Regulations of agricultural markets and economic performance : evidence from Indian States

The thesis investigates the impact of a very specific state-led legislative institution of colonial lineage ? the Agricultural Produce Markets Commission (APMC) Act & Rules ? on uneven agricultural growth productivity and poverty outcomes across select fourteen Indian states over the post-independence period. It also studies political economy determinants of the APMC Act. This research offers the first most comprehensive empirical characterisation of agricultural marketing laws for the agriculture produce sector of the Indian economy.The thesis presents three substantive research outcomes. The first empirical chapter provides the construction of a composite multidimensional de jure time-varying index of the APMC Act & Rules for each state. The quantitative measure reveals the extent of variation in the form & trends of statutory clauses in the selected 14 Indian states from 1970-2008. Based on empirical analysis of nearly forty years of the regulatory framework of agricultural markets, the second empirical chapter demonstrates that variation in institutional market arrangements explain the marked differences in the use of modern farm inputs and growth patterns in agricultural productivity as well as rural poverty outcomes in the states of India. The results from 14 states show that states with improved regulatory arrangements in the agricultural markets have higher agricultural investment, productivity and fall in poverty. A difference of each one unit improvement in market regulations in a state is found to be associated with about 0.24 units average increase in the mean of agricultural yield productivity and an about 6.2 units average direct reduction in the mean of poverty incidence. Finally, the third chapter demonstrates presence of political economy activity in shaping of the differing APMC Act & Rules in Indian states. It suggests that ignoring potential influence of political economy factors in determining APMC Act can undermine the prospects of achieving desired policy objectives and may lead to miscalculated policy judgments.What the evidence in this thesis illustrates is that regulations matter in channelizing markets for efficiency effect on agricultural productivity and poverty reduction. It reveals that the APMC measure needs to be understood as a part of a wider political economy regulatory system and it cannot be viewed as a neutral tool which can be applied to produce predictable and consistent economic results. Agriculture growth and poverty reduction efforts would get a serious setback in states where effective institutional regulatory support was not provided as this assures vibrant market and remunerative price to farmers. The thesis? s fundamental finding is that efficient regulations encourage agricultural development which implies that any solution that looks to optimise the mechanisms around agricultural markets demands efficient and progressive evolution of the existing regulatory framework of the APMC Act. This challenges recent calls for complete dismantling of regulated markets, expressed by critics who view the current APMC Act as one of the main bottlenecks to managing food inflation and the national food security challenges in India. Given the heterogeneity of agrarian contexts, food systems and marketing dynamics being faced by the Indian farming community, well-regulated agricultural markets cannot be undermined for effective functioning of the domestic agricultural trade and development of farming community.