CREW Project Research Findings of Diagnostic Country Report (DCR), India Staple Food and Bus Transport Sector

Staple Food Sector

3 The study covered production, agricultural marketing, procurement, warehousing and distribution aspects Both secondary and primary survey were used Secondary data – various policy documents, research papers, data on fertilizer, seed, production etc. Primary survey Rajasthan (Districts - Alwar and Bhilwara) Farmers Consumers Bihar (Districts - Vaishali and Saran) Farmers Consumers In-depth interviews of the state officials Discussions with other stakeholders Coverage of the Study Fertilizer - Policies have neither been able to foster competition in the market, nor able to unambiguously enhance the farmers’ welfare. Seed – Policies have significant impact through improved seed quality, better access and higher seed replacement rate Agriculture marketing - Divergent experiences; limitations of the in attracting investment; the study also finds that complete abolishment of APMCs is not the right solution. Procurement – Current public monopoly may not improve accessibility and better price realisation, especially for marginal and small farmers. Warehouse – The weakest node in the chain Distribution – Characterized with severe loopholes; Key Findings

Agriculture Produce Market Committee (APMC) Reform: Limited ground level impacts in both states Continued government control despite limited market access Licensing rules inhibits competition by acting as entry barrier Severe infrastructural bottlenecks in the APMC markets High intermediation cost No national level integrated market in the face of regulatory barriers Lesser price realisation for farmers High wastage due to long supply chain Issues in APMC provisions:

Lessons Learnt 5 Contrasting reform experience – Bihar vs. Rajasthan Both enables greater private participation on paper; but little impact on beneficiaries due to implementation issues Policy Implications: - Withdrawal of government will not automatically attract private players - Need an integrated policy framework encompassing infrastructure policy, credit policy, etc. - Flexibility to adapt to heterogeneity among stakeholders - Planning and implementation of reforms, keeping in mind the ‘needs’ of specific target groups Agriculture Marketing

Bihar Story - APMC scrapped All market barriers removed, to achieve Greater private participation in market development Better access for buyers to directly procure from farmers Engaging farmers in contract farming Ground experience, however, belied the potential Little or no private investments in infrastructure Complementarity with public investment Farming community largely of marginal or small farmers Benefits are reaped majorly by medium/large farmers (selling in organised markets) Decline in transaction cost (savings by farmers selling in organised markets) Thriving ‘middle layer’ – largely perceived as a win-win 6 APMC Reform and Implications Compliant with all three provisions of Model APMC Act: Direct marketing, contract farming and private markets Even with ‘full’ reform, ground condition has not changed much No operational farmer-consumer market Only 2 licenses issued for private markets; still non-operational Only 1 license for trading in multiple markets No registration of contract farming 76 direct marketing licenses issued, but limited operationalization Rajasthan Story - APMC Embraced

Bus Passenger Transport

Motor Vehicles Act -MV Act, 1914 failed to deal with burgeoning road transport sector -Mitchel-Kirkness Committee (1932)– restriction on no. of licenses/route, fixation of schedule and fare, compulsory motor insurance, etc. -Spirit largely incorporated in the MV Act, 1939 (revised in 1988) Given effect through Road Transport Corporation Act 1950 and concomitant addition of special provisions for State Road Transport Units (SRTUs) in the MV Act - Reservation for SRTUs in partial/complete exclusion of private players at the discretion of the state -State discretion led to wide variation in the transport set up across states Road transport placed in Schedule B of Industrial Policy Resolution 1956, indicating move towards progressive state control and only supplementary role for private players National Policy Framework: Reduced Role of Private Sector 8

Impact on producers Open entry for private operators Freedom for private operators to choose type of permit, route, schedule under regulatory oversight Control on fare, route, schedule in hand of RTA Fragmented market dominated by private players Estimated to have around 200 private operators A heterogeneous group - fleet size ranging from a single bus to buses A limited number of public operators Impact on Commuters More than half the passengers report some level of improvement in almost all parameters post abolishment Most respondents also report only marginal increase in fare, which has been largely in line with general price rise 9 Case of MPSRTC – Abolishment in 2005

Policy Lessons Competition seem to be providing benefits to commuter, but needs to be strengthened, structured Weak regulatory oversight poses challenges – operators not following schedule, route, fare, etc. So need a strict but smart regulatory framework to be implemented by a well- resourced institution – M.P. State Public Transport Regulatory Authority 10

Impact on supply side Truncates competition ‘Illegal’ entry of private players to cater to demand-supply gap due to supply side bottlenecks favor larger operators Impact on GSRTC No competitive benchmark PLUS continued budgetary support leads to persistent inefficiency and market distortion Impact On Private transport operators plying in ‘stage carriage’ mode Illegal nature of operation, as only have ‘contract carriage’ permits Additional cost (rents) Likely domination of larger, influential players Unregulated competition Impact on commuters Majority of commuters aware of ‘illegality’ But, 2/3 rd of the respondents are indifferent No significant increase in fare No significant fare difference 11 Case of GSRTC – Monopoly over ‘Stage Carriage’ Permits

Policy Lessons Legal restriction on supply side, even when GSRTC cant meet demand No competitive benchmark to improve operational efficiency of GSRTC Unregulated entry of private players, imposes additional cost on operators (promotes corruption) Commuter’s implications: - Additional costs (rents) likely to be passed on to passengers - No published time schedule, fare chart, route, etc. - No dispute resolution mechanism - Could pose safety and security issues; legal tangles Commuters are enjoying some benefits from public-private competition, which raised question - Should the 1994 policy be continued 12 ?

Impact on supply side Sustaining on large dole of public fund infusion Cost of Rs 3.16 bn in vs. revenue of Rs 1.44 bn in No ‘local’ benchmark Insufficient annual fare adjustment Stifles innovation – administrative laxity, financial constraint To reduce cost, it has leased out 170 of AMTS buses to private operators and also have hired another 210 buses from them Thus, Pvt operators are running half of the city services But, presence only as service provider to AMTS Impact on Commuters Subsidized fare No alternate option/choice Limited service availability Falls behind Bhopal in terms of incremental changes, despite higher overall satisfaction 13 Case of AMTS – Monopoly over Intra-City Regular Bus Transport

Policy Lessons Diminishing scale of ‘own’ operation; low efficiency Limiting competition and private participation puts considerable pressure on state resources Hemorrhage of public resources with high opportunity cost – Rs 1.72 billion deficit on Rs 1.44 billion revenue! Limited possibility of innovation in service based on passenger needs Raises question on utility of following with this public monopoly Requires assessment of the element of competition in the ‘procurement’ of services of private operators 14