared to assembly and parliamentary elections. This higher turnout in elections is also related to the resources spent by the candidates.

Over the years, expenses of candidates in PRI elections are increasing disproportionately. During PRI elections in Karnataka in April-May 2010, some Gram Panchayat (GP) candidates have spent to the tune of Rs.500,000 on a voter population of less than 1,000. Even in the State of Arunachal Pradesh, where the devolution started lately, some Zilla Parishad candidates have spent up to Rs. 10,000,000 in 2008 PRI elections. The spending pattern is correlated with devolution and introduction of new schemes like NREGA handled by PRIs. The higher the devolution, higher will be resources available and greater the opportunities for corruption.

Assets of PRI members are increasing significantly in a short span of time. The bank balance of one of the GP Chairperson near our village has increased from less than Rs.10,000 to more than Rs.600,000 in 18 months. Similarly, the members of the GP are also earning through contracts and schemes. Instead of planning and implementing the activities according to needs, most often, the funds are divided and allocated to each member. It is up to the member to spend the amount on any activity according to his / her whims and fancies.

The unintended positive development along the devolution of functions, functionaries and funds is the devolution of corruption. Earlier, very few people (MLAs, MPs and officials at higher levels) used to swallow corrupt money. However, with devolution, it is being distributed to many PRI members and lower level functionaries. This is not to say corruption is desirable. Our PRIs are still in infancy and I am confident that they will work as envisioned in the years to come with maturity and proper implementation of policies like Social Audit and Right to Information.

Saturday, May 2, 2009

Contract Farming Rules: Anti-farmer and Toothless

Government has introduced contract farming in National Policy of Agriculture realizing the importance of private sector participation to solve some of the problems and bring dynamism to the agriculture sector. On the lines of the Draft Model Legislation on Agriculture Marketing recommended by Union Ministry of Agriculture, some state governments have amended their Agricultural Produce Market Committee (APMC) Acts, introducing contract farming as a separate chapter. Contract farming experience has shown mixed results varying from significant to marginal increase in income of farmers, breaking of contracts by both farmers and sponsors, exploiting farmers in the name of quality, application of high doses of chemicals threatening sustainability and use of child labour.

Contract farming is a strategy of processing or marketing firm to procure required agricultural produce in situations of failure of spot market or vertical integration to meet its requirements. Contract farming is a pre-negotiated agreement of production of agricultural produce between producer and buyer. The terms of agreement shall include commitment on the part of producer to deliver specified variety, quality and quantity of produce at specified time, place and price. In-return, buyer may provide inputs, extension service and influence production decisions. The agricultural produce under contract may be a field crop, horticultural crop, livestock or animal produce.

Contract farming rules were formed, amending APMC acts, from 2005 although it is being practiced from late 1980s throughout the country. Some states are yet to amend their Act. Many states have copied the model rules of the Union Ministry which are vague, anti-farmer and toothless. They have considered only field crops and horticultural crops neglecting other agricultural produce like poultry, livestock and animal produce while formulating rules.

The role of state in registration of contract farming sponsor and agreements is limited. The Registration authority, secretary of concerned APMC, only acknowledges and records the contract farming agreement between a farmer and sponsor in a register maintained for the purpose. The rules do not necessitate the registering authority to verify the existence of farmer, his land or property used for production and his understanding of terms and clauses in the agreement. There is also no requirement of evidence such as land records to be produced to establish the farmer’s ownership of land. It is also not mandatory to make multiple copies of original agreement and keep it with the producer and registration authority. There is scope for designing and modifying agreement by the sponsor as per his/her requirements.

