I am providing a link below to the latest version of my paper. The Reserve Bank of India has declared that it will start a pilot project on the issuance of CBDC. The former Governor Subbarao has strongly cautioned RBI against any interest payment on account-based CBDC. Please see my detailed discussion on various issues related to this subject.
The key takeaways from my paper:
CBDC should not be a mutated version of Bitcoin type digital coin.
CBDC must possess three properies of paper currency fully and comprehesnively: No third party verification is required to transfer digital currency from a holder to a recipent.
No account balance concept is introduced and therefore no double spending is possible.
A holder is a legal owner unless proved otherwise.
All digital currency are of a certain denomination and every transfer is legitimate as long as wallets are genuine. A proper application of public key cryptography and hash function allows a digital currency to mimic it’s paper based counterpart.
The only difference with paper curreency is that transactions based on digital currency are not competely anonymous. But investigation of audit trail of a particular digital note would be very complex and costly. So it would not be easy.
Double spending is prevented because notes are automatically modified in the wallet of the sender which will not be accepted by another receiver’s wallet. No internet is required for a transaction to take place and notes cannot be sent through internet.
No requirement of a blockchain database.
It is neither an account-based nor a token based payment system.
Notes can travel back to issuer- the central bank- and get destroyed by the central bank.
The death toll of COVID-19 has reached 2.9 million by April 2021, a little less than 0.04% of the world population. In Wikipedia’s list of the largest known epidemics and pandemics caused by an infectious disease, COVID19 is ranked 8th in terms of its death tolls1. The deadliest known pandemic in history, the Black Death of 1346-1353 in comparison killed between 70-200 million people. Thus, humanity has been able to contain, if not eradicate, nature’s fury by constant progress in scientific knowledge and technology. And, to paraphrase Shakespeare, “therein lies the rub”2. The incidence of death due to COVID19 has been the largest in the most advanced country of the world- that is the USA. Till January 2021, the USA accounted for around 20% of total recorded death worldwide due to COVID-19. The top 5 countries, namely the USA, Brazil, India, Mexico, and UK accounted for a little less than 49% of total deaths. The share of these 5 countries in the world population was around 27% and excluding India the other 4 countries had only 9.5% of the world’s population3. This huge disparity among various countries in terms of the mortality impact of COVID -19 calls for a cross-country analysis of the same.
The objective of the present paper is to identify the distinctive characteristics of the countries recoding 1st wave of COVID-19 deaths of varying intensities. Since country is our unit of analysis, data on various proximate causes of death of a COVID-19 infected person may not be available at that level. However, available micro-level- studies of patients of a single hospital or a local administrative unit -like a county- can be relied upon to identify the possible factors like the presence of certain specific co-morbidities that could determine the fatality rate of the COVID-19 patients.
The paper is organized into 3 main sections. Section I reviews the literature on the characteristics of COVID-19 patients and its impact on their subsequent survival. The parameters that have been used in creating a scoring system to determine the survival probability of COVID-19 patients are also reviewed. It is an accepted fact that higher mortality is expected for COVID-19 patients with chronic lung diseases like asthma. In this respect, the relevance of the so-called ‘hygiene hypothesis” is briefly discussed. Section II discusses the data and methodology used. Section III presents the results. A concluding section follows.
In December 16 2019, I wrote this letter to RBI Governor
To
The Governor
Reserve Bank of India
Mumbai
Sub: Possibility of introducing Central Bank Digital Currency in India- a Technical Blueprint
Respected Sir,
Many countries in the world including China are experimenting to introduce Central Bank Digital Currency (CBDC). I have worked out a blueprint for developing such a CBDC for India. I would like to point out that such a CBDC, although based on the principle of cryptography, is not designed on the Distributed Ledger concept. It also does not require Third Party Verification based Consensus schema that drives current Bitcoin and similar cryptocurrencies. According to me a CBDC must mimic the basic characteristics of paper currency which are anonymity (to a reasonable extent, as any digital asset is finally traceable) of transactors, bearer as legal owner and a legal tender if the both transactors agree on this mode of transaction. Furthermore, at the unit level each CBDC would have distinct denominational identity and cannot be sub-divided.
