The Centre’s move to pay Punjab farmers directly for wheat procured from them has been applauded by those who got the first bank transfers. Never in their lives, they said, had such large blobs of money dropped into their accounts. When routed through arhatiyas or commission agents, the payments used to be unnecessarily delayed.
An avowed purpose of agricultural marketing reforms is to ensure purchase efficiencies, reduce transaction costs and give farmers a greater share of the retail value. Direct transfers give financial autonomy to farmers. The Punjab government should welcome them. Instead, it is peeved. It tried stalling the change.
“We fought hard,” to delay direct payments Chief Minister Amarinder Singh said according to an official press release, “but the centre threatened not to procure from Punjab.” He assured a delegation of arhatiyas: ”Till I’m there you will be part of the system.”
The arhatiya-farmer relationship is like that of banks and their customers. It’s unequal but necessary. Banks would like to pay little for deposits and earn more fee income by getting customers to churn their mutual fund and equity portfolios frequently. The unscrupulous are not averse to mis-selling financial products. Arhatiyas are known to short-change farmers on the pretext of poor quality. They make deductions for various services. But they are also lenders of the last resort and supply agricultural inputs on credit.
When the government is the buyer as in the case of wheat and common rice, the relationship between the arhatiya and farmer is not as exploitative. Charges like rural development fee, mandi cess and arhatiya commission which added up to 8.5 per cent of the procurement price at one time in Punjab and were reduced to 5.5 per cent last year, are paid by the Food Corporation of India (FCI), the procurement agency. The farmers get the official procurement price without deductions.
Farmers regard the arhatiyas as service providers who do the job of cleaning, weighing, bagging and transporting the produce to the procurement agency’s storage depots. Some commission agents charged about ₹15 per quintal for these services. Others adjusted it against the commission fee of 2.5 per cent on the procurement price they got from FCI.
The arhatiyas are fall-back lenders to farmers when banks spurn them. Their interest rates are high: 1-2 per cent a month depending on the repaying capacity of farmers – bigger farmers get a lower rate. Repayment was assured because procurement payments were routed through them. That also persuaded them to cross-sell fertilisers and pesticides on credit.
With direct payments, this non-institutional credit market will get disrupted. Assured of liquidity, farmers might borrow less. Arhatiyas might have to chase repayments, unlike now. They might get farmers to sign blank cheques to enforce repayment under threat of criminal prosecution. So far, trust and social pressure have worked. The possibility of litigation to enforce repayment may squeeze the informal credit market or raise the cost of lending.
The Punjab Chief Minister has walked the extra mile to placate the arhatiyas. On April 16, he ordered the release of ₹151 crore as arrears of commission fee to them. The FCI held back this money because a set of arhatiyas had not accounted for payments made through them to farmers last year. The arhatiyas will have to reimburse the amount when the FCI pays them. The state has involved the arhatiyas in the issue of e-passes to farmers for staggered procurement (to arrest the spread of COVID-19 infection).
When farmers register for procurement on the government’s portal they also have to name the arhatiyas who will mediate the sale. The arhatiyas will get phone alerts when farmers receive payments.
The Punjab government’s deference to arhatiyas reflects its dependence on them for smooth procurement. The operation usually begins on April 1 but commenced on April 10 this year because of COVID-19 restrictions and a strike by arhatiyas.
Direct payments will have unintended fallouts. About 40 per cent of the cultivated area in Punjab is leased, says Agriculture Commissioner Balwinder Singh Sidhu. These are informal leases made without documentation to avert the possibility of the lessees asserting claim to the land. Farmers have to state the area cultivated and the amount of produce offered for procurement. The leaseholders might insist on procurement being done in their names in which case they will receive the payment. Will they transfer the money to the lessees?
This is the dilemma facing Jagtar Brar of Bathinda, whose family is entirely into cultivation. He has 40 acres of own land and 50 acres on lease. The stiff lease rentals – about ₹ 40,000 an acre – are paid in advance.
The land details are required to be uploaded to prevent traders from profiting from minimum support prices (MSP). Traders would get farmers to sign ‘J’ forms for much more than their harvest they offered for procurement. They bought the rest below MSP from Bihar or eastern UP (where the mandi system is weak) and sold to the government at MSP in Punjab or Haryana. After Haryana went in for e-procurement there was 20.2 per cent decline in procurement last year.
Punjab Chief Secretary Vini Mahajan has told the police to ensure that “not a single grain” of outside wheat is procured. Cases were filed on April 9 against three trading companies with premises in Bathinda’s grain market and at Bugga Mandi in Ferozepur for possession of 25,000 gunny bags which likely would have been used for fake procurement.
Punjab’s arhatiyas earned a commission fee of ₹1,611 in 2019 (not all it from the government). It is an assured and steady source of income for about 28,000 arhatiyas. At the political level, direct payments will reduce the clout of the arhatiyas – and political funding to the two main state-based political parties. It might also drive a wedge between farmers and arhatiyas and weaken the ongoing protests against the Centre’s farm laws which Punjab farmers want repealed.