Many of the disputes in contract farming arise due to produce quality. Sponsor can misuse the quality clause by refusing to accept the produce in the disguise of poor quality. It is usually the sponsor who decides the quality specifications of produce and there is no provision in the rules to verify whether the specified standards are realistic. Sponsors can make use of farmers’ ignorance of quality standards of non-traditional crops and specify unrealistic quality standards in agreement to exploit farmers. Sponsor can threaten to refuse to take delivery of produce, as it will never be according to set standards and bargain for lower price. As per the rules, sponsor has the right to refuse the produce if it is not as per the specified quality and in such cases farmer can either renegotiate with sponsor and decide the price or sell it in open market. In such situations, farmer has to be at the mercy of firm if the crop is non-traditional as he/she will not have alternate (local) market for the produce. Firms can make use of farmer’s vulnerability and pay undesirably low price.

In case of sponsor’s refusal to procure the produce, for his own reasons, farmer has to bear the burden of taking the produce to market for which the agreement does not mention the amount to be paid by sponsor for transportation, farmer’s labour, opportunity cost, etc. There are no strong penalty clauses to punish the defaulted sponsor except paying differential price if the price received by farmer in open market is lower than that of contract price. The rules do not mention the arrangements in case of non-traditional crops for which the differential price does not exist in the absence local markets for the produce. Bank guarantee is one which may help farmer in such cases of sponsor’s default. However, the practicality of bank guarantee seems to be doubtful and has to be examined.

Quantity is another important feature of agreements which lead to contraries among partners. The rules do not provide the manner of allotment of production quota, apart from mentioning ‘specified or agreed quantity’. This can lead to disputes when the sponsor refuses to take produce during times of good crop yields or low prices. Similarly, during shortfall of yields sponsor can mount pressure on producer to supply specified quantity.

Dispute settlement is a two-stage process and it may take up to 90 days to settle a dispute related to contract farming. Contracting parties will be at loss in the absence of temporary or alternate arrangements mentioned in the rules to carry on business during times of dispute.

As per the rules, sponsor has to issue buying slips to farmers which contain date, delivery point and cost of delivery. However, they do not mention the requirement of buyer’s and seller’s name, type of produce, quantity, quality and price on buying slips. It is also not essential to mention company’s seal and signature of company’s staff. In absence of such details it will be difficult for farmers to claim buying slips as evidence during times of disputes.

Many other factors which have the potential to create disputes among contract farming parties are loosely defined in the rules. The rules are tilted to favour sponsors and are toothless as they do not have strong penalty clause to punish defaulters. They have few features, like bank guarantee from sponsor and granting no rights to sponsor on producer’s land/property, to protect producer’s interests. It seems our policy makers have not learnt from global experiences of contract farming. There is good scope to improve the rules with little additional efforts which help to protect the interests of parties concerned and create conducive environment for contract farming. The states that are in the process of modifying their acts and rules can take suitable precautions to protect their farmers’ interests.

Monday, October 20, 2008

Terminal Markets

A bumper crop can turn out to be a big loss for farmers in the absence of efficient marketing system. Efficiency of agricultural marketing in the country is low as a result of inadequate and improper infrastructure facilities, large number of intermediaries in supply chains and archaic marketing policies. Most of the time farmer is not receiving even 50% of the price paid by consumer for perishables. About 25-30% of perishables produced are wasted due to inefficient handling, transportation and storage conditions. Various measures initiated by governments during the last six decades to protect the interests of farmers and consumers failed to achieve the desirable results.

Ministry of Agriculture has introduced Terminal Markets as a new component under National Horticulture Mission launched in 2005-06 for holistic development of horticulture. Government has ambitious plans of starting terminal markets in Nasik, Mumbai, Chandigarh, Sambalpur, Hyderabad, Visakhapatnam, Tirupati, Hassan, Hubli and other places to address the marketing problems of fruits and vegetables. First terminal market in the country named as Safal Market was started by Mother Dairy Fruit and Vegetable Ltd, a subsidiary of NDDB, in Bengaluru in May 2004 on the request of Government of India.

The objective of proposed terminal markets is to reduce the number of intermediaries in supply chains, improve the marketing efficiency and infrastructure facilities, bring transparency in marketing and to protect the interests of farmers and consumers.

