Understanding and misunderstanding e-NAM

SHOUMITRO CHATTERJEE and MEKHALA KRISHNAMURTHY

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THE 2019 Lok Sabha election was fought against the backdrop of a sustained period of farmers’ protests across major Indian cities and regions, reflecting the intensification of agrarian distress over the past five years. Some of the key drivers, notably the collapse in agricultural commodity prices and incomes as a result of both an unfavourable global trading environment and misguided government policies, have been analysed in Seminar’s annual symposiums in the two years preceding this one.1 Nonetheless, against all the unrest, the BJP brought in a bumper electoral harvest in May 2019, while continuing to confront an agricultural sector estimated to be growing at just around 2% with farm incomes thought to be growing at the slowest pace recorded over the last fifteen years.2

For a government that has given itself the goal of ‘doubling farmers’ incomes’ by 2022, these are hard figures to digest. In response, there appears to have been a redoubling of faith in the flagship reform for this sector: the creation of an electronic National Agricultural Market or eNAM. Launched by Prime Minister, Narendra Modi, in April 2016 eNAM, like the GST, expresses the ambition of forging ‘One Nation, One Market.’ However, as with the GST, the devil is always in the detail, and it is in its design and implementation that grand visions meet ground realities. It is here that eNAM needs some serious conceptual and empirical reality testing.

 

What is eNAM? In a line, eNAM is a ‘a pan-India electronic trading portal which networks the existing APMC mandis to create a unified national market for agricultural commodities.’ This means that in order for it to work, the virtual e-NAM relies completely on the existence of a system of actual, regulated, physical markets, more commonly known (and widely vilified) as APMC mandis. It is therefore truly confounding when the Finance Minister tells states, as she did very recently in November 2019, that they should ‘dismantle’ APMCs in favour of eNAM when, by virtue of its design, eNAM is intended to function as nothing more or nothing less than an integrated network of APMC mandis brought under a common platform.3 In fact, states that do not have APMC mandis due to the non-existence, repeal or non-implementation of a state-level Agricultural Produce Marketing Act (Kerala, Bihar and Mizoram respectively, to name three) are currently excluded from the eNAM platform.

Unfortunately, this sort of error betrays a shocking degree of conceptual and empirical disinterest and misunderstanding that is all too common when it comes to policy discourse on one of the most visible and vital sectors of the Indian economy.

What Nirmala Sitharaman might have meant to say is that states need to move beyond the prevailing regulatory system that has historically empowered elected Agricultural Produce Marketing Committees (APMCs) to oversee all trade in their individual local market areas. These powers include the issuing of licenses to buyers and the granting of shops in the mandi yard, thereby limiting competition to only those traders and intermediaries with physical presence in that particular local market. This is where eNAM requires states to make two major changes.

First, it requires states to issue a single state unified license to traders that will enable them to buy agricultural produce in all regulated mandis in that state, instead of having to obtain mandispecific licenses from the elected APMCs. States also need to sign on to a single point levy of market fee across the state.

Second, it requires that all eNAM mandis move to an electronic exchange platform. Under the new process, each lot brought for sale by a farmer is to be registered and independently assayed before being displayed online for all interested buyers to view. A closed online auction is then conducted within a specified window after which the lot is matched with the highest bidder. Participation on the platform requires all transactions between buyers and sellers to be settled electronically and not in cash. In principle, this process enables distant traders holding a state unified license to participate remotely in the online auction, increasing competition in local markets.

 

In its first phase of implementation, the eNAM scheme is reported to have networked 585 APMC mandis across 18 states.4 According to the most commonly cited estimates, India’s agricultural marketing system consists of 6600 regulated (APMC) markets and 22,932 rural periodic markets (haats), of which only 15% are regulated by local authorities.5 So, eNAM is officially present in around 9% of the existing regulated wholesale mandis and only 2% of all rural market sites that we have on record.

We also know that the volumes passing through mandis vary widely by commodity and that for a very large proportion of farmers, especially for small and marginal farmers, sale to a small village-level trader or intermediary remains the dominant mode of exchange. The platform currently trades 150 commodities, but in almost all cases only a single commodity has been taken up for eNAM trading in each market and even that is done on an optional basis. So, the coverage, at this stage, remains very limited.

 

Even so, as a networking device intended to integrate existing physical commodity markets across the country, at its launch, eNAM did provide a unique opportunity to carefully assess the status of diverse market sites and address their specific requirements. Indeed, as the eNAM website clearly states: ‘eNAM is not a parallel marketing structure but rather a device to create a national network of physical mandis which can be accessed online. It seeks to leverage the physical infrastructure of the mandis through an online trading portal, enabling buyers situated even outside the mandi/state to participate in trading at the local level.’

This should have meant working closely with each state in identifying constraints and opportunities for implementation. And such a process would have necessarily begun with the acknowledgement that agricultural markets are highly specific, diverse and differentiated in terms of their structure and organization – across agro-ecological regions, land regimes, socio-economic groups, commodity systems, agro-commercial networks, and regulatory histories. From there onwards, building a genuine national agricultural market would have meant an enormous degree of field based data collection and analysis; significant institutional, infrastructural and logistical investment; and deep regulatory reform, synchronisation and capacity building. Instead, over the last four years eNAM has adopted a ‘plug and play’ approach and the result is a marketing scheme with very little buy in.

