Gist of EPW October Week 1, 2022

The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analyzed and explained in a simple language, all from a UPSC perspective.

TABLE OF CONTENTS

1. Dwindling Foreign Exchange Reserves
2. India’s Contract Farming Act
3. A Study on Functional Efficiency of E-NAM in Selected Mandis of Odisha

1. Dwindling Foreign Exchange Reserves

Context

• The total foreign exchange reserves of the country have significantly fallen from about $642 billion in September 2021 to around $546 billion by mid-September 2022.
• India’s reserves have declined by around $98 billion in nine months and the exchange reserves at present are said to be at the lowest level in about two years.

Key reasons for the depletion of forex reserves

• The depletion in the foreign exchange reserves is attributed to the reversal of the trends in dollar inflows and increased outflow of dollar outflows over the last 12 months.
• The fall in the value (depreciation) of the rupee is also said to be a key cause for the depletion of forex reserves.
  • The value of the rupee started falling sharply due to the increasing imbalances in the external sector accounts and the appreciation of the dollar.
  • The Reserve Bank of India (RBI) intervened and drew down the reserves and sold dollars to reduce the exchange rate volatility of the rupee and prevent excessive speculation.
  • However, these interventions in the forex markets have depleted the foreign exchange reserves significantly.

Cause of concern

• The rapid rate of depletion of forex reserves and its acceleration despite the interventions by the RBI have been key causes of concern.
• The sharp reduction in the import cover of the foreign exchange reserves has been another major concern because it can increase the vulnerabilities in the external sector.
  • The import cover of the forex reserves had reduced from about 17.4 months (March 2021) to 13.1 months (December 2021). As per the recent estimates, the import cover has further dropped to about 9 months by September 2022.
• The depletion in forex reserves coupled with the increasing current account and trade deficit will increase the pressure on the Indian economy.
  • The trade deficit has widened more than double to reach $125 billion between April and August of FY 2022-23.
• Further, the country’s exports have also contracted by 1.15% to USD 33 billion in August for the first time in over 20 months.

Government efforts

• The government has undertaken several efforts to improve dollar inflows and reduce outflows. 
• Foreign investors are permitted to buy short-term corporate debt and invest in more government securities.
• The government has also increased the bank deposit rates for NRIs and the annual limits for external commercial borrowings for the corporate sector. 
• Also, the government has decided to allow the settlement of foreign trade in rupees which will help reduce the demand for dollars.

Way forward

• The steps undertaken by the government are said to be in the right direction but they can have very minimal impact on the current global scenario.
• The focus should be on reducing the twin deficits of the trade and current account deficits and work towards improving the surplus generated from the capital account.
• The increase in the net foreign direct investment (FDI) inflows in recent months is a welcome sign and efforts must be made to support this trend.
• The global oil prices which reached all-time highs on account of the Russia-Ukraine war are also expected to be reduced in the coming months which will reduce the stress on the import cover of the forex reserves.

Conclusion

The significant depreciation of the rupee and the depletion of forex reserves have impacted the economy with increasing inflation, flight of capital and surging import bills. This mandates the policymakers to work closely with the RBI to address these issues which are impacting India’s economic interests.

2. India’s Contract Farming Act

Context

This article discusses contract farming, contract farming practices in India and key concerns associated with the adoption of contract farming in India.

Contract Farming

• According to the UN Food and Agriculture Organization, contract farming is defined as “an agreement between farmers and processing and/or marketing companies for the production and supply of agricultural products under forward agreements usually at predetermined prices”.
• If implemented effectively, contract farming can become a platform to develop markets and bring about the transfer of technical skills in a way that is profitable for both the sponsors and the farmers. 
• Contract farming can also provide farmers with assured sale prices and quantities even before the crop is sown and it facilitates private players to invest in inputs and technology in the agricultural sector.

Key Advantages of Contract Farming 

• Contract Farming helps in crop diversification and results in higher crop yields for the farmers.
• It also helps reduce price uncertainty, and ensure better prices and an assured market for farmers thereby increasing the profit and income of farmers.
• Contract Farming can help facilitate a good supply of quality farm inputs, farm credit and techno­logy transfers.
• Further, it aids in the development of the food processing industry and plays a key role in integrating the farmers into the industry and global market.

Major Disadvantages of Contract Farming

• High chances of small and marginal farmers being neglected by the firms. 
• Contract Farming practices can make firms play a dominant role in terms of price fixation and can lead to the manipulation of grading standards. 
• Contract Farming practices can cause delays in payments to farmers, non-purchase of contracted produce on quality and other grounds and breaking away from contracts by either party.
• The difficulties in the legal enforcement of contracts can be exploited by the firms to their advantage at the expense of small farmers.

