Source: IDEAS AND INSTITUTIONS | ISSUE #49
Analysis
The Role of the Central Government in Agriculture Markets
The recent protests by farmers from Punjab over minimum support price (MSP) have once again put a spotlight on the agriculture sector, especially the role of the central government within it. Although agriculture is a state subject, the centre, in 2020, enacted laws to reform agricultural markets using other constitutional provisions. While the laws were later repealed by Parliament, this episode cast the role of the government primarily as an entity that supersedes state legislation to implement reforms.
The role of the centre in agriculture markets is however, multi-faceted. SEBI, or the Security and Exchange Board of India, a regulator set up by a central law, directly regulates commodity exchanges like the National Commodity and Derivatives Exchange Limited (NCDEX). The central government regulates inter-state trade and commerce, which includes agriculture. Additionally, the centre can coordinate reformist measures across states, and implement administrative mechanisms that can enable state markets to function better.
A recent report by an expert committee of the Department of Agriculture and Farmers’ Welfare, lays out examples of the central government’s varied role in agriculture markets. It addresses some key problems in agriculture markets, and provides recommendations on how the centre can intervene to resolve them.
One problem the report flags is the high cost incurred by farmers while transporting agricultural produce from the farm to the market, often at a considerable distance from each other. There is also a lack of adequate storage infrastructure like warehouses and cold storages. These challenges compel farmers to transport their produce to markets and sell them before they perish. A farmer therefore has limited capacity to wait for better prices, or to plan the sale of their produce based on market dynamics. This creates a situation where almost all their produce is brought to the market at the same time. In addition, limited storage facility limits a farmer’s ability to avail of credit against the produce. A warehouse receipt issued against stored commodities is usually good collateral for loans, provided the commodities are stored safely and preserved properly. Moreover, the problem of transportation reduces significantly if goods can be sold directly from warehouses instead of having to go to mandis or markets. Some states already allow for warehouses that meet specified criteria to be declared mandis. Therefore, fixing the problem of storage infrastructure and reducing transportation costs is a key issue in agriculture markets.
Another major problem is the fragmentation and localization of agriculture markets. In India, these markets are usually created and regulated by the state and operate within a fixed territorial limit. States have started granting state-wide licenses to traders, eliminating the need for them to obtain separate licenses for each market. This is, however, a limited measure. The fragmentation of markets limits price discovery from across the country. A farmer growing onions in Maharashtra may potentially discover significantly higher prices for their produce in Bihar than in their local market. Various pieces of market infrastructure are required to facilitate the farmer’s entry into this transaction—a price discovery mechanism, a supply-chain, and a contract-enforcement mechanism. The central government has an important role in creating this national market across state borders.
In 2016, the central government launched eNAM, or an “electronic national agricultural market,” that put in place some elements of market infrastructure described above. The platform aimed to promote marketing opportunities for farmers through a competitive and transparent price discovery system and online payment facility. Its objectives included the integration of markets at the state and national level through a common online market platform. However, the e-trading portal has not worked out quite as well as was hoped.
The aforementioned report of the expert group raises and interlinks the two issues of promoting warehouse-based sales and national agriculture markets. It envisions warehouse-based sales as an essential component of national agricultural markets and recommends mechanisms to (a) increase warehouse-based sales and promote lending against stored agricultural produce, (b) link warehouses to eNAM, and (c) remove friction in the operation of eNAM alluded to above.
Recommendations for Warehouse-Based Sales and Lending Against Stored Produce
The report recommends that all warehouses that comply with state regulations be declared “deemed market yards,” especially those regulated by the central regulator, the Warehouse Development and Regulatory Authority (WDRA). It suggests that the central government push this initiative with state governments, through a dedicated institutional mechanism created at the centre.
In addition, it recommends that central government subsidies for warehouse construction be linked to registration with the WDRA to bring more warehouses under its supervisory ambit. This is intended to provide more protection for goods against which Negotiable Warehouse Receipts or NWRs have been issued, since only WDRA registered warehouses are permitted to issue NWRs.
