Regulation and Private Sector Development in the Grain Market Operations of India Surajit Deb Associate Professor in Economics AryabhattaCollege, (University of Delhi) Paper for CUTS/CIRC 4 th biennial Competition, Regulation and Development Conference, Nairobi, December, 2015.

1. Introduction: 1.1. Indian Grain market operates with government involvements: Marketing, Procurement, Distribution, Buffer Stock. Controls & Interventions: Founded on Scarcity Conditions but restrict Free-market and Competition Policy Measures to Promote Competitive Grain Trading: National Policy on Handling, Storage & Transport of Grains, 2000 Removal of Control on Food Grains, 2002; Agricultural Marketing Reforms, 2002, Agricultural Commodities under Forward Contract Act, 2003, 1.3. Provisions like Direct Marketing, Pledge Financing, Negotiable Warehouse Receipt System to facilitate larger private participation.

1.4. Roadblocks for Private Grain Business: Legislative-Administrative Regulations Interventionist Instruments (High MSP, Public Stock, Open Market Sales, Export Ban, Stock Declaration Order 1.5. Objective: Evaluate scope for private sector participation in grain (rice and wheat) economy. 2. Sections of the Paper: Instruments of Government Control: Cost of Public Grain Handling Operations: Reform Initiatives to Promote Private Business: Concentration of Market Power in Rice and Wheat: Feasibility and Areas of Private Sector Development: Summary and Policy Implications:

3. Instruments of Government Control: Department of Food and Public Distribution: Formulates Grain Policy CACP: Price Policy: MSP, Procurement, Issue Price, Levy System FCI: Procurement, Handling, Transport, Storage, Distribution, Buffer Stocks, Open Market Sale (D). 4. Cost of Public Grain Handling Operations: FCI Operations remained high (BICP 1990, World Bank 1999, Gulati, Kahkoken and Sharma 2000, ASCI 2001, GOI 2002 and Chand 2003). 5. Reform Initiatives to Promote Private Business: 5.1. Change FCI’s role from major buyer & define Private sector’s position.

Study/Policy ReportsMajor Recommendations Report on Food Subsidy, GOI [2000]Greater involvement of private sector Cost of Acquisition & Distribution of Food grains by FCI, ASCI [2001] Restructure FCI, Federalise FCI among states. PDS & Food Security for 10 th Plan,Decentralized PDS, MSP as par cost of cultivation Excess Food Stocks, PDS & Procurement Policy Private participation in procurement and storage, Long Term Grain Policy GOI [2002]MSP as par cost of cultivation, private participation. Subsidies Report in India, GOI [2004]Reduction of MSP, Food-coupons for BPL. Agricultural Marketing [2013] Reform licensing system, Remove trade barrier, private wholesale markets and terminal markets. HLC on FCI, GOI [2015]Private sector for procurement, stock operations, Initiate negotiable warehouse receipt system. Table 2: Policy Recommendations for Reforms in Grain Markets.

5.2. Discuss in Detail implications of: Agriculture Produce Marketing Development & Regulation Act National Policy on Grain Handling, Storage & Transportation, 2000 Futures and Forward Contract in Agriculture Negotiable Warehouse Receipt System 6. Concentration of Market Power in Rice and Wheat: Herfindahl Indices: Market power in rice & wheat industries Market power evidence less in rice or flour milling products, but high in processed segment, viz., biscuits, bread and breakfast cereals. No significant market power imply absence of Price Setting, Predatory Pricing, Barriers to Entry.

6. Feasibility and Areas of Private Sector Development: Success of reforms depend on timing/sequencing of policy change Need Decontrol/Deregulation to bring about private participation. Address fundamental issues like MSP & Buffer Policy. States allowing trade-movement by changing ECA/APMC Acts. Modernize Storage-Supply Chain & enhance Post-harvest Activities Private sector involvement in processing and exports Private sector to operate marketing infrastructures Contradictions: MSP policy conflicts with future trading option.

7. Policy Implications: Control & Regulations impose cost on Private Grain Business. Public handling in Regulated Market costly with Subsidy Burdens Reduce dependence on control - substitute by market mechanism. Entry of private business can inflict competition in grain markets, where FCI acts as monopsony. Private business can improve incentives of grower & traders Grain markets more market determined & size of market to grow big Convert subsidy outlays into public investments - strengthen private investment in grain business.

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