If this proposal appears to be- prima facie- feasible and fits into the RBI’s overall scheme for currency management, I would be ready to provide the underlying distributed database structure etc. Finally, I would humbly state that my proposal is only a proposal and needs extensive discussion amongst all stakeholders to make it a proper working solution.
Best regards
Ashok Kumar Nag
Former Adviser`
Department of Statistics and Information Management
Reserve Bank of India
Now that RBI is preparing to introduce digital currency, I feel that I need to put in public domain the blueprint for a digital currency that I had proposed.
eRupiah: RBI’s Virtual Cash
Introduction:
No currency has ever been used in the human history which did not have the stamp of an authority. Bitcoin is a medium of payment but it is not money for the same reason. As long as, a citizen of a country cannot pay taxes with Bitcoin, it cannot be called a legal tender. Nonetheless, the technology underlying Bitcoin is a significant one with great potential. A central bank, issuer of paper currency, can use some selected components of Bitcoin technology to replace paper currency with virtual currency, retaining all the important features of paper currency. The most important of them is that a central bank note is a freely negotiable bearer bond and a legal tender in the hand of its holder. It does not require any third party verification. Counterfeiting a central bank note is not impossible but difficult and costly. The central bank neither authenticates any transaction made with that particular note nor does it keep any record of that transaction. The note remains as a liability on the book of the central bank till it comes back to it, either for reissue or its destruction. The physical nature of the note ensures that no double spending is possible with the same note by its current holder. In case of digital cash, the main issue that a central bank has to resolve is the issue of double spending without depending on third party verification of the same. What follows hereunder is an outline of a system that any central bank can implement to issue its own currency retaining most, if not all, of the desired properties of a paper currency.
The main features of a paper currency are:
It is a legal tender; transfer between two transactors can happen only through face-to-face encounter; double spending is not physically possible; no third party verification required; counterfeiting is possible but costly and detected by physical examination; each note has a unique identity; gets destroyed when unusable, liability of a central bank, in general.
I am presenting below a system based on digital currency on a mobile phone. There is no compelling reason to believe that the same system cannot be implemented on a specially designed smart card with embedded chip. The system outlined below is described within the currency management framework of the Reserve bank of India (RBI). With little tweaking the same can be customized by any central bank.
RBI Currency Management Framework:
RBI carries out its currency management function through its 19 Issue Offices located across the country. There is a network of 4281 currency chests and 4044 small coin depots in selected commercial bank branches. These chests store currency notes and rupee coins on behalf of RBI. The note distribution mechanism is summarized in the following diagram.
For issuance of digital currency, each currency chest would function as a data center for hosting the ledger book of notes issued from it. Similarly each issue office of RBI would have a copy of the entire ledger book of notes. A folio would be opened in the note ledger book when the first time a specific note is issued. Each data center will have complete inventory of wallets issued by RBI. An wallet could be a mobile app downloaded on a person’s mobile phone or it could be a smart card to be issued by RBI. The details are given below.
Every bank branch would have a digital cash dispenser. Any wallet holder would be able to replenish her wallet with digital currency by pairing it with the dispenser via Bluetooth or NFC communication channel. Similarly every ATM would have similar facility. At the time of cash dispensation from bank branch or ATM would require Aadhaar based biometric verification of wallet. For cash transfer between wallets of two individuals this verification is not a necessary requirement.
The protocol for issue of eRupiah
RBI would maintain ledgers of each currency note in a distributed database.
Currently RBI issues notes through its Issue offices. The distributed database will be created according to issue departments of RBI. Each Issue office of RBI will be able to issue new digital currency and destroy old digital currency. Destruction of old digital currency would help RBI to keep the number of entries in the ledger folio of a particular note within a limit. Every Issue offices would maintain record of all notes issued by it as well as copies of corresponding records of 3 neighboring Issue offices.
Each currency chest will have a database of notes received by it from RBI’s Issue department.
Each currency chest will also have replicated database of its three nearest neighbor
The system will issue new digital currency when an account holder wants to withdraw cash from its account with RBI. It would be optional, to start with. An account holder can withdraw cash or digital currency according to her discretion.