Concept of Terminal Market Complex:
Terminal markets were envisaged to provide all the required facilities and services for marketing under one roof and connecting farmers directly with wholesalers, retailers, processors and exporters. The operation of Terminal Market is based on hub-and-spoke format in which the Terminal Market acting as a hub is connected to many collection centers which act as spokes. The Terminal Markets would be located near cities (consumption centers) and collection centers would be conveniently located at villages’ level (production centers). The catchment area of a collection center depends on convenience needs of farmers like transportation to collection center, operational efficiency and capacity utilization at the center. Terminal Markets would establish backward linkages with farmers through collection centers by forming groups or associations and forward linkages with wholesalers, retailers, cash and carry stores, processors and exporters. It is envisaged to provide world class infrastructure and facilities at terminal markets which include cold storages, temperature controlled warehouses, ripening chambers, facilities for electronic auction, quality testing, packaging, banking and transportation. Revenue for terminal markets would be generated in the form of service charges, rent and license fee. Terminal Markets in the country are envisaged to be built, operate and owned by a private enterprise selected through a competitive bidding process.

Governments’ initiative to encourage private sector participation to set up terminal market complexes is commendable. However, this ambitious initiative should not result into another failure in agricultural marketing. Proper care should be taken in execution and establishment of operations of terminal market complexes. Creation of infrastructure facilities will be the easiest part of the projects and difficulties may be encountered in backward and forward linkages. Comprehensive studies may be undertaken before starting other markets to find the efficiency, viability and potential problems in implementation and operation of existing Safal Market. Studies will help in making suitable amendments in the proposed plans and avoid repeating some of the mistakes, if any, of the existing market. Other terminal markets may be started only if the present market is working according to desired objectives. Terminal markets should not make way for mere replacement of small traders/intermediaries with larger enterprises without achieving the actual purpose for which they were designed. The range or maximum amount of service charges that can be collected by terminal markets has to be specified by governments before starting of bidding process for markets.

Monday, June 30, 2008

Record Food Production of India

Food production inIndia for 2007-08 is estimated to be 227.3 million tonnes according to the Third Advance Estimates. This will be the highest ever food production in India surpassing the earlier record of 217.28 million tonnes during 2006-07.

Production of rice (95.68 MT), wheat (76.78 MT), coarse cereals (39.67 MT), maize (18.54 MT), pulses (15.19 MT) and oilseeds (26.21 MT) were estimated to touch all-time high. Sugarcane production was estimated to be marginally lower than that of 2006-07.

The estimated increase in production comes from the same area under cultivation. The total crop area of the country has remained static at 141 million hectares. The increase in food production can be attributed to favourable weather conditions and policies of the governments. We can expect a reduction in food prices because of this increased production and a ban on export of some of the commodities. Wholesale price index (WPI) of many agricultural commodities has also started declining.

We are indebted to the farmer for his efforts in increasing the production and making our lives easier.

Wednesday, February 6, 2008

Lobby for Taxing Farmers

(In response to the article published in The Economic Times on 9 January, 2008…though a bit late)

Associated Chambers of Commerce and Industry in India (ASSOCHAM) is planning to raise the issue of introducing income tax for farmers with finance ministry. This is based on the survey conducted by our great industry body ASSOCHAM. Surprisingly, the participants/respondents in the survey are 300 CEOs. The results of the survey indicate that about 80% of the CEOs (respondents) are in favor of bringing the farmers under the tax net. It is also reported that the industry body will highlight the results of the survey during their pre-budget consultations with the Ministry of Finance.

We need to appreciate the efforts of ASSOCHAM and the CEOs participated in the survey for their ‘concern on the revenues of government’.