 

Numerous field reports, including the findings of a high-level government-appointed expert committee, provide a sense of the many, common challenges the initiative is facing on the ground.6 Our own fieldwork across diverse market sites have vividly confirmed and reinforced the problems that eNAM is facing. In many cases, computer terminals have remained in their boxes. In others, data from offline auctions or government procurement has been retrospectively entered into the e-NAM portal. Some mandis have avoided moving high-volume commodities online due to time delays in facilitating eNAM exchange; others only use e-NAM on a single day of the week or off-season before reverting to business as usual. And across the board there have been few takers for assaying and quality specification, with testing equipment remaining widely unused, or as we discovered, with labs being repurposed as kitchens for market staff.

In states where regulated markets are not the primary channel for local marketing and trade, mandi functionaries have struggled to attract buyers and sellers into market yards, let alone getting them to bid online. In some instances, where winning bids have been declared, transactions have been abandoned with the trader neither fulfilling payment nor even collecting the produce, which much to the mandi secretary’s despair, has been left lying outside in the mandi yard.

Where mandis are in fact dynamic hubs for local trade, open auctions or manual tendering are not always conducted in the first place or for all commodities; in such cases, moving buyers and sellers from no auctions to e-auctions is not an easy task. This has been made all the more difficult when it comes to enforcing a system of direct electronic payments for all transactions since it is common for farmers, traders and commission to operate through a system of credit advances and through cash payments.

 

Despite press releases and scattered news reports, inter-mandi, let alone inter-state trade – the main promise of eNAM – is yet to materialise. Given the state or lack thereof of assaying and the lack of attention to logistics and transportation eNAM is unlikely to attract distant buyers any time soon. And as research in Karnataka’s mandis, which was the first state to unify their markets but has thus far opted out of eNAM, reveal, in the absence of competition from outside traders, the new electronic system is as vulnerable as before to the threat of local collusion, with instances of b ids placed around those of the dominant trader, boycotts against e-trading, the moving of commodities to non e-trading days, and movement of trading outside the mandi in non-registered transactions.7

All this is not to say that electronic auctions and other price discovery mechanisms on a trading platform that enables both local and long distance buyers to bid on farmers’ produce is an inconceivable enterprise. It does, however, imply that we need a fundamental reorientation in the approach to building a national agricultural market. As we have said before, eNAM needs to move from the dashboard, back to the drawing board.8

This then brings us back to first principles. In this case, since eNAM is being conceived as a strategy to promote uniformity and unification across agricultural markets with a strong emphasis on increasing farmers’ incomes, it is especially important for us to step back and ask – what does market integration do?

 

Put very simply, economic integration reduces barriers to trade between regions. These barriers could exist due to policy, for example, international or inter-state tariffs, or be infrastructure related, for example, bad roads. They could also be a result of informational asymmetries in an environment where acquiring information about prices, output, and quality of output is costly. It is also well known that economic integration creates winners and losers. So, what can we learn if we pay attention to the mechanics of economic integration?

As markets get integrated, first, gains are expected to arise because increased competition increases economic efficiency in production. This means that unproductive firms (farms in our case) become unsustainable, and in theory at least, exit the sector – which is central (but by no means straightforward or painless) to the process of development. Second, it promotes specialisation such that, again in theory, farmers grow crops that they are most productive in and import other crops for consumption from other regions of the country. This ensures that the total output of the country increases. Third, economic integration should also increase competition in the intermediation (and logistics) sector – among commission agents (arthiyas), informal creditors, transporters, processors, etc. Fourth, producers (farmers) in one region will become more susceptible to price shocks in other markets, including international markets.

 

Let us consider each of these points in further detail. First, on the gains from economic efficiency. Let us suppose eNAM allows traders in Punjab to purchase maize from Bihar. Let us further assume that farmers in Bihar are able to produce the same quality of maize at much lower costs than in Punjab. Therefore, Punjabi traders find it profitable to buy maize in Bihar and sell in Punjab. This is good for Bihari farmers, who can now sell directly to Punjabi traders, but we should remember that it is bad news for farmers in Punjab. Unless they can increase production efficiency, they will lose buyers and end up with losses. For the aggregate economy, this is indeed the right direction of development if coupled with creation of jobs in other sectors, but this does not increase farmer incomes – not every farmer’s income at least.

Second, economic integration of markets should, in theory, promote specialisation in production. So, let us say, the Deccan plateau is well suited for growing pulses and oilseeds. Less moisture reduces the possibility of pest infestation in the protein-rich crop. A consequence of economic integration is that it allows farmers in the Deccan to specialise in crops they are better placed to grow. They don’t have to grow everything else since for consumption, other crops can be imported from other regions. However, this also means that if, in a certain year, for ins-tance, Punjab arbitrarily decides not to supply wheat to the rest of India, consumers (including farmers, who we often forget are also always consumers) in the Deccan will lose out. In an integrated market, sub-national trade restrictions have no place. Yet, in prac-tice such policies are commonplace – for example, West Bengal banned potato sales to other states in 2012 and in 2013.