The account holder would specify how much of its cash withdrawal would be in digital form. This facility would be provided for an interim period when both forms of currency would be in circulation.
To incentivize issue of digital cash, RBI may reward with a fixed amount that could be related to the cost of producing physical cash.
RBI is banker to the Central and State Governments. It also functions as banker to the banks and thus enables settling of inter-bank obligations. These large account holders of RBI would get digital cash in their Jumbo Wallet which would be a server in the account holder’s custody. It would be like a till holding cash. An authorized person can withdraw e-Rupiah from the till as and when required.
The RBI’s Note ledger would comprise ledger folios of each currency notes issued.
Each record in the Note ledger would comprise the following attributes: (1) a sequential no, (2) unique identity / sr no of a note, (3) hashed value of the note serial no, (4) identity of the issue department, (5) denomination, , (6) time stamp of transaction, (7) hashed value of identity of paying wallet (first time payer would be RBI), (8) hashed value of identity of receiver wallet, (9) active flag, (10) hashed value of first 9 attributes , (11) hash value of the first 9 attributes of earlier transaction record of the same note. The identity of a wallet is described below.
RBI will also maintain database of each wallet downloaded from its website.
The wallet database will have a header record with the following attributes (1) IMEI no of each phone, (2) Aadhaar No of the phone owner, (3) timestamp of successful downloading of the wallet, (4) the GPS location of the phone at the time of downloading of the wallet, (5) a unique private key generated for each wallet and (6) the corresponding unique public key generated for each wallet. This data would also be hashed and encrypted with RBI’s private key and will be part of the header record. RBI’s public key would also form a part of the header record. The private and public key of each wallet would be generated by RBI at the runtime. The hashed value of attributes 1 to 6 would be the identity of each wallet.
Each wallet will have its own database of transactions. Each record in the transaction database will represent a note that has been loaded into the wallet. Each record will have the following attributes: (1) unique identity of the note, (2) note denomination, (3) digitally signed (with the private key of the paying wallet) hashed value of the concatenated string of serial no and denomination, (4) digitally signed ( with the private key of the paying wallet) hash value of concatenated string of attributes 1 and 2 of the header record with private key of payer wallet, (7) public key of the paying wallet, (8) timestamp of last transaction( i.e. timestamp of receipt of the note , (9) timestamp of the payment transaction, (10) payment status (paid or unpaid), (10) hashed value of the earlier transaction of the note(attributes 1,2,3,4,5).
A transaction between two wallets would involve “note data” transfer from the paying wallet to receiving wallet. [A separate note is given to explain how such transfer can happen with QR codes}. Every note that gets transferred from the payer’s wallet to the recipient’s wallet would essentially mean transfer of the entire record from the former to the latter. In the process of data transfer two insert / update activities take place in the receiver’s and payer’s wallet respectively. The receiver’s wallet inserts a new note record while the payer’s wallet updates the concerned note’s existing record.
Once the receiving wallet gets a new e_Rupiah note, it checks the authenticity of the note by calculating hash value of the concatenated string of attribute 1 and 2 of step at 13. In the payer’s wallet the status flag would get changed to “paid” while in the receiver’s wallet it would continue to have the status flag as “unpaid”.
Any wallet would have a limit in terms of number of records / notes. When the database has reached its limit then the wallet would have to be uploaded to RBI and a new wallet has to be downloaded.
At any point of time a single wallet would be subject to 2 limits- holding limit of no of transactional records and total value of a single transaction. For a high value transaction two factor authentications would be required. (say above one lac). Both paying wallet as well as receiving wallet has to simultaneously establish connection with RBI and get their credential verified.
As and when no of records in a wallet’s transactional database reaches its limit, the database has to be downloaded in an ATM or at a bank branch. The wallet would be purged of the all transaction records with status as “paid”. The wallet holder then can download more E_Rupiah from an ATM or from a bank brunch. RBI will update its ledger book of individual notes thus uploaded from each wallet.
