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Indian Economic Policy

Notes establish a large state run Food Corporation of India (FCI) warehouse in every state and small
warehouses in all districts. In addition, the recent introduction of a negotiable warehouse receipt
(WR) system and effective enforcement by a Warehousing Development and Regulatory Authority
(WDRA) is likely to add new storage capacity through private-sector participation.
The Agriculture Produce Marketing Committee (APMC) Act is another tangled web. The anti-retail
and land acquisition lobby has, however, strongly opposed the Act, which allows private companies
to procure produce directly from farmers. Those for the change allege that the Act forces farmers to
sell perishable items like fruits and vegetables only to a limited number of licensed traders at APMC
mandis (wholesale markets), thereby encouraging cartel activity in agricultural marketing. However,
the traders’ lobby insists that “the Act does not require any amendment,” says Ashok Walunj, head
of the onion-potato market at Vashi APMC : “Trade cannot survive without middlemen. Were it not
for us, the farmers would not be paid a fair price for their goods on the spot. Exports should rather be
resumed so farmers get a better deal.”
The APMC Act of most states does not encourage direct marketing and contract farming, and the
prohibitions under the APMC Act do not allow investment by the private sector for improving the
infrastructure. They do not facilitate procurement of agricultural produce directly from the fields.
The purchaser has to be a registered agent at the wholesale market.
13.3 Opportunities in the Challenges

It is encouraging to note that marketing reforms are expected to become one of the top priorities in
the 12th five-year plan. The APMC Act has been repelled in Bihar and amended in a further 16 other
states. Industry bodies are lobbying hard to delist perishables such as fruits and vegetables from
Schedule 1 of the APMC Act and allow for competition. In the states where APMC has been amended,
the government is providing financial incentives to set up Terminal Market Complexes with a hub-
and-spoke model in the public-private partnership (PPP) mode.
The latest Union budget has thus focused on aspects of food preservation, storage and logistics.
Mukherjee has talked of the need to have warehousing and cold chains. On January 1st, 2011, the
food grain stock in the Central pool reached 4.7 million metric tonnes, 2.7 times higher than 1.74
million metric tonnes on January 1st, 2007, and the storage capacity for such large quantities requires
augmentation.
The process to create new storage capacity of 1.5 million metric tonnes through private entrepreneurs
and warehousing corporations has been fast-tracked. The decision to create 0.2 million metric tonnes
of storage capacity under the Public Entrepreneurs Guarantee (PEG) Scheme through modern silos
has been taken. The addition will reach 4 million tonnes by March 2012. During 2010-2011, another
2.4 million metric tonnes of storage capacity has been created under the Rural Godown (Warehouse)
Scheme.
A CRISIL Research study estimates allowing foreign direct investment in multi-brand retail could
reduce wastage by about US$ 12 billion (INR 630 billion) in the fruit and vegetable subsectors alone
every year, or about 30 percent of total output.
Foreign retailers who want entry into India, such as Wal-Mart, say foreign investment is key to
minimising waste and lowering prices to consumers.
While the government permits foreign investment in the supply chain, foreign retailers have been
unwilling to commit large sums of money, as there are still restrictions in multi-brand retail.
Bharti-Wal Mart estimates that it could take a decade to build a supply chain of international quality
in India, and indeed numerous presentations have been made to move India from an indigent-farmer
model to one that relies on cold chains.
While all this looks encouraging on paper, there is enormous confusion at a policy-making level
because agriculture is a state responsibility and central decisions often get ignored. Indeed, pan-
Indian solutions may sometimes be difficult to implement at the state level and for Indian agriculture
to get out of its moribund state, it is important for growth and development impulses to flow from
the ground upward.

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