Unfortunately, Government of India’s published reports indicate that at least 1.5 lakh farmers have committed suicide from 1997 to 2006 in the country. These suicides are reportedly higher in ‘richer, prosperous and industrialized’ states. NSSO survey on indebtedness of farmers during January to December 2003 reported that 43.42 million (48.6%) farmer households are indebted. Another report of NSSO reported that average expenses and receipts for cultivation per farmer household, during July 02 - June 03 for which the data is available, was Rs.20,315 and Rs.8,791 respectively. This means an average income of Rs.11,524 per annum which turns out to be Rs.960 per month per household. This income may be less than your ‘pocket-money’. This income will not increase significantly even if we assume that farmers are involved in other activities for income generation in villages.

Imagine a household (family of a farmer) managing all his needs and of his family in less than Rs.1000 per month. These average figures are for one agriculture year. If we consider the situation over the years the income may turns out to be negative (loss) in some years due to droughts, floods, crop loss due to pest and insect attack or price fall. Farmer has to save the income earned in one year to protect his family, if possible, against the possible crop loss in the subsequent year. We have insurance guarantee for many things in the country but not for agriculture. Government has introduced insurance against rainfall, recently, which is dependent more on political conditions rather than rainfall conditions. My father is still waiting for the rainfall insurance for the year 2003. Agriculture is one of the toughest and riskiest professions where farmer has to play with nature and unethical market forces.

Our great industry association and CEOs want to impose income tax on these farmers. Great concern!!! What prevented these CEOs and ASSOCHAM from raising the issue of farmers’ suicides with government if they are really concerned? How many of these CEOs and businessmen who earn lakhs and crores are paying the tax honestly? How many hi-tech companies are paying the salaries honestly without diverting the salary in the name of bonus to avoid income tax?

What was the logic of involving only CEOs as respondents in the survey? Why not farmers and others? That too the sample size of the survey was only 300. How representative is the sample?

When more than 1.5 lakh farmers committed suicide in the last few years what action did the association and CEOs took apart from conducting surveys for agri-business companies? What moral right do they have to ask farmers to pay tax? At least, let them clarify who the farmer is in this country. Is it Amitab Bachhan or Deve Gowda or a poor man who has dependent on agriculture for his livelihood? In fact, businessmen, politicians and people like Amitab are evading the tax by showing their income in the name of agriculture and these are the real culprits.

It is to be mentioned that the aggregate measures of support (AMS) offered to farmers in our country is negative. This means that farmers are cross-subsidizing consumers. This trend is not seen in any other sector. These CEOs demand the government to provide tax incentives for export if the Dollar value is falling to maintain their profits. When farmers are cross-subsidizing and committing suicides what prevented these CEOs from raising the issue with government? At least let them pay the right price for the farmers’ produce and stop exploitation.

Why our government is not holding any pre-budget consultations with farmers’ groups? Why only with industry bodies? Even god cannot save the poor farmers from the bias of government and the so called ‘CEOs’.

Thank you CEOs for your concern.

Wednesday, January 9, 2008

Everybody Loves Inequality

"If our civilization is destroyed, it will not be by barbarians from below. Our barbarians come from above." ---Henry Demarest Lloyd (1847-1903)

Inequality- is it designed by god or manmade or a result of evolution?

Inequality is universal whether you like it or hate it. Everybody will be subjected to certain type and degree of inequality in his/her lifetime. Inequality may be of social, racial, political, income, gender or other type.

One can find inequality in temples also where only the rich and so called higher caste’ people are allowed nearer to the deity. This is a common phenomenon even in some famous temples of India- the largest democratic country whose constitution provides all types of equality and non-discrimination of any form – on paper. It is heartening to find some ‘highly educated’ people supporting these practices by saying that the poor will steal high value diamonds and gold ornaments, if allowed near the deity.

Leave apart the society. One can find inequality in family’s also. Siblings trying to dominate over one another and feeling of superiority is a common phenomenon.

This inequality which is universal is not by default; it may be by design. This design may be to maintain balance among different species in an ecosystem. Also, we can find imbalances within any species resulting into the domination of stronger over weaker and thus surviving. This is explained by the famous concept of Survival of the fittest.