Any fraudulent transactions identified in the process of uploading would get notified and thorough automated forensic audit perpetrator of fraud would get identified. Downloading of Wallet:
The user sends a sms to a designated no with the Aadhaar no of the sender. Each sms would cost the user 1 INR. RBI would send a link to the phone and clicking on the same the app would be automatically downloaded. To activate the app, the user has to sign-in with his/her Aadhaar no. For additional security one may think of incorporating biometric signature of the wallet holder as another feature of the wallet; every use of the downloaded wallet would require signing in biometrically by the wallet holder.
2. The wallet will have the following features:It will recognize another wallet in its vicinity using NFC technology. Alternatively Bluetooth technology for pairing two cell phones can be also used. Both the wallets would then exchange their digital identity and verify them with public keys of both and RBI’s public key. After two wallets have been paired, the payer’s / payee’s wallets would prompt the respective wallet owners to initiate the intended actions on their part. The payer will have to initiate payment action and would type in amount of money to be paid. The wallet would automatically prompt for denominations – a built in program would provide the best possible composition nearest to the amount indicated by the payer. The payer would have the right to change the composition and the resulting total value.
3. Once the payer approves payment the required data transfer takes place without seeking any third party verification at that time. For a transaction above a certain threshold value, at the discretion of the transactors, the receiver’s wallet may be connected with Aadhaar database and a biometric confirmation of the payer’s bonafide may be authenticated.
4. If any wallet holder commits a fraud by hacking the wallet’s database and changing the header record, it would be considered as an act of counterfeiting of notes. As and when any receiver uploads data to RBI website, the same would get immediately detected when RBI updates its ledger folio of notes involved. The concerned wallet holder would be notified with the fraudulent transactions and details thereof. It would be a matter of time to nab the fraudster.
5. For merchants, wallets can function like mPOS (mobile point of sales) machine. A merchant’s wallet would authenticate the payer’s wallet and notes therein by directly connecting to RBI’s ledger of notes.
How the system will function:
Alice downloads the mobile app/wallet from RBI website. Alice visits it nearest ATM or bank branch and loads its wallet with required e-Rupiah. On a single day Alice would not be allowed to load her wallet with more than, say, fifty thousand value of e-Rupiah. The cash dispenser, say ATM, would be configured accordingly.
Alice wants to pay, say one thousand rupees, to Bob; the Alice keeps her wallet bearing mobile to Bob’s wallet and taps the application on her mobile. The respective apps recognize each other and Alice keys in the amount to be disbursed to Bob. If Alice has necessary denominations then the application would give nearest amount higher than that amount and which can be transacted. The balance can be paid back by Bob.
Loss of Wallet
In case of loss of a wallet, the holder of the wallet would be required to register the loss with RBI and provide its mobile number and Aadhaar number. RBI would broadcast the IMEI no of the wallet to all mobile service providers, thus blocking any further use of the mobile. In due course, the stolen wallet can be traced and, in case of theft, required action by law enforcing agencies can be initiated. If a fraudster wants to use a stolen wallet by replacing the original header record, it would need to replace all unpaid notes’ records with values consistent with corresponding values of the new fraudulent header record. This would be very costly and may not be worthwhile. Furthermore, it would not be possible to download any further notes from an ATM or a bank branch.
Cost of Issuing E-Rupiah
As on end March 2017, around 201 billion pieces of notes including coins (one rupee and above) were in circulation. In that year, India’s adult population (15 years and above) was estimated to be around 916 million. If all adults hold one wallet each, the estimated size of all header records would be around 320 GB, not a very big number by any yardstick. The size of transaction database, assuming 1000 transaction for each note during its lifetime, would be around 71 petabyte or .07 Exabyte. Amazon Redshift Spectrum Query service charges $5 per Terabyte of Query. If in the extreme case we assume that all notes are transacted once every day of one year, then the cost would be around 132 million US dollar or 862 crore of Indian rupees. Taking storage cost, it would be well below the cost of printing notes that RBI incurs today.
Digital Currency and Corruption With digital currency it would be very difficult for anybody to make huge cash transaction for drug trafficking, bribing and other illegal purposes. In the Netflix original TV serial Narcos, the Columbian drug cartels are seen to carry out most of their transactions in cash. So much so, they had to store cash buried in fields. Central Bank Digital Currency would be the most effective antidote to cash mediated corruption and illegal transactions.