The report also recommends that lending incentives for electronic NWRs, or eNWRs, be brought on par with Kisan Credit Cards (KCC), to encourage farmers to use eNWRs. It notes that at present, various constraints influence the decision of farmers not to avail loans against commodities. These include higher interest rates for loans against warehouse receipts than KCC loans, non-availability of storage infrastructure, lack of market intelligence owing to non-availability of price discovery mechanisms, and lack of access to secondary markets.
In essence, the absence of storage facilities and the inability of producers to capitalize on the value of their goods, either by collateralizing them or using warehouses as points of sale, has a strong influence on the nature of our agricultural markets. For example, though the report notes that buyers are usually only available in post-harvest season, this must be seen as an effect rather than cause. Buyers have no incentives to purchase goods after the post-harvest season if market infrastructure like storage does not exist to preserve goods. Agricultural markets are designed around the compulsion of farmers to make immediate sales in primary markets after their harvest. This situation will persist until adequate storage infrastructure is put in place, and warehouses are allowed as points of sale. The recommendations in the report aim to correct this state of affairs.
Recommendations for Linking Warehouses to eNAM
The report recommends that state governments and the centre collectively identify changes in state laws that will enable recognition of state-issued agriculture produce marketing committee (APMC) trading licenses beyond their borders. This will also enable the creation of an inter-state dispute resolution mechanism. According to the report, this mechanism should cover both primary trade, and then secondary trade in agricultural commodities. The focus of these initiatives should be to promote trade that takes place through warehouse-based sales and eNWRs through the eNAM platform. It also recommends the integration of electronic repositories and WDRA-registered warehouses with eNAM.
The creation of an inter-state dispute resolution mechanism is a key component for the establishment of a national market in the agricultural sector. The Indian state is notorious for poor outcomes in contract enforcement. Strong mechanisms for contract enforcement and dispute settlement become all the more critical to incentivize farmers to enter into contracts outside their local markets. While farmers can exercise some collective power or appeal to administrative and political leaders in local markets for resolution, this is not possible in inter-state trade. Dispute settlement and contract enforcement are therefore critical parts of creating a national agriculture market. If anything, the report’s recommendations on dispute resolution and grievance redress fall short of what might be required. While the report does recommend that a central authority take up the task of addressing disputes, a well distributed institutional machinery for expeditious and impartial resolution in agriculture markets is required. Ideally, there must be some forum for dispute resolution in proximity to every point of sale, whether it is a mandi or a warehouse.
Recommendations for Removing Frictions in the Operation of eNAM
The report recommends the creation of a central authority to oversee inter-state trade in agriculture. It also points to the lack of a regulatory framework for secondary trade in agriculture, as agricultural marketing laws usually cover only primary sales of farmers to traders. It recommends that the central government create this framework to enable this market to come up through electronic platforms, including eNAM.
The report further recommends that frictions in the operation of electronic markets such as eNAM be minimized by reducing the tax deductible at source (TDS) charged on online platforms to a nominal rate. This will reduce the difference in taxation between electronic and physical trade in agriculture. Finally, it recommends the creation of a settlement guarantee fund (SGF) to ensure better contract enforcement for electronic trading platforms.
Taken together, these recommendations point to the varied role of the central government in what is usually considered a state subject. The report considers two important pieces of the Indian agriculture market—storage infrastructure and the marketplace, and highlights a range of tools the central government can utilise to improve agriculture markets. These include fiscal mechanisms like subsidies and taxation, coordination mechanisms in areas under state jurisdictions, such as APMC laws, and administrative mechanisms under the centre’s jurisdiction, such as eNAM and inter-state dispute resolution.
A reading of the report highlights that these tools can be used to solve important problems in the Indian agriculture industry. Some Indian states, have of their own accord, initiated and implemented reforms in agriculture markets in the past decade or so. The recommendations in the report are part of a larger trend in the reformist trajectory of agriculture in India.
—By Anirudh Burman
Understanding Legislative Dysfunction in the United States
In most democratic societies, constitutions give legislatures a central place in defining and realizing democratic ideals. In recent years, however, the role of legislatures in many democracies has weakened. They have become increasingly dysfunctional, while governments and regulatory agencies take on more rulemaking responsibilities. Higher judiciaries have arrogated to themselves the power to define what the law should be, when their role is traditionally limited to interpreting the law in specific cases. The rise of populism, with its emphasis on a “leader standing for the people,” also places further pressure on legislatures.
