Comparison of the 2020 central farm laws with the amendments proposed by states

Prachi Kaur , Suyash Tiwari - December 7, 2020

A few weeks ago, in response to the initial protests by farmers against the new central farm laws, three state assemblies – Chhattisgarh, Punjab, and Rajasthan – passed Bills to address farmers’ concerns. While these Bills await the respective Governors’ assent, protests against the central farm laws have gained momentum. In this blog, we discuss the key amendments proposed by these states in response to the central farm laws.

What are the central farm laws and what do they seek to do?

In September 2020, Parliament enacted three laws: (i) the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, (ii) the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, and (iii) the Essential Commodities (Amendment) Act, 2020. The laws collectively seek to: (i) facilitate barrier-free trade of farmers’ produce outside the markets notified under the various state Agriculture Produce Marketing Committee (APMC) laws, (ii) define a framework for contract farming, and (iii) regulate the supply of certain food items, including cereals, pulses, potatoes, and onions, only under extraordinary circumstances such as war, famine, and extraordinary price rise.

How do the central farm laws change the agricultural regulatory framework?

Agricultural marketing in most states is regulated by the Agricultural Produce Marketing Committees (APMCs), set up under the state APMC Act. The central farm laws seek to facilitate multiple channels of marketing outside the existing APMC markets. Many of these existing markets face issues such as limited number of buyers restricting the entry of new players and undue deductions in the form of commission charges and market fees. The central laws introduced a liberalised agricultural marketing system with the aim of increasing the availability of buyers for farmers’ produce. More buyers would lead to competition in the agriculture market resulting in better prices for farmers.

Why have states proposed amendments to the central farm laws?

The central farm laws allow anyone with a PAN card to buy farmers’ produce in the ‘trade area’ outside the markets notified or run by the APMCs. Buyers do not need to get a license from the state government or APMC, or pay any tax to them for such purchase in the ‘trade area’. These changes in regulations raised concerns regarding the kind of protections available to farmers in the ‘trade area’ outside APMC markets, particularly in terms of the price discovery and payment. To address such concerns, the states of Chhattisgarh, Punjab, and Rajasthan, in varying forms, proposed amendments to the existing agricultural marketing laws.

The Punjab and Rajasthan assemblies passed Bills to amend the central Acts, in their application to these states. The Chhattisgarh Assembly passed a Bill to amend its APMC Act in response to the central Acts. These state Bills aim to prevent exploitation of farmers and ensure an optimum guarantee of fair market price for the agriculture produce. Among other things, these state Bills enable state governments to levy market fee outside the physical premises of the state APMC markets, mandate MSP for certain types of agricultural trade, and enable state governments to regulate the production, supply, and distribution of essential commodities and impose stock limits under extraordinary circumstances.

Chhattisgarh

The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 allows anyone with a PAN card to buy farmers’ produce in the trade area outside the markets notified or run by the APMCs. Buyers do not need to get a license from the state government or APMC, or pay any tax to them for such purchase in the trade area. The Chhattisgarh Assembly passed a Bill to amend its APMC Act to allow the state government to notify structures outside APMC markets, such as godowns, cold storages, and e-trading platforms, as deemed markets. This implies that such deemed markets will be under the jurisdiction of the APMCs as per the central Act. Thus, APMCs in Chhattisgarh can levy market fee on sale of farmers’ produce in such deemed markets (outside the APMC markets) and require the buyer to have a license.

Punjab and Rajasthan

The Punjab and Rajasthan Bills empower the respective state governments to levy a market fee (on private traders, and electronic trading platforms) for trade outside the state APMC markets. Further, they mandate that in certain cases, agricultural produce should not be sold or purchased at a price below the Minimum Support Price (MSP). For instance, in Punjab sale and purchase of wheat and paddy should not be below MSP. The Bills also provide that they will override any other law currently in force. Table 1 gives a comparison of the amendments proposed by states with the related provisions of the central farm laws.

Table 1: Comparison of the central farm laws with amendments proposed by Punjab and Rajasthan