More on the e-Rupiah process
The following paragraphs describes the process of connecting and validating users in proposed p2p e-cash transfer.
The scenario has two users with devices – device A which will send the money (will be called as consumer hereafter) and device B which is a merchant and will receive the money.
The app will require any user to sign up first using the government issued ID card such as aadhaar card. Once the sign up is done, app will connect to RBI server and download a key pair on the phone.
Merchant will start the app and enter the amount it wants to receive.
Once the amount and details are entered the app will create a barcode of the same. At the same time, app will start a hotspot.
The consumer will start the app and scan the barcode using the send button.
The barcode shall contain basic information such as some validation message, network name (hotspot) and network key.
Using the scanned information, the consumer’s app will connect directly to the hotspot started by merchants app. All the basic network validation will be done internally.
Once the two devices are connected, the main process of validation will start.
Both devices will exchange public key of each other.
Once done, both the devices will exchange basic data in form of encrypted packet. The packet shall contain data such as user info and some other validations related data if and as necessary. The packet will be encrypted with the respective users’ public key. For example, consumer will encrypt packet using merchants’ public key.
The merchant’s device will decrypt package received from consumer’s device using its private key and verify the data.
Once verification is done, the consumer shall send the money requested by merchant and will deduct it from app’s database pending upload to RBI server.
Once the transfer is done successfully, the hotspot will be shut down by app.
Quote: [The 1980s and 1990s saw a wave of liberalization sweep across African agricultural markets as part of broad structural adjustment plans. Inherent in the promise of these reforms was the presumption that a competitive private sector would emerge to take advantage of newly created arbitrage opportunities, with agricultural traders efficiently moving crops from surplus to deficit regions, and from harvest to lean seasons. However, recent empirical estimates suggest that agricultural markets remain poorly integrated, with prices varying widely across regions and seasons.
Estimates reveal that traders act consistently with joint profit maximization and earn median markups of 39 percent. Exogenously induced firm entry has negligible effects on prices, and low take-up of subsidized entry offers implies large fixed costs. We estimate that traders capture 82 percent of total surplus1] Quote ends
The Indian Government has recently enacted 3 bills2, collectively known as Farm Bills 2020, which have been hailed by reputed agricultural economists, commentators and journalists for setting free the Indian farmers from the clutch of local traders, middlemen and politicians who collude to exploit both end of the supply chain – producing farmers and consumers of agricultural items. The noted agricultural economist Ashok Gulati has compared passing of these bills as a “ 1991 moment for agriculture”, a piece of legislation which is expected to “help build more efficient value chains in agriculture by reducing marketing costs, enabling better price discovery, improving price realisation for farmers and, at the same time, reducing the price paid by consumers” (here ,here, here)
At the same time, passing of these 3 bills has been condemned by an influential section of farmers and opposition parties as corporatization of Indian agriculture by making the farmers as “contract producers” without any significant role in the farming decision making process(here, here, here). The main worry of the agitating farmers is that these new bills are precursor to gradual withdrawal of the state from the agricultural sector. It appears, as opposed to “1991 moment”, passing of these legislations could be considered as independent India’s “ Indigo( or Nil bidroha) ” moment.. To recall, in 1859, the peasants of Bengal rose in revolt against Indigo planters who had initially persuaded and subsequently coerced the peasants to plant indigo instead of food crop. These planters provided loans to switch over to indigo, a cash crop with a large export market and in due course made these farmers almost bonded labourers.
It would be ante-diluvium to argue that Indian farmers do not need a free-market for their outputs and inputs. But market, particularly a boundary-less pan India one, is not created by legislation only. Market is a social institution. The critical role that robust institutions play in fostering economic growth is now well established. According to Douglas North, institutions are “the rules of the game in a society, more formally, are the human devised constraints that shape human interaction”3. The state, community or society at large may define the rules and lay down the constraints but without them institutions exist only as ideas. Market is an economic institution. Even a weekly village hat has a rule – the frequency of its operations, roles, implied or otherwise, assigned to various participants etc. As Acemoglu has written: “ economic institutions are collective choices of the society. And because of their influence on the distribution of economic gains, not all individuals typically prefer the same set of economic institutions. This leads to conflict of interest among various groups and individuals over the choice of economic institutions and the political power of the different groups will be the deciding factor”.