Many scholars and politicians have offered explanations for the decline of legislatures. In the United States, where legislative dysfunction is quite acute, there is a burgeoning literature on this phenomenon. Philip A. Wallach’s book, Why Congress, is a worthy addition to this literature on the U.S. Congress (the legislature, comprising the Senate and the House of Representatives). Wallach, currently a senior fellow at the American Enterprise Institute, has previously worked on reforming the U.S. Congress as a fellow of the House Select Committee on the Modernization of Congress. He builds his argument in the book in five steps.
First, he offers a historically informed, theoretical argument for what Congress alone can do in the American political system—functions for which the executive and the judiciary are but poor substitutes. Building on a historical account that starts with the rise of the British Parliament, and drawing on theoretical contributions by scholars like Hanna Pitkin and Nadia Urbinati, Wallach discusses certain functions that only legislatures can perform properly—building coalitions, generating trust, and enabling accountability. For instance, Wallach suggests that Congress can enable the building of broad coalitions, bringing together factions and allowing politics to form bonds among the representatives and through them, the people. These bonds do not imply unanimity, but only a sense of belonging to a legitimate political system. He argues that legislatures also enable the right kind of accountability, one that is not always about getting the right answers, but about giving an account for one’s actions. The people can ask for such an account from their representatives, who in turn can demand accountability from the government and from each other for their legislative proposals.
Two key ideas about Wallach’s way of thinking about U.S. Congress emerge from this discussion. One is that representative government should be seen as an achievement that is distinct from democracy, because a well-functioning representative body is not just democratically elected. It is much more than that it exists in the various norms and procedures that elected representatives follow in their interactions. The second idea is Wallach’s conceptualization of congressional organization. He uses the metaphor of a pendulum that swings between two extremes—a high level of openness, which may lead to incoherence, paradoxically opening the field to special interests, and tight control by parties, which may lead to the triumph of ideology, sclerosis, and unresponsiveness to new concerns. This is a useful metaphor because it can help people in any polity assess the current position of their pendulum and push for reforms to restore balance.
Second, through the examples of the Second World War and the civil rights reform, Wallach describes how Congress played an essential role, even when the temptation to sidestep it were strong. The discussion on the Second World War shows that historical accounts, which typically focus on presidents and generals, often overlook the role of a well-functioning legislature. Wallach argues that the U.S. Congress at the time played an essential role in bringing together a multitude of factions to respond to a challenge that required the collective effort of the whole nation, especially considering the geographical distance of the United States from the main theatres of the war.
In the example of the civil rights reform, Wallach shows that even though the reform amounted to the defeat of the intransigent representatives from the American South, the fact that they were not shut out of politics helped legitimise the reform. In fact, they were allowed to deploy many procedures in their failed attempts to stall and thwart the reform. Its implementation in the Southern states was far more successful than judicially ordained reforms like the desegregation mandated by the Brown v. Board of Education judgment a few years earlier. The process necessitated the creation of a broad coalition that meant that the reform was able to garner support even from conservatives from the midwestern states who were earlier on the fence. Social and political mobilization, involving student organizations, churches, and others, played a vital role.
Third, Wallach provides a historical explanation for the present state of Congressional dysfunction. He begins in the 1970s when the decentralized committee system broke down in the face of liberal demands for reform. These involved experimenting with radical decentralization. This pushed the pendulum of congressional organization closer to extreme openness and led to chaos that eventually drove the institution towards centralization under powerful, partisan leaders. In this years, the conservatives felt that they were being excluded from power, and they began to see Congress as corrupt. When they came to power, they pursued the consolidation of leadership. Over time, both parties have pursued tight control of the legislative agenda. In the process, deliberation in Congress has declined, and it has become a place for empty posturing. Wallach further suggests that party control has led to Congress restricting, rather than representing, the diversity of America’s social and political life.