Provision	Central laws	State amendments
Market fee	The central Acts prohibit the state governments and APMCs from levying any market fee, cess, or any other charge on the trade of farmers’ produce outside the market yards notified or run by APMCs.	The state Bills empower the state government to levy a fee (on private traders and electronic trading platforms) for trade outside the markets established or notified under the respective state APMC Acts. Such fees collected will be utilised for the welfare of small and marginal farmers in case of Punjab, and for running of the APMCs and welfare of farmers in case of Rajasthan.
Minimum Support Price (MSP) - fixed by the central government, based on the recommendations of the Commission for Agricultural Costs and Prices	The central Acts do not provide for the MSP. They do provide for a contractual agreement for buyers and farmers to enter into prior to the production or rearing of any farm produce. This agreement must specify a minimum guaranteed price that the buyer will pay to the farmer for the sale.	The Punjab Bill provides that sale or purchase of wheat or paddy in state should be at prices equal to or above the MSP. The Rajasthan Bill provides that the pre-determined prices for all crop under farming agreements should be at prices equal to or above the MSP.
Penalties for compeling farmers to sell below MSP	Not prescribed.	In Punjab, if any buyer compels a farmer to sell wheat or paddy at a price below MSP, he will be penalised with an imprisonment term of at least three years and a fine. In Rajsthan, if a buyer compels a farmer to enter into a farming agreement below MSP, it will attract imprisonment between three and seven years, or a fine up to five lakh rupees, or both.
Delivery under farming agreements	The central Acts provide that the delivery of the produce can be: (i) taken by buyers at farm gate within the agreed time, or (ii) made by the farmer, in which case the buyer will be responsible for preparations for timely acceptance of the delivery. The buyer may inspect the quality of the produce as defined in the agreement.	In Rajasthan, if a buyer refuses to accept agricultural produce or take delivery of goods within a week from date of intimation by the farmer, he will attract imprisonment between three and seven years, or a fine of up to five lakh rupees, or both.
Regulation of essential commodities	The Essential Commodities Act, 1955 empowers the central government to regulate the production, supply, distribution, storage, and trade of essential commodities, such as medicines, fertilisers, and foodstuff. The Essential Commodities (Amendment) Act, 2020 empowers the central government to regulate the supply of certain food items, including cereals, pulses, potato, and onions, only under extraordinary circumstances such as war, famine, extraordinary price rise, and natural calamity of grave nature.	The state Bills provide that the respective state government will also have the powers to: (i) regulate the production, supply, and distribution of essential commodities, and (ii) impose stock limits under extraordinary circumstances. Such circumstances may include: (i) famine, (ii) price rise, (iii) natural calamity, or (iv) any other situation.
Imposition of stock limit	The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 provides that any stock limit will not apply to the farming produce sold under a farming agreement.	The Rajasthan Bill amending the central Act empowers the state government to impose stock limits, under certain conditions, on any farm produce sold under a farming agreement. These conditions are: (i) if there is a shortage of such farm produce in the state, or (ii) if there is a 25% increase in prices of such produce beyond the maximum price which was prevailing in the market (within two years before passing of such an order by the state government).
Dispute Resolution Mechanism for Farmers	The central Acts provide that at first, all disputes must be referred to a Conciliation Board for resolution. If the dispute remains unresolved by the Board after 30 days, the Sub-Divisional Magistrate (SDM) may be approached for resolution. Further, parties can appeal to an Appellate Authority (presided by collector or additional collector) against decisions of the SDM. Both SDM and Appellate Authority will be required to dispose a dispute within 30 days from the receipt of application.	Instead of the dispute resolution mechanism specified under the central Acts, the Rajasthan Bill provides that disputes will be resolved by APMCs, as per the provisions of the state APMC Act.
Power of civil courts	The central Acts prohibit civil courts from adjudicating over disputes under the Acts.	The Punjab Bill allows farmers to approach civil courts or avail other remedies under existing laws, in addition to those available under the central Acts. The Rajasthan Bill provides that the jurisdiction of civil courts over disputes will be as per the state APMC Act and rules under it. Currently, the state APMC Act prohibits civil courts from adjudicating over disputes related to trade allowance and contract farming agreements under the Act.
Special provisions	-	The Bills provide that the state APMC Act will continue to apply in the respective states, as they did prior to enactment of the central Acts (i.e. June 4, 2020). Further, all notices issued by the central government or any authority under the central Acts will be suspended. No punitive action will be taken for any violation of the provisions of the central Acts.

Note: A market committee provides facilities for and regulates the marketing of agricultural produce in a designated market area.

Have the state amendments come into force?

The amendments proposed by states aim to address the concerns of farmers, but to a varying extent. The Bills have not come into force yet as they await the Governors’ assent. In addition, the Punjab and Rajasthan Bills also need the assent of the President, as they are inconsistent with the central Acts and seek to amend them. Meanwhile, amidst the ongoing protests, many farmers’ organisations are in talks with the central government to seek redressal of their grievances and appropriate changes in the central farm laws. It remains to be seen to what extent will such changes address the concerns of farmers.

A version of this article first appeared on Firstpost on December 5, 2020.