Free-market, being an economic institution, must also be subjected to rules and regulation. It is undeniable that stock exchanges, commodity and financial future markets are free-markets. Dabba-trading, taking place out the regulatory boundaries is a punishable offense. Brokers are licensed entities. Earlier stock exchanges were a mutual or co-operative association of brokers and through a demutualization process these institutions were converted to a public company.
So, brokers, investors and listed companies have only bounded freedom of choice and not an unfettered one. From this point of view to designate APMC as non-free market betrays lack of understanding of market as an economic institution. When stock exchanges were de-mutualized they were not demolished and new markets were created. Only rules and constraints were restructured.
Restructuring of Indian Agriculture Produce Market: An Ongoing Process
Such restructuring has been an ongoing process in respect of markets created under APMC Acts of various states also. In 2003, the Ministry of Agriculture, GOI came out with a model act on agricultural marketing. It was expected that individual states would suitably amend the extant APMC act to deregulate agricultural marketing. In 2007 draft Model Rules were issued to all states for them to adopt it with suitable modification. In 2017, another model Act titled “Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017 was issued by Ministry of Agriculture and Farmer Welfare. But none of these amendments proposed by the GOI evoked suck kind of revolt by farmers at large, or remonstrations by many state governments. The key features of these proposed amendments are aimed at creating a more competitive agricultural produce market, but within the broad framework of APMC Act. In corroboration of this claim a comparison is given below.
Issues
Model APMC Act of 2003
Draft Model Rule 2007 for State APMC Act
THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION AND FACILITATION) ACT, 2020
Establishment of private market
Legal persons, growers and local authorities are permitted to apply for the establishment of new markets for agricultural produce in any area. ((Section-3))
Chapter IX with the title: Establishment and Functioning of Private Market/ E-Market, Consumer /Farmers Market and Direct Marketing added
Very broad definition of “trade Area” as “ any area or location, place of production, collection and aggregation “ but it excludes “physical boundaries of principal market yards, sub-market yards and market sub-yards managed and run by the market committees formed under each State APMC Act in force in India “
Farmers are free to sale in any market
There will be no compulsion on the growers to sell their produce through existing markets administered by (APMC)(Section-14)
It is stated in respect of e-market: The membership shall be freely available to all including farmers or their groups/ cooperatives/ companies.
Any trader may engage in the inter-State trade or intra-State trade of scheduled farmers’ produce with a farmer or another trader in a trade area. No mention of any registration with the concerned state governments.
Registration instead of licensing
Licensing of market functionaries is dispensed with and a time bound procedure for registration is laid down. (Section-44)
No clear rule in this regard
The act allows any person to act as trader subject to the following provision: Provided that no trader, except the farmer producer organisations or agricultural co-operative society, shall trade in any scheduled farmers’ produce unless such a trader has a permanent account number allotted under the Income-tax Act, 1961 or such other document as may be notified by the Central Government
Contract Farming
A new Chapter on ‘Contract Farming’ added to provide for compulsory registration of all contract farming sponsors, recording of contract farming agreements, resolution of disputes, if any, arising out of such agreement, exemption from levy of market fee on produce covered by contract farming agreements and to provide for indemnity to producers’ title/ possession over his land from any claim arising out of the agreement
Chapter VI Contract Farming: It is stated: Contract FarmingProducer and the Contract Farming Sponsor shall be at liberty to mutually decide theterms and conditions of the Contract Forming Agreement, which shall not be contraryto the provisions of the Act and the Rules.
Allowed as in previous model acts.
It is also not a fact that state/ region level politicians who control and steer the functioning of state governments have been creating hurdles towards reforming and liberalizing APMC centered agricultural marketing regime. By the end of the FY 2016-17, as many as 21 states have adopted the key liberalizing features of the Model APMC Act (establishment of private market, direct sale to traders, contract farming etc.) that have been cited above.
