SPECIAL ARTICLE

Commission Agent System

Sukhpal Singh, Shruti Bhogal

I
Despite favourable policy measures, growth of financial n the new world economic order, farmers’ interests seem to
institutions and public interventions in the marketing of be lined up against well-planned manifestos or development
agendas of various political parties. Of late, agriculture
agricultural produce, the structure of Punjab’s
managed to get some space in the news because of inflation.
agricultural economy makes farmers dependent on This has, somewhat indirectly, given weight to farmers’ inter-
commission agents. These agents trap the farmers in a ests. The middlemen, the so-called arhtiyas of the marketing
vicious circle of indebtedness. Based on a field survey, system of agricultural produce, have gained attention once
again. The Narendra Modi government’s decision to eliminate
this study locates the commission agent system in
all fruits and vegetables from the Agricultural Produce Market
Punjab’s agriculture set-up and recommends Committee (APMC) Act so that farmers can sell them directly is
reframing it in order to extricate farmers from the being projected as pro-farmer and anti-inflation. However,
clutches of these agents. since agriculture is a state subject, it is doubtful if this decision
will bring the desired results. Anyhow, middlemen in the fruits
and vegetables trade have gained notoriety.
The Congress-led United Progressive Alliance government had
also made an announcement to abolish middlemen from fruit
and vegetable markets, though initially only in Congress-run
states. We, then, need to answer a few question about these
middlemen. Why are they so important? How have they become
an inseparable constituent of the Indian agricultural affairs?
Why is any decision—with varying motives—pertaining to
such middlemen crucial to the fortunes of any government?
The moneylending system attained full bloom with the
Green Revolution. The Green Revolution was based on a
set of measures aimed at technological transformation of
traditional modes of production. It was introduced in a few
selected regions of the country during mid-1960s. As a result,
agricultural production process of these regions, especially
Punjab, became highly mechanised and capital-intensive.
Unfortunately, institutional and non-institutional sources of
finance for investment in farm structure and agrochemicals
could not keep pace with the requirements of farmers
(Singh et al 2008: 1–2).
Although, Punjab’s peasantry had been facing economic
hardship and indebtedness before the mid-1960s, the transfor-
mation of traditional agriculture towards a modern capital-
intensive one increased farmers’ capital requirements, and in
turn, made them dependent on the credit market. Farmers in
general, and small farmers in particular, borrowed funds from
institutional and non-institutional sources. Among the non-in-
stitutional sources of finance, commission agents were the
Sukhpal Singh (sukhpalpau@yahoo.com) is the head of the Department most widely accepted sources (Singh et al 2009: 313–16). At
of Economics and Sociology, Punjab Agricultural University, Ludhiana present the state’s total agricultural debt amounts to approxi-
and Shruti Bhogal (shrutibhogal@gmail.com) is a research fellow in the mately Rs 35,000 crore of which about 38% is catered by the
same department.
non-institutional sources (Singh 2014a: 2).
56 novemBER 7, 2015 vol l no 45 EPW Economic & Political Weekly
 SPECIAL ARTICLE