Contract Farming in India

• Despite being practised in a few of the states in India, contract farming is yet to gain stability and greater acceptability. 
• States have followed a cautious approach because of concerns about the major drawbacks of the contract farming model. 
• According to experts, the best way of addressing these concerns is by formulating an effective legislative mechanism aimed at protecting and promoting the interests of all stakeholders.

Evolution of Regulatory Framework on Contract Farming in India

• According to the Constitution of India, intra-state trading of agricultural produce comes under the jurisdiction of the respective states and such trading has been regulated by the Agricultural Produce Market Committee (APMC) Acts of the states. 
  • The APMC Act empowers the states to establish Mandis. 
  • The farmers could sell their produce only through these Mandis.
  • This was seen to be a monopolistic practice and was criticised.
• The central government came up with the Model APMC Act in 2003.
  • This Act enabled a provision for the direct selling of farm products by farmers to contract farming firms by bypassing the Mandis. 
  • However, the progress under the Model APMC Act was slow as the Act failed to lay down detailed guidelines for enforcing contract farming and lacked the required administrative clarity.
• After consulting various stakeholders such as state governments, farmers’ organisations and industry, the union government released a model contract farming Act called the State/UT Agricultural Produce and Livestock Contract Farming and Services (Promotion & Facilitation) Act, 2018.
  • However, the pace of adoption of this model Act has been poor as only Tamil Nadu enacted legislation based on the Model Act.
• Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 
  • After the failure of the Model Act, the union government in June 2020, promulgated an ordinance to facilitate contract farming which was later passed by Parliament as an act in September 2020.

Recommendations

• At present, there is no dedicated organisation or agency to regulate and facilitate the operation of contract farming in India. 
  • A dedicated agency can help in addressing challenges such as uncertainty, compliance and dialogue between the stakeholders.
• Further, such an agency can be entrusted with functions of:
  • Devising standard operating procedures 
  • Undertaking capacity-building programmes
  • Take up actions to popularise contract farming
  • Promote dialogue between the important stakehol­ders
  • Develop and maintain a management information system
• Small and medium farmers who are often neglected by corporate firms can be brought together and a collective mechanism can be established for eng­aging with the firms.
• Farmer producer orga­nisations (FPOs) and Non-Governmental Organisations (NGOs) can be incentivised to play a role in providing the required guidance to farmers, supply of agricultural inputs and productive assets and identifying the poorest farmers and equipping them with quality agricultural produce.
• Access to credit and insurance facilities are critical factors in determining the feasibility and attractiveness of contract farming for cultivators and these aspects require adequate focus from the policymakers.
• Firms must be insisted to write the contract in local and simple language which can be easily understood by farmers even from remote areas.
• Hassle-free exit ­options and institutional arrangements to resolve disputes will attract and encourage firms to take up contract farming.
• Efforts must be made to increase accountability and transparency in payments.

Conclusion

Contract farming practices help enhance farm performance significantly. Thus adopting contract farming under a clear-cut framework will be a key step in building a win-win situation for both farmers as well as firms.

3. A Study on Functional Efficiency of E-NAM in Selected Mandis of Odisha

Context

This article examines the efficiency of the Electronic National Agriculture Market (e-NAM) in Odisha, its impact on the income of farmers and suggests the way forward.

Background

• It is a well-known fact that the Indian economy is mainly agrarian in nature.
• Agriculture has remained the most important sector among the three as it accommodates about 41.49% of the overall workforce in the country which is followed by the services sector (32.33%) and industrial sector (26.18%).
• India is the world’s second-largest food grain producer (China is the largest) with a share of 25% in global food grain production.
• However, according to various reports, about 96.4 million hectares (29.32% of the total land area) are on the verge of different forms of degradation. This poses the risks of food insecurity, poverty, migration and large-scale environmental degradation in the coming years.
• Further, nearly 40% of the food grains produced in India are wasted annually before reaching the end consumers.
• This has called for reforms and improvements in the post-harvest handling methods, storing facilities, operation of the foodgrain distribution system and agricultural market in the country.