So the new THE FARMERS’ PRODUCE TRADE AND COMMERCE (PROMOTION AND FACILITATION) ACT, 2020 makes one radical change to the previous model APMC Acts drafted by the GOI – that is complete emasculation of state governments from the regulation of agricultural produce markets. In fact, the proponents of complete de-regulation of agricultural produce marketing regime always wanted to achieve this. For example, the competition assessment of Model APMC Act, 2003 commissioned by the Competition Commission of India lamented that “ the Model Act allows interference of state governments in the regulatory mechanism” (italics in original)
Interestingly, the new act has not provided for compulsory registration of traders although it has a kept an enabling clause –“The Central Government may, if it is of the opinion that it is necessary and expedient in the public interest so to do, prescribe a system for electronic registration for a trader, modalities of trade transaction and mode of payment of the scheduled farmers’ produce in a trade area”.
This key feature of by-passing of the state governments stands in stark contrast to all budget speeches by erstwhile finance minister Mr. Arun Jaitly. In the following budget speeches of successive years, he talked about the reform initiative of the Centre in collaboration with the states.
“To accelerate setting up of a National Market, the Central Government will work closely with the State Governments to re-orient their respective APMC Acts., to provide for establishment of private market yards/ private markets. The state governments will also be encouraged to develop Farmers’ Markets in town areas to enable the farmers to sell their produce directly ( budget speech of 2014-15).”
“While the farmer is no longer in the clutches of the local trader, his produce still does not command the best national price. To increase the incomes of farmers, it is imperative that we create a National agricultural market, which will have the incidental benefit of moderating price rises. I intend this year to work with the States, in NITI, for the creation of a Unified National Agriculture Market” ( speech of 2015-16)
“Access to markets is critical for the income of farmers. The Government is implementing the Unified Agriculture Marketing Scheme which envisages a common e-market platform that will be deployed in selected 585 regulated wholesale markets. Amendments to the APMC Acts of the States are a pre-requisite to join this e-platform. I am happy to inform that 12 States have already amended their APMC Acts and are ready to come on board. More States are expected to join this platform in the coming year. The Unified Agricultural Marketing E Platform will be dedicated to the Nation on the birthday of Dr. Baba Saheb Ambedkar on 14th April this year” (speech of 2016-17)
For the post-harvest phase, we will take steps to enable farmers to get better prices for their produce in the markets. The coverage of National Agricultural Market (e-NAM) will be expanded from the current 250 markets to 585 APMCs. Assistance up to a ceiling of Rs.75 lakhs will be provided to every e-NAM market for establishment of cleaning, grading and packaging facilities. This will lead to value addition of farmers’ produce.
Market reforms will be undertaken and the States would be urged to denotify perishables from APMC. This will give opportunity to farmers to sell their produce and get better prices. We also propose to integrate farmers who grow fruits and vegetables with agro processing units for better price realisation and reduction of post-harvest losses. A model law on contract farming would therefore be prepared and circulated among the States for adoption (speech of 2017-18)
It is obvious that there has been a sea change in the thinking of the central government about the roles that various stakeholders will be allowed to play in the agricultural reform path that it wants the country to tread in near future.
It is also apparent that the grand idea of “One Nation-One Market” is a primary driver of these Farm Bills 2020. Keeping aside the concept of “nation” in this hyphenated slogan that motivates millions, we need to debate whether new laws are situated in a robust understanding of the concept of “market” or not. Buying and selling by itself does not define a market. Furthermore, capitalist path of development is not synonymous with free-market development. (see the Singapore’s story here4).
What is the Optimal Market Design for Indian Agricultural Produce?
All “well-functioning markets depend on detailed rules”. (Alvin Roth). According to Roth, for a market to function properly three things must be done correctly:
1. Appropriate level of market “thickness”- i.e. a properly functioning market should bring together “a large enough proportion of potential buyers and sellers to produce satisfactory outcomes for both sides of a transaction.”
2. Right incentive to reveal confidential information or to bring asymmetry of information between buyer and sellers to an acceptable level
3. Transactional time to be as low as possible. It means access to information about quality and volume of supply and demand and processing thereof should not be so much consuming that it would be worthless by the time a transaction can actually be concluded.
