PMEAC proposed reforms required for Agri. & Allied sectors

As per the news article reported (here), The Prime Minister’s Economic Advisory Council (PMEAC) on 10^th August, 2012 suggested a series of measures including reforms in the liberalizing tenancy arrangements, domestic market for agriculture produce and, reducing input subsidies.

Legalizing Tenancy:

Field studies in the several parts of the country have shown that the area under informal tenancy varies between 15 to 35 percent of cultivated area; above 90 percent of tenants belong to the category of landless labour and marginal farmers. Granting legal tenancy rights to a large number of small farmers would expand their small land holdings, PMEAC in its in its economic outlook for 2012-13(here) noted that large farmers who would like to pursue non-farming activities may like to lease out their land if the risk of losing their ownership rights is averted. Such benefit can only accrue if leasing –in and leasing out is legally sanctioned. As it is, lease markets are heavily restricted in most of the states, while some states prohibit tenancy.

As per a special edition paper (here) in FAO Corporate Document Repository on the Current land policy issues in India by Dr. R. S. Deshpande, Professor and Director, Institute for Social and Economic Change, Bangalore, India. Special edition paper inform that the most of the tenancy reform laws also contained provisions concerning the ability of tenants to surrender the land back to the landlord voluntarily. These provisions were used by landlords to weaken the impact of the laws. In most states the surrender of land falls under the jurisdiction of the revenue authorities. The authorities allowed such surrender after verification of the voluntary element in the process. Punjab, Kerala, Karnataka, Gujarat, Tripura and Andhra Pradesh (Telangana area) did not provide for any surrender by the tenant to the landlord, but some did allow for surrender to the state. Tenants in some states were also given the right to purchase the land. For example, in Maharashtra, where tenancy is not prohibited, the tenant acquires the right to purchase the land after one year from the date of tenancy.

Variations in tenancy laws across major Indian states:

State	Specific features
Andhra Pradesh	In Andhra region leasing is permitted but regulated. In Telangana region leasing out land by large holders is prohibited. Smallholdings below three family holdings are allowed to lease out land for a period of five years. Exemptions are provided.
Assam	There are no restrictions on leasing out of land.
Bihar	Leasing out is prohibited except for persons with disability. Public servants with a salary not exceeding Rs250 are included under exempt category.
Gujarat	Leasing is prohibited and unauthorized leasing is punishable offence with a fine up to Rs1 000.
Karnataka	Leasing is generally prohibited. Soldiers and seamen are exempted. Recent amendments allow further limited exemptions, most granted on a case-by-case basis. Violations result in land vesting in the state.
Maharashtra	No ban on tenancy, but the tenant acquires the right to purchase the land within one year of the commencement of tenancy.
Madhya Pradesh	Abolished the past leases but not the future leases. Past leases are divided into two categories called Bhumiswami tenant without payment and other tenant with payment. They cultivate on terms and conditions agreed between parties. Other land owners can lease out their lands for one year during consecutive period of three years.
Orissa	Prohibited all future leases. Past leases continue after surrendering half of the leased land to the landlord or rayat.
Punjab and Haryana	There is no ban on leasing and the tenants do not acquire any rights on land.
Rajasthan	The landowners (Khatedar) can lease out for a non-renewable period of five years. Ghair Khatedar tenants can sublease for a period of one year.
Tamil Nadu	Leasing is permitted but the law stipulates that every contract should be in written form and in triplicate. A copy of the document shall be deposited with the revenue officials
Uttar Pradesh	Lease for any period is prohibited. Exemptions allowed for widows, unmarried women, military persons, students and physically disabled.
West Bengal	Fixed-rent leasing is prohibited, but sharecropping is allowed and subject to protection. A person lawfully cultivating others' land is presumed to be a sharecropper and is given permanent and heritable rights with a fixed level of rent (25% if sharecropper provides inputs and 50% if landlord shares in inputs). On resumption the sharecropper has to be left with 1 ha of land and the landowner can resume on a maximum of 3 ha.

Reform in Agriculture marketing & reducing input subsidies:

Calling for opening up of the state agricultural marketing system for better price realisation, the Prime Minister’s panel has noted that Agricultural Produce Marketing Committees (APMCs) have not been able to stop collusion among traders and opaque ways of price determination. The same is also reported (here) that, APMC is not protecting the interests of primary producers and mandis have thrived under a politicised and restrictive regulatory framework, strengthening mercantile control and collusion, while leaving both farmers and consumers worse off on either end of fragmented and inefficient supply chains. Farmers are subjected to taxes and levies without receiving commensurate benefits,” the panel has observed.

Stressing on the agricultural subsidies such as fertiliser and free power is putting fiscal burden on the government, PMEAC suggested the government to make “determined move” to dismantle the existing system. It has also observed that the issue has been complicated and that fertiliser production in the country was not based on the comparative advantages.

“These subsidies are progressively losing their relevance and are becoming an unbearable fiscal burden. Their role in contribution to productivity enhancement is fast disappearing,” PMEAC stated. An interesting paper on Fertilizer Subsidy in India: Who are the Beneficiaries? (here) by Vipul Sharma, IIM-Ahmadabad.

Among various suggestions for reforming fertiliser sector, those offered by the Expenditure Reforms Commission and reiterated by the PMEAC needs to be examined for implementation, it added. In the current fiscal, the fertiliser subsidy is estimated at Rs. 65,592 crore.

The PMEAC has observed that “rising power subsidy given by states to the farmers is not going to solve problems; there is a growing consensus among experts on removing it after reforming the power sector. A number of states as Andhra Pradesh, Orrisa and others have started implementing reforms in a phased manner. “But so far no perceptible results have been obtained”.

The PMEAC has also observed that “while there is some thought, though not much action, on removing subsidies on fertilisers and electric power, removal of subsidies on canal water has not attracted serious attention of policy makers”.

Meanwhile, PMEAC also stated that the deficient monsoon rains this year is expected to pull down the farm sector growth in the current fiscal to a meager 0.5% from the 2.8% reported in the previous year.This is the lower ever growth projection by PMEAC for the agricultural and allied sector as during 2009-10, when 14 states declared drought, covering 338 districts in all. That year, June's rainfall fell 47 per cent short of the normal (news article here). “A similar pattern is expected this year and the impact will be less severe than was the case in 2009,” the PMEAC stated in its report. “It is certain that crop output would be hit on account of the weak monsoon, of which one and half month yet remains to be seen,” PMEAC chairman C Rangarajan said.