In such a context, specialisation comes with a set of risks, including those critical to local food security. It is also in tension with another agro-ecological and economic imperative that farmers face – diversification. And working out the balance between diversification and scale, especially in a smallholder agrarian economy is a complex challenge that will not be fully addressed by market integration.

 

Let us now turn to the third dynamic and the core question of price competition and intermediation. As traders from other regions start bidding directly on commodities produced in distant produce markets, this should increase the set of buyers for farmers and thus should make them better off. However, the magnitude of these competitive effects depends on how important personal relations are at various levels of the commodity system and across different elements of exchange and circulation. It also assumes that local intermediaries are only exploiting asymmetries resulting from fragmentation of markets rather than providing necessary services, possibly linked to production conditions and that producers are therefore ‘free’ to respond simply to higher prices. In the case of physical agricultural markets, we know that this is rarely the case and that access to credit – across the commodity system and often stretching over the season and often even transferred from one season to the next – is a common feature.

 

An online trading platform on its own cannot de-link and de-risk market exchange without a whole range of concomitant interventions, especially in markets for inputs and credit. In the context of physical agricultural markets in India, disintermediation is itself usually a misguided goal, but addressing the political economy of intermediation and creating the conditions for greater competition among intermediaries and logistics operators is important. This requires addressing the multiple and interrelated condi-tions of production, exchange, and consumption that farmers contend with on a regular basis.

Finally, while increased competition, especially in the intermediation sector, can reduce wedges between the retail and the farm gate price, it cannot raise consumer prices. Here, Indian policy has been perpetually self-contradicting – we want consumers to pay the lowest prices possible and yet try to ensure higher prices for farmers. Farmers can only get as much as the consumers pay minus logistical costs. If prices are artificially kept low by policy, it is not an issue that a price discovery tool like eNAM can solve. And yet, as we have seen time and again, and are witnessing currently in the case of onions, stock limits and export bans are placed as soon as prices of key commodities move up and in years when international prices are high.

Therefore, if the government is indeed committed to pushing for greater market integration, it needs to find a new set of instruments by which to protect producers and consumers from volatility, which will now be more seamlessly transmitted than before. Caution is especially warranted when such market integration is done without any heed toward insurance mecha-nisms, particularly for farmers who live close to poverty.

The idea of eNAM hitches together two of the present government’s big policy motifs – ‘Doubling Farmers’ Incomes and ‘One Nation, One Market.’ Each can move us in important directions for policy reforms. The first moves us from a singular focus on farms to a multifaceted approach to farmers’ incomes and to supporting their diversified economic lives. The second provides a much needed and long overdue focus on agricultural commodity markets: the connective tissue in the Indian eco-nomy and crucial to the dynamics of growth, distribution and equity. Neither, however, will respond to narrow, schematic approaches when what is fundamentally needed is at once a more comprehensive and contextual approach to reform where state governments must substantially own and lead the process. The relations bet-ween farmers’ incomes and market integration, moreover, need to be very carefully drawn out with great clarity on what can and cannot be achieved by specific strategies and devices. Most importantly, pushing for greater market integration not only requires far greater institutional capacity, public invest-ment, regulatory innovation, and context- specific implementation. It also requires much greater acknowledgement of and preparation for both the gains and losses from integration and their consequences for the millions of lives, livelihoods and economic and social transitions involved in the process.

 

Footnotes:

1. Harish Damodaran, ‘Farm Crisis Redux’, Seminar 701, January 2018 and Pronab Sen, ‘Farmer Distress: Missing the Macroeconomic Factor’, Seminar, 713, January 2019.

2. Niranjan Rajadhyaksha, ‘The Mounting Challenge of a Two-Speed Indian Economy’, Mint, 6 March 2019.

3. https://www.livemint.com/news/india/states-should-dismantle-apmcs-adopt- e-nam-for-farmers-benefit-sitharaman-11573563718825.html

4. eNAM website: https://enam.gov.in

5. According to the Doubling Farmers Income Report (Vol. 4), India has an estimated 6600 regulated wholesale markets yards (principal and sub-market) operated under 2284 APMCs. They estimate there are also app-roximately 23,000 rural periodic markets accessed by farmers.

6. The Report of the Expert Committee on Integration of Commodity Spot and Derivative Markets chaired by Ramesh Chand (NITI Aayog) has a section listing observations of the operational and infrastructural issues faced by eNAM, pp. 40-42. There have also been numerous field based reports in the media of eNAM implementation across the country.

7. Nidhi Aggarwal, Sargam Jain and Sudha Narayanan, ‘Unified Agricultural Markets: Where are the Reforms Lacking?’, Ideas for India, 2 January 2017. https://www. ideasforindia.in/topics/agriculture/unified- agricultural-markets-where-are-the-reforms-lacking.html

8. Mekhala Krishnamurthy, ‘Back-end First: A National Agenda for India’s Agricultural Markets’, Centre for Policy Research, Policy Challenges 2019-2024: The Key Policy Questions for the New Government and Possible Pathways, July 2019

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