Inequality also starts with nature in terms of differences in the availability of resources among different regions. These differences in availability of natural resources translate into other types of inequalities. One can easily find the answer by comparing a dry region with one having good rainfall or water resources.

Inequality can be explained in terms of hierarchy-of-order. A country trying to dominate over others and maintain inequality; a state trying to dominate over others within a country; a region trying to dominate over others within a state which finally ends up in the domination of one individual over others in a family.

It’s better not to speak of income inequality which is increasing with globalization and economic growth. Rural-urban divide is also rising in all fronts with rapid urbanization and globalization. It has become fashion for policy makers and also corporates to talk of rural problems without any concrete efforts to solve them.

I feel this inequality is the design of god which human being has loved and nurtured with the help of nature. It has become universal only with the support of human being. It seems that human being loves to maintain inequality with the purpose of having higher status or superiority over his/her fellow beings.

"Nature still obstinately refuses to co-operate by making the rich people innately superior to the poor people." --Sidney and Beatrice Webb (1923)

Wednesday, December 5, 2007

Farmers’ Welfare Index (FWI)

Are you interested in investing in business anywhere in the world? Are you in dilemma in selecting a country to invest? No need to worry. You have many financial firms, consultants who can help, you also have indices like FDI Confidence index that rank the countries in the order of attractiveness of FDI.

Do you want to know the country where people live happily? You have Happiness Index to help you. Similarly, you have many indices like HDI index that rank the countries on human development, GHI that rank on hungry index. We can get some indices on most of the parameters we like.

However, one may be shocked to know that we don’t have any indices to measure the welfare of farmers’ on whom we are dependent for our basic need for survival. I consider the welfare of farmers as most important in the country like India where 60% of our population is directly dependent on agriculture. The welfare of the farmers has trickle down effect which has impact on majority of population and many other sectors. The improvement in farmers’ condition will naturally result in improvement in indices like HDI and GHI apart from solving the problems of food security. Hence, I consider the welfare of farmers’ as most important parameter.

In the absence of any indicator to measure the farmers’ welfare an attempt has been made to develop a suitable index. The index can be termed as “Farmers’ Welfare Index” (FWI) and the following components can be considered to calculate the index.

The components considered can be broadly classified into:
1. Domestic support
2. Terms of Trade and
3. Infrastructure

Domestic Support:
Support to the farmers by state and central governments in the form of price support; subsidies on inputs like fertilizers, pesticides, seeds and machinery and insurance policies for crops and livestock are important domestic forms of support which have impact on the welfare of farmers. Hence, these factors are considered to calculate the domestic support.

Terms of Trade:
Economic welfare of farmers is ultimately depending on terms of trade. If the market price for the produce is low even the bumper harvest will not make any significant change to farmers’ economic condition. Similarly, all the input prices (land, labor, fertilizers, water, pesticides, etc) and its variation among seasons are to be considered to arrive at the total cost of production which have implications on profit.
In the era of globalization, the factors of WTO agreements like export duty or concessions, import duty and market access has to be considered which have direct impact on farmers’ income.

The infrastructure facilities play important role in marketing of agricultural produce especially fruits and vegetables which are highly perishable. Market yards, their density, facilities at the yards, transportation facilities to markets, market information system are important facilities which influence the marketing of produce. The infrastructure facilities for inputs like fertilizers, pesticides, seeds are also to be considered for the index to be comprehensive. The extension services which create awareness about technology, production practices, market service and information are also considered under this component.
Sustainability of resources like soil and water are important which affect the future production and thus the welfare of farmers. Hence, the condition of resources like soil and water are considered to calculate the index.

The index can be calculated for each crop or a region to enable the policy makers to initiate specific policies or programmes for a crop/region. The aggregate index can also be developed at state and national level.

(This is in the initial stage and the suggestions or comments are welcome).