Key initiatives undertaken in the country 

• In order to reinforce agricultural marketing and empower farmers in the country, various reforms were adopted by the government during the 1960s and 1970s.
• The traditional agricultural marketing system which had helped the trader exploit the farmers was replaced and the Agricultural Produce Marketing Committee (APMC) Act, 2003 was introduced.
  • APMC helped to ensure fair and remunerative prices for agricultural produce and also enhance the accessibility of food grains to consumers at affordable costs. 
  • However, implementation of the Act failed to meet the objectives successfully due to various reasons and several amendments have been introduced since its inception. 
• With a view to improving the efficiency of agricultural marketing in the country, the concept of “One Nation-One Market” was proposed and to facilitate this the Electronic National Agriculture Market (e-NAM) system was introduced by the Union Government in 2016.

Electronic National Agriculture Market (e-NAM)

• The Electronic National Agriculture Market or e-NAM is an electronic trading platform of the country that acts as a platform for creating a single national market for agricultural commodities and enables single-window services by integrating the existing APMCs in the country.
• As a part of the initiative, about 21 mandis across eight states were integrated which covered only about 24 commodities in the first phase.
  • Ever since, over 1,000 markets, about 1.66 crore farmers, 1.31 lakh traders, 73,151 agents, and close to 1,012 farmer producer organisations (FPOs) extending across 18 states and 3 union territories (UTs) have been registered on the e-NAM portal 
• Key objectives of e-NAM include:
  • Ensuring transparency in sales, transactions, and price discovery
  • Providing an opportunity for liberal licencing for buyers, commission agents, and traders by state authorities
  • Ensure a single point levy of market fee
  • Facilitate the harmonisation of quality standards of agricultural commodities
  • Promote various scientific techniques for soil testing, quality checking, etc.

Read more about – eNAM

A case study of the Implementation of e-NAM in Odisha

Overview

• Odisha has traditionally been an agrarian state with the agriculture sector playing a crucial role in the overall development of the state. 
• Further, the State is blessed with favourable agro­climatic conditions and abundant water bodies which has also boosted the agriculture sector.
• Important crops cultivated in the State: paddy, sugar cane, wheat,  jute, turmeric, oilseeds, pulses and coconut.
• Despite beneficial conditions, the agri sector in Odisha has been experiencing low productivity due to several reasons such as inadequate investment, extensive use of conventional or traditional methods of cultivation, uneconomic size of landholdings, problems in the supply chain, lack of quality marketing infrastructure facilities and poor marketing linkages.
• To correct these the Odisha government had come up with the Orissa Agricultural Produce Market (OAPMC) Act, 1956 and in 2016 the State Government made amendments to the OAPMC Act to facilitate the establishment of e-NAM in the state.

Analysis of the Impact of the Introduction of e-NAM

• About 41 APMCs, close to 4,981 traders, nearly 1,60,121 farmers, and around 156 FPOs are registered on the e-NAM platform in the state since 2017.
• In terms of the price of the commodities, positive growth has been seen in the majority of agri commodities like paddy, brinjal, tomato, and cabbage.
  • This is because e-NAM provides a transparent bidding platform that promotes the larger participation of buyers.
• Paddy, which was the most preferred crop sold by cultivators before the introduction of e-NAM, has remained the most preferred crop even in post-e-NAM periods.
• Further, the quantity of the commodities sold has increased as cultivators are preferring to sell directly in mandis instead of selling to agents.
• The adoption of e-NAM has also had a positive effect on the income of the farmers as they have been receiving higher prices for their commodities by selling them through the e-NAM platform rather than selling through commission agents. 
• However, the farmers have shown dissatisfaction despite the increase in their income as the minimum support price (MSP) extended to farmers has not been sufficient to earn them a minimum income after meeting all the expenses.
• e-NAM has had a positive effect on the market arrivals of some of the agri produce like tomato, brinjal, and bitter gourd across different APMCs. However, the overall per day average quantity arrivals of the agri commodities have decreased during the post-e-NAM period. 
  • The prevalence of corruption among mandi officials has been the key reason for the decline.
• The e-NAM system has helped strengthen the marketing system, increased the prices of commodities and ensured transparency in marketing but the lack of government transportation facilities and cold storage continue to be key concerns.

Way forward

• As several farmers are still not aware of the operational aspects of the agricultural marketing system, the government must take up the responsibility of setting up training institutes to educate the farmers about the facilities and incentives available through the e-NAM platform. 
• There is a need for creating better infrastructure facilities such as improving grading and weighing infrastructure, setting up cold storage facilities and enhancing transportation and logistic facilities.
• Technical staff and experts must be hired to ensure the smooth operation and functioning of the platform.
• The government should focus on R&D activities to enhance the performance of the existing methods and technologies.
• Stringent actions must be initiated against officials involved in corruption and efforts must be undertaken to prevent corruption in the future.

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