Policy

Central Transfers to States: Role of the Finance Commission

Gayatri Mann - April 11, 2018

In November 2017, the 15^th Finance Commission (Chair: Mr N. K. Singh) was constituted to give recommendations on the transfer of resources from the centre to states for the five year period between 2020-25. In recent times, there has been some discussion around the role and mandate of the Commission. In this context, we explain the role of the Finance Commission.

What is the Finance Commission?

The Finance Commission is a constitutional body formed every five years to give suggestions on centre-state financial relations. Each Finance Commission is required to make recommendations on: (i) sharing of central taxes with states, (ii) distribution of central grants to states, (iii) measures to improve the finances of states to supplement the resources of panchayats and municipalities, and (iv) any other matter referred to it.

Composition of transfers: The central taxes devolved to states are untied funds, and states can spend them according to their discretion. Over the years, tax devolved to states has constituted over 80% of the total central transfers to states (Figure 1). The centre also provides grants to states and local bodies which must be used for specified purposes. These grants have ranged between 12% to 19% of the total transfers.

Fig 1 Over the years the core mandate of the Commission has remained unchanged, though it has been given the additional responsibility of examining various issues. For instance, the 12^th Finance Commission evaluated the fiscal position of states and offered relief to those that enacted their Fiscal Responsibility and Budget Management laws. The 13^th and the 14^th Finance Commissionassessed the impact of GST on the economy. The 13^th Finance Commission also incentivised states to increase forest cover by providing additional grants.

15^th Finance Commission: The 15^th Finance Commission constituted in November 2017 will recommend central transfers to states. It has also been mandated to: (i) review the impact of the 14th Finance Commission recommendations on the fiscal position of the centre; (ii) review the debt level of the centre and states, and recommend a roadmap; (iii) study the impact of GST on the economy; and (iv) recommend performance-based incentives for states based on their efforts to control population, promote ease of doing business, and control expenditure on populist measures, among others.

Why is there a need for a Finance Commission?

The Indian federal system allows for the division of power and responsibilities between the centre and states. Correspondingly, the taxation powers are also broadly divided between the centre and states (Table 1). State legislatures may devolve some of their taxation powers to local bodies.

Table 1

The centre collects majority of the tax revenue as it enjoys scale economies in the collection of certain taxes. States have the responsibility of delivering public goods in their areas due to their proximity to local issues and needs.

Sometimes, this leads to states incurring expenditures higher than the revenue generated by them. Further, due to vast regional disparities some states are unable to raise adequate resources as compared to others. To address these imbalances, the Finance Commission recommends the extent of central funds to be shared with states. Prior to 2000, only revenue income tax and union excise duty on certain goods was shared by the centre with states. A Constitution amendment in 2000 allowed for all central taxes to be shared with states.

Several other federal countries, such as Pakistan, Malaysia, and Australia have similar bodies which recommend the manner in which central funds will be shared with states.

Tax devolution to states

Table 2 The 14th Finance Commission considerably increased the devolution of taxes from the centre to states from 32% to 42%. The Commission had recommended that tax devolution should be the primary source of transfer of funds to states. This would increase the flow of unconditional transfers and give states more flexibility in their spending.

The share in central taxes is distributed among states based on a formula. Previous Finance Commissions have considered various factors to determine the criteria such as the population and income needs of states, their area and infrastructure, etc. Further, the weightage assigned to each criterion has varied with each Finance Commission.

The criteria used by the 11^th to 14^thFinance Commissions are given in Table 2, along with the weight assigned to them. State level details of the criteria used by the 14th Finance Commission are given in Table 3.

Population is an indicator of the expenditure needs of a state. Over the years, Finance Commissions have used population data of the 1971 Census. The 14^th Finance Commission used the 2011 population data, in addition to the 1971 data. The 15^th Finance Commission has been mandated to use data from the 2011 Census.
Area is used as a criterion as a state with larger area has to incur additional administrative costs to deliver services.
Income distance is the difference between the per capita income of a state with the average per capita income of all states. States with lower per capita income may be given a higher share to maintain equity among states.
Forest cover indicates that states with large forest covers bear the cost of not having area available for other economic activities. Therefore, the rationale is that these states may be given a higher share.

Table 3

Grants-in-Aid

Besides the taxes devolved to states, another source of transfers from the centre to states is grants-in-aid. As per the recommendations of the 14^th Finance Commission, grants-in-aid constitute 12% of the central transfers to states. The 14^th Finance Commission had recommended grants to states for three purposes: (i) disaster relief, (ii) local bodies, and (iii) revenue deficit.

Home

MPs & MLAs

Legislatures

Parliament

State

Bills & Acts

Budgets

Policy

LAMP

Careers

Comparison of the 2020 central farm laws with the amendments proposed by states

Central Transfers to States: Role of the Finance Commission

Recent Posts