The commission agent system is intertwined with the financial specially structured schedule through personal interview method
and marketing system of Punjab’s agriculture. Traditionally, during 2012–13. Six districts and six markets from the selected
these agents were petty shopkeepers and merchants who sup- districts from three agroclimatic zones in Punjab state were se-
plied domestic consumable articles on credit. They were also lected randomly in proportion to the net sown area in each zone.
involved in moneylending. These agents, popularly known as Thereafter, one market from each selected district was chosen. A
arhtiya, katcha arhtiya, or moneylenders, now act as a crucial total sample of 60 commission agents; 10 from sub-mountainous
link between farmers and buyers. For a commission, they offer zone, 30 from central zone and 20 from south-western zone were
to sell agricultural produce in the market. The traditional mon- selected (Table 1). Similarly, 50 farmers from the sub-mountainous
eylending system as represented by commission agents is un- zone, 150 farmers from the central zone and 100 farmers from
dergoing changes in rural Punjab. the south-western zone were selected. Thus, a total sample of
As Punjab’s agrarian crisis is deepening day by day, the peas- 300 farmers was taken from the adjoining villages of the selected
antry has sunk deep into indebtedness. Farmers have become markets. In this way, a total sample of 360 respondents—both
increasingly dependent on commission agents for a steady flow commission agents and farmers—was taken for the study.
of cash not only for farming, but also for other vital needs. Unlike The paper is divided into three sections. Section 1 focuses the
the traditional usury system, where the moneylenders earned role of these agents in the agricultural economy of Punjab. Section 2
a rate of interest on the principal amount lent for maximum highlights the modus operandi and earnings of these agents.
exploitation, under the modern lending system the money- Section 3 brings out the significance and relevance of these agents.
lenders, who are the commission agents, have proliferated in
almost all spheres of the rural economy. They have become the 1 What Do the Commission Agents Actually Do?
exploitative alternative for supply of credit, farm and domestic In the current marketing system of farm produce in Punjab, a
inputs as well as sale of produce. Not only do they provide commission agent is the most influential person. These agents,
credit for purchasing essential articles, but also push the farm- who act as middlemen for marketing of produce of the farm-
ers to purchase the same from the shops they, or their friends, ers, are a source of credit and they supply articles for domestic
own. In this way they control the state’s agricultural market. and farm needs on cash and credit basis. Some of the impor-
These agents are an integral part of the state’s agricultural tant roles performed by these agents that make them an
marketing system, wherein farmers are under obligation to intrinsic part of the rural economy are:
sell their produce to buyers channelled through them for
which they charge a commission, receive payment and then (a) Middlemen in Marketing of Agricultural Produce:
disburse the same to the farmers after deducting outstanding Wheat, rice, cotton and maize are Punjab’s main crops. They
loan amounts (Singh and Dhaliwal 2011: 32–36). The farmers take up almost 85% of Punjab’s gross cropped area. Almost all
remain at their mercy. All this poses a question mark on the the produce that comes to the market—paddy and wheat has
existing system of agriculture in Punjab. Focusing on the been increasing over a period of time—is sold through com-
pioneer state of the agricultural revolution of the 1960s, this mission agents. It was found that per farm production of wheat
paper highlights the role, ways and means, relevance and crop was 171.81 quintals and about 113.39 quintals (65.99%) of
significance of the commission agents in Punjab’s agriculture. this produce was sold through the commission agents (Table 2).
The paper is based on the study “Problems of Arhtiyas vis-à-vis For paddy crop, the total production per farm was 136.7 quin-
Farmers in Punjab,” funded by National Bank for Agricultural tals and almost whole of it—about 995—was sold through
and Rural Development (NABARD) (Singh 2014b). For this commission agents. Similarly, about 96% of the production of
study, primary data from sample households were collected on cotton crop (7.4 quintals) was sold through commission agents.
Table 1: Sampling Design of the Study Table 2: Quantity of Major Crops Sold through Commission Agents by
Zone Total Districts Selected Selected Sample Size Sampled Farmers in Punjab (Qtls)
Districts Grain Markets Commission Farmers Crops Production (Per Farm) Production Sold
Agents Per Farm Per Commission Agent
Sub-mountainous Rupnagar, Hoshiarpur, Hoshiarpur Hoshiarpur 10 50 Wheat 171.81 113.39 (65.99) 5,899.27
(zone I) SBS Nagar Paddy 136.7 135.25 (98.94) 7,036.27
Sub-total 3 1 1 10 50 Cotton 7.4 7.1 (95.95) 369.37
Central Amritsar, Ludhiana, Ludhiana Khanna 10 50 Maize 4.98 4.71 (94.58) 245.03
(zone II) SAS Nagar, Moga, Amritsar Ajnala 10 50 (i) Figures in parenthesis indicate percentages of the respective production.
Barnala, Sangrur, Patiala Patiala 10 50 (ii) Less than 1% of the marketable surplus is being sold through agencies other than
Patiala, Fatehgarh commission agents. About 35% of wheat, about 3% of maize and about 0.5% of paddy and
cotton are used for domestic