Incentivising states for better performance in the agriculture sector with a transparent implementation and monitoring system is important.

The Fifteenth Finance Commission (FC-XV) has, in its interim report for the year 2020-21, recommended implementation of a specific set of agricultural reforms by the states for liberalising agricultural markets, provide for seamless trading and catalyse private investment in the farm sector that would boost growth (para 4.32 & 4.33 of the Report). The Commission had specifically advised the state governments to “take preparatory action” by securing passage of three legislations—Model Agricultural Produce & Livestock Marketing Act, Model Agricultural Produce & Livestock Contract Farming & Services Act issued by the Department of Agriculture, Cooperation & Farmers Welfare (DAC&FW) in 2017-18 and Model Agricultural Land Leasing Act prepared by the NITI Aayog in 2016″ in their respective legislatures in 2020-21. This was made an essential precondition to be eligible to avail the grants” awarded by the Finance Commission from 2021-22 onwards.

In fact, the aforementioned recommendation has a nexus with one of the terms of reference (ToR) of the commission to propose “measurable performance-based incentives for states” in specific areas set out in Para-4 of the ToR such as sustainable development goals (SDGs); direct benefit transfers (DBT); ease of doing business among others. In fact, the ToR alludes to developing frameworks for giving grants/performance incentives to states in various sectors.

Even before the DAC&FW and the ministry of finance could operationalise the above recommendation of the FC-XV, the central government, as a part of the Atmanirbhar Bharat initiative, has brought Ordinances (ordinance No.10 and 11 of 2020) to push through reforms in agricultural marketing and contract farming. With the promulgation of these Ordinances, states are no longer required to enact two of the three legislations suggested by the FC-XV. As per newspaper reports, with this development, the FC-XV has set up a panel to rework and “devise a mechanism for incentivisation of states in the area of agricultural reforms agenda for inclusion in the final report of the Commission”. In this context, we offer some specific suggestions for the aforesaid panel to draw up a framework that would meet the commission’s mandate.

To begin with, we must reckon that the agreed agenda that would be advocated by the commission should be measurable in terms of reliable and comparable time-series data available in the public domain. Second, the formula for incentive grant reliant on multiple performance indicators must also be transparent and straightforward. We make this point recollecting that in the past a member of the Finance Commission was constrained to record a note of dissent, inter alia, on the ground that the Commission had used a fairly complex econometric model in its exercise. Third, now that a fresh opportunity is available, we would urge the panel to suggest a couple of other core areas, over and above the legislative measures for liberalising agricultural markets, in which state action ought to be incentivised.

Legislative action for liberalising markets for land farmers’ produce

Let us first analyse whether state governments are required to take any action to operationalise the two ordinances promulgated by the Centre. We find that in respect of the Farmers’ Produce Trade and Commerce Ordinance 2020 (Ordinance 10 of 2020), states would have to make their APMC Act compliant with Section 6 of the ordinance to ensure that no market fee or cess or any other levy is collected on transactions carried out outside the physical boundaries of the notified principal market yards. Besides, states have to ensure that Conciliation Boards envisaged under section 8 are set up at the sub-divisional level for dispute resolution.

Similarly, in case of the Farmers Agreement on Price Assurance and Farm Services Ordinance, 2020 (Ordinance no.11 of 2020), state governments have to prescribe the mode and manner of payment to be made to the farmers by the sponsors under an agreement for seed production, as per section 6(4).

They have to establish and notify a Registration Authority to provide for electronic registry of the farming agreements. Also, they have to ensure that the dispute resolution mechanism prescribed in Section 14 at the level of the sub-divisional magistrate and the collector is operationalised. As per Section 23, state governments have to notify rules for carrying out these provisions of the ordinance. We suggest that the panel may indicate definite timelines for the states to complete these action points.

The Model Land Leasing Act,2016 prepared by NITI Aayog and circulated to states for implementation has not seen many takers across the country, except for partial implementation by few state governments (Madhya Pradesh, Uttarakhand, Maharashtra and Uttar Pradesh). The all India average of leased-in areas in tenant holdings, as per NSSO Report (2013), is 10.2%. Admittedly, the incidence of tenancy is under-reported in all these surveys as tenancy in most states is not permissible legally. To enhance the equity and inclusivity of the agricultural growth process, land leasing reforms have been advocated to be the ‘last-mile’ intervention to synergise positive outcomes from the ordinances on agricultural marketing and contract farming. We suggest that the panel should make it obligatory for all states, except the North Eastern states where the community owns the land, to enact this statute by 2021-22 and ensure notification of necessary rules on operational matters, including standard form of the tenancy agreements besides putting in place electronic registration of all tenancy contracts by 2022-23.

New areas for performance incentives

With the triple whammy of climate change, malnutrition and the ongoing Covid-19 Pandemic, India’s food system needs to be sustainable and resilient. The agricultural research and development eco-system has also emphasised on crop diversification; bio-fortification; development of climate-resilient and nutritious cereals (like sorghum and millets) and productivity and production enhancement of pulses and oil-seed crops with suitable technologies to make India self-reliant on these commodities. We suggest that the panel may consider including the following three areas in the monitorable framework for incentivisation by FC-XV to states.

  • Climate-resilient agriculture: Keeping in view the national priorities embedded in the National Mission for Sustainable Agriculture as also the SDG-2 and SDG-12, we suggest that the relevant monitorable indicators developed by the NITI Aayog for the SDG India Index may be adopted.

Accordingly, the performance of the states in respect of two indicators under SDG 2.3–(a)production of rice, wheat and coarse cereals per ha, (b) gross value added in agriculture per worker and one indicator under SDG 12.4—balanced use of chemical fertilisers-may be tracked.

  • Agri-input subsidies through DBT: DBT in the agriculture sector could be incentivised for those states which systematically implement to benefit from the efficiency gains. Agri-input subsidies provided by the states through DBT on a robust IT platform (preferably synced with Aadhaar seeding of land records; soil health card recommendations) would not only be transparent; it would promote efficiency in resource use as well.
  • Ease of doing Agri-business: As promotion of agri-entrepreneurship, FPOs, post-harvest technologies (by availing agri-infra funds under Atma-Nirbhar Bharat) are priorities for the government and taking the idea of encouraging ease-of-doing business (Para 7 of ToR of FC-XV), an ease-of-doing agri-business index could also be developed for states by the NITI Aayog with specific indicators and sub-indicators. The panel may suggest incentives to the states based on an objective scoring pattern in this area.

The government, through various initiatives, has been promoting the spirit of cooperative and competitive federalism. Incentivising states for better performance in the agriculture sector with a transparent implementation and monitoring system is expected to bring positive results for sustainable growth of Indian agriculture.


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