Mandi Taxes, RDF, APMCs and Mandi Board in Punjab 2: Low Productivity Expenditures
During Punjab’s era of relatively good governance to about 1985, Mandi funds were used for the intended purposes. These included construction of rural roads (link roads in common parlance), upgradation of Mandi infrastructure, lump sum payment to Punjab State Electricity Board to wave off line charges for tube well connections, accidental group insurance for farmers and farm labour, agriculture research, and foreign training of scientists. Since 1997 these have been increasingly used for vote bank politics.
CONSTRUCTION AND MAINTENANCE OF ROADS
Rural Roads: From 1967 onwards, Punjab Mandi Board (PMB)/Agriculture Produce Market Committees (APMCs) did a commendable job of constructing rural roads. These roads linking villages with towns were the sinews of economic growth by facilitating marketing of farm produce; access to farm inputs and consumer goods, education, health, and other public services; and production of high value perishable milk and vegetables. By 1985 most of the villages (except some in sub-mountain Kandi belt) were connected with a road. Punjab’s early mover advantage of road and Mandi network during food scarcity era ensured that all farmers benefitted from guaranteed MSP for wheat and paddy. A Mandi or temporary procurement centre is within 5–8 km. About 280 lakh tonne paddy and wheat are procured in two months every year.
Low Pay-off Roads: Politicians love construction of new roads as these are very costly to construct and require expensive recurring maintenance. Washington-based International Food Policy Research Institute (IFPRI) demonstrated that returns to public investments on roads were the highest. The first road connecting a village to the town/APMC is a public-good and must be constructed on priority.
In view of other pressing requirements for funds, PMB should have been very prudent in using public funds. More than one road in a village should have been constructed only if it provided the first connectivity to the neighbouring village or a highway or had at least 12% economic rate of return (incremental benefits). This was usually not the case for most of the rural roads constructed since 1985. PMB never had a project analyst.
Posh Farmhouses as Bastis: Basti, by definition, is an overcrowded area where many poor people live. Contrarily, posh farmhouses of rich farmers were classified as Bastis to construct approach roads. When you see a road labelled ‘Basti XXXXXX Singh’ connecting a single sprawling house in the fields, it means public funds have been wasted on private-good.
Missing Roads: Mapping of roads using Geographical Interface System software showed that 500 km roads existed only on paper although funds have been claimed for their construction and maintenance.
Punjab is saddled with more than 15,000 km roads connecting neighbouring villages saving a detour of a few kilometres or farmhouses of the rich. Construction of roads which have no economic rationale was continued by taking bank loans. Add 65,000 km link roads to the national and state highways, and district roads, nowhere else you will see such reckless splurging of scarce public funds.
MANDI INFRASTRUCTURE
Mandi infrastructure was largely confined to pavement of market yards and construction of platforms. Many Mandis lack drainage and protection from inclement weather (Video 1). An elaborate plan was developed in 1970s for phased mechanisation of all seasonal, medium, and large Mandis. The open Covered And Plinth (CAP) storage was to be replaced with bulk storage. 85 Mechanical Handling Units were installed in 35 Mandis from 1981 to 1992. The grain was unloaded into hoppers, fed into mechanised cleaners, and automatic bagging and weighing machines. The farmer was free within an hour. The system collapsed due to lack of maintenance, administrative and political will to make it fully operational under pressure from vested interests. By 1995 the rusted machinery was auctioned as scrap.
Punjab is persisting with a procurement system with numerous steps from unloading of farm produce in Mandi to stacking in the warehouse. Every step has a cost element and opportunities for rent-seeking and theft. Large quantity of wheat continues to be stored in the open. Sanitary conditions, especially in fruit and vegetable markets/yards, are poor.
SANGAT DARSHANS
Rural Development Fund (RDF) was the main source of funding for Sangat Darshans, a pet programme of Chief Minister (CM) P S Badal. All types of grants or freebies were announced in public meetings in response to demands by MLAs, Gram Panchayats, and party functionaries. Prominence was accorded to Halqa (Constituency) In-Charges (mostly Party candidates defeated by opposition MLAs) to enhance their standing. Although some grants may have qualified for RDF expenditures, robust appraisal of grants was missing. Instead of critically assessing eligibility and quantum of expenditures, the RDF Secretariat rubber-stamped these grants. Halqa In-Charge position became so powerful that successor CMs could not discontinue it.
Burgeoning expenditures on Sangat Darshans and construction of roads which did not make economic sense drained funds. By mid-2010s, PMB started taking loans against future income to continue this profligacy.
LOAN WAIVER
RDF and PMB were tapped to implement CM Amrinder Singh’s election promise of farm loan waiver. Despite lack of any provision, institutional loans of individual farmers up to Rs 2 lakh were waived. As GoP coffers were empty, future income was mortgaged to get a Rs 5,100 crore bank loan, including Rs 4,600 for the loan waver. The loan had to be restructured as the PMB defaulted in paying December 2022 instalment. Five years down the lane, the loan waver did not reduce farmer indebtedness. Many farmers transferred ownership to their sons to meet the condition of owning less than 5 acres and are now living a life of deprivation.
MANPOWER EXPANSION
There was massive expansion of manpower in APMCs/PMB in 1980s and 1990s, creating unsustainable salary and pension liabilities. Initially, PMB provided the funds, and the construction works were executed by Public Works Department (PWD). Over the years this was increasingly done in-house for obvious reasons. In terms of expenditures and manpower, PMB and APMCs appear like PWD entitities. Annual salary and pension liability of PMB is about Rs 500 crores.
WHAT SHOULD HAVE BEEN DONE
From 1988 to 2016, the GoP received 4% of State Domestic Product from Agriculture as Mandi taxes (excluding Arhtiya commission) from the GoI. Instead of making the above unproductive expenditures, these should have been invested to:
· Modernise and mechanise all medium and large Mandis;
· Establish cool chains and pack houses for vegetables, Kinnow, potato, and other commodities;
· Expand warehousing capacity for safe storage of wheat;
· Establish Price Stabilization Fund to pay deficiency price for harvest-time distress sale;
· Build accredited warehouse capacity and operationalise Electronic Warehouse Receipts to enable farmers to get bank loans against stored produce, avoiding distress sale to meet pressing needs;
· Develop Farmer Producer Organisations and link them with input and output markets, and multiple sources of farm knowledge; and
· Hire competent agri-business, trade, value-chain, and marketing intelligence experts to make PMB an agile and futuristic agricultural marketing organisation. Apart from rice and wheat, Punjab farmers should be empowered to produce what the market needs instead of producing commodities (like mustard and capsicum in 2023) for which there is no demand.
Imprudent expenditures have turned PMB into a heavily indebted entity. It was flush with funds till 1995. Committed liabilities of loan servicing, salary, and pension payments are compounded by annual requirement of Rs 1,600 crores for maintenance of vast road network, a significant part of which should not have been constructed. Loans of PMB, Markfed, Milkfed and other Public Sector Undertakings are in addition to Punjab Govt.’s outstanding debt of Rs 3.21 lakh crore.
The concluding piece will look at mal practices in the procurement system and possible remedial actions.
This video is by The Tribune