Fourth, Wallach cites immigration and COVID-19 as examples to argue that Congressional dysfunction has limited the ability of the American political system to address the country’s challenges. He recounts several attempts at immigration reform in recent decades, and why they were thwarted due to problems in Congress. The gridlock has created opportunity and demand for the executive and the judiciary to step in, but solutions coming from these branches are marked by uncertainty and questionable legitimacy. Executive action by the president has delivered short-term results but with legal uncertainty over years of litigation. Wallach also argues that during the pandemic, technocrats in the executive branch were delegated excessive responsibility, leaving many complex and politically consequential trade-offs to people who did not have the legitimacy make those decisions.
Fifth, Wallach outlines three scenarios for the future of this institution. In the first scenario, dysfunctions worsen. The current trajectory is maintained and legislators struggle to cooperate even to get the bare minimum done. Consequently, the government finds ways to work around the institution. The second scenario, or the “Rubber Stamp,” would involve reforms such as the elimination of the filibuster, restricting amendments, allowing remote participation and voting, automatic continuing resolutions whenever Congress fails to pass spending laws, and so on. This would limit Congress’ ability to obstruct the government’s agenda. It would not be an avenue of serious debate and would have little power to shape policy choices. Wallach provocatively suggests that discussion on important issues would move to social media, with many harmful consequences for politics.
The third scenario is a hopeful one, involving genuine reform and revival. It would require a commitment to Congress’ “constitutional role as a pluralist, decentralized representative body responsible for deciding the major questions facing the country.” In this scenario, reforms lead to a restoration of the primacy of congressional committees. Members would be able to put their constituents’ policy needs ahead of party unity and debate will be revived for a serious attempt to persuade others. In this scenario, the Congress would place more focus on important issues instead of trying to oversee every aspect of governance. Wallach ends the book with an open letter to the members of Congress, appealing to them to change the status quo.
While the history of the decline of the U.S. Congress can be situated in the political history of the country, it also finds place in the global history of democracies, as similar trends have emerged in many other democratic nations. A closer look at the factors leading to the decline of legislatures may show that political impulses have been partly underwritten by ideas that privilege the executive, the judiciary and/or a populist leader, while downplaying the role of legislatures. In such matters, the world of ideas and of political action are intertwined. Many thinkers have offered theories to support a more restricted role for legislatures. For instance, in their book Executive Unbound, Eric Posner and Adrian Vermeule cite the complexities of modern governance to justify the rise of the executive-centered state. They also argue for the kinds of checks executive-centered states generate, which are distinct from legislative checks envisaged in the U.S. Constitution (and found most clearly in the ideas of James Madison). Ronald Dworkin and many others have made arguments for a larger role of the judiciary in matters of justice. Executive leaders and judges have offered their own accounts for what seem to be acts of overreach.
There are, of course, theorists who have made strong arguments in favor of restoring the majesty and dignity of the legislature. For instance, Jeremy Waldron has offered a large body of work on this theme. As of now, there seems to be a growing inclination towards ideas that advocate for a greater role for the executive and the judiciary, not just in the United States, but in many other democracies as well. There is a dearth of work that looks at legislatures from the inside-out. It is one thing to make arguments for the legislature’s role, quite another to explain the dysfunction and suggest steps that may remedy its inability to perform that role. Chief among those who should be interested in this are legislators and their staff.
In February 2024, Gallup reported that only 12 percent of those it surveyed approved of the U.S. Congress. In the last ten years, the approval rating of the institution has averaged an abysmal 19 percent. The approval ratings of public institutions are not easy to interpret. For instance, one may be tempted to argue that the poor ratings represent disenchantment with the institution. But, why then have voter turnouts in the United States broken many records? No matter how one may interpret the unpopularity of the institution, it should be a matter of concern, particularly for those who serve in the institution, that more than four out of five respondents disapprove. It should trigger an inquiry into the causes of this disapproval. Wallach’s suggestion is that the answer lies in the realm of ideas that legislators hold about their role in the republic. The book makes a compelling case for such a view and makes many other useful suggestions. When read in the context of global trends and theoretical debates among political and legal philosophers, it is an important contribution that brings a sense of urgency and practicality to this issue.
—By Suyash Rai