The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Pratikshit Gupta, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur
In a historic step, India is moving towards bringing down the equivalent of a Berlin wall running through its food markets.
As Prime Minister Narendra Modi kicks off the National Agricultural Market platform on Thursday evening, an internal farm trade barrier invoked decades ago will be replaced by an online countrywide trading platform that will link wholesale markets. The barrier in question is a virtual firewall of archaic rules that prevents farmers of one state from selling goods in another, and stokes episodes of high food inflation.
India may be trading globally as an open economy, but when it comes to farm produce, separate markets mean the country behaves like a million independent economies within one.
Food items from one state to another can be traded only when they are channelled through these markets, which are tough to negotiate due to intermediaries.
What does this mean for both farmers and consumers? Under a decades-old system, each state has scores of tight market zones to serve as exclusive buyer-seller platforms for an area. This system of ‘mandis’ or markets are both a physical and – at times – fiscal barrier preventing the seamless movement of goods.
These closed mandis have been found to drive inflation and food shortages by preventing quick movement of commodities from surplus states to deficit ones. Such bottlenecks caused onion prices to shoot up to a five-year high of about Rs 90 a kg last summer.
If farmers in Maharashtra can quickly sell their produce to traders in Assam, they stand to gain from instant and unhindered access to markets. Shortages can be promptly compensated, lowering prices for consumers. The reform will result in three major reforms – electronic trading, a single licence valid for all states and a single-entry point market fee.
Eight states – Gujarat, Telangana, Jharkhand, Madhya Pradesh, Rajasthan, Uttar Pradesh, Haryana, and Himachal Pradesh – have agreed to knock down their trade barricades to form the first leg of what will be a common national electronic agricultural market. The new initiative will link 21 mandis from these states. As many as 365 mandis from 12 states have been granted approval for the next phase.
However it is easier said than done. Because quality and standards of a single commodity are so varied that on electronic platform only 10% of total commodities can be covered. On electronic platform standardized commodities can be traded as it is software based platform. For the rest of the commodities national market may not be the right option.