Without disputing the relevance and indispensable requirements all the three attributes as above, there is one thing missing in the above list and which is a must in respect of the Agricultural Produce Markets is the needed trust between producers and buyers. Given the immense variety and quality even of a single commodity like rice, information is highly localized and may not be amenable for standardization by a centralized authority. In fact, the Chinese agricultural information started with dismantling of centralized planning system that the country initially adopted. To enable this local information to be integrated with other markets spanning the entire country is a complex activity and needs resources and government intervention. As Roth has said “Market design turns out to be about details, such as the nature of the transactions in question, the opportunities to conduct transactions outside the market, and the distribution of information”.
These new Bills are eloquent about its objectives which are per se laudable but awfully laconic about these operational details. The protagonists of the new Farm Bills are walking on the same path that policy makers of APMC market design followed- describe the destinations correctly without stating how to reach the destination and mechanism of steering the journey to the destination.
State Intervention In Agriculture: A Universal Phenomenon
Finally, it has to be emphasized that state intervention in agricultural sector is a common phenomenon irrespective of the nature of the state. John W Mellor, a former Director-General of International Food Policy Research Institute has been a champion of the view that agriculture, despite having a small share in total GDP of all developed economies, play a central role in the process of creating sustainable economic development locally and globally. He has identified the following two big ideas based on his long international experience in designing and advising polices for this sector6:
1. The rapid growth of small commercial farmer dominated agriculture accelerates the economic transformation and is essential to the rapid decline in dominantly rural poverty.
2. Government has a prominent role if small commercial farmer dominated agriculture is to grow rapidly.
In fact, income support to producing farmer is a global reality. OECD has estimated producer support estimate (PSE), measured as a percentage of gross farm receipts. The following graph shows that Indian farmers are still having a negative production support and the same is borne out by the terms of trade between farmers and non-farmers.
End Notes:
Bergquist , Lauren Falcao & Michael Dinerstein : Competition and Entry in Agricultural Markets: Experimental Evidence from Kenya in American Economic Review 2020, 110(12): 3705–3747
The bills are — The Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 (FPTC); The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 (FAPAFS); and The Essential Commodities (Amendment) Bill, 2020 (ECA)
North, D. C, 1990, Institutions, Institutional Change and Economic Performance, Cambridge University Press.
Acemoglu, D and J,Robinson “The Role of Institutions in Growth and Development” in Review of Economics and Institutions; vol.1- No 2, Fall 2010.
Lim, Y.C.Linda Sigapore’s Success : The Myth of the Free Market Economy. Asian Survey Vol 23 No 6. June 1983
Mellor, John Williams: Agricultural Development and Economic Transformation: Palgrave Studies in Agricultural Economics and Food Policy
In this time of COVID-19 let us recall that poem of Tagore which was a clarion call for fearlessness, adherence to reason, universal humanism and empathy for “Others” who are not us.
In this tribute to Tagore I have elaborated Tagore’s original lines (in red, italics and underlined) to emphasize that nothing much has changed in the world. George Floyd’ death in USA and Jamlo Makdam’s death in India brings out the bitter truth that Tagore’s lament is still valid.
Let us have a world
Where the mind is without fear and the head is held high;
Where any nation state does not lord over others
Where aggression is not justified by patriotism
Where visas are not used to deny a human being to meet a loved one
Where knowledge is free;
Where science is not locked down in private enclosures
Where books are not burned by priests of “Other Gods”
Where beliefs do not banish logics
Where the world has not been broken up into fragments by narrow domestic walls;
Where race, caste, tribes, color, language and gods do not create strangers to us
Where words come out from the depth of truth;
Where truth evolves and not handed down
Where tireless striving stretches its arms towards perfection;
Where innovation rules, ideas confront ideas, paradigm changes;
Where the clear stream of reason has not lost its way into the dreary desert sand of dead habit;
Where a child is not to afraid call out an Emperor naked
Where the mind is led forward by thee into ever-widening thought and action
Into that heaven of freedom, my Father, let my country awake
Where humans can reach for space and brings and an end to its childhood on Earth
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The last line is a tribute to Arthur C Clarke’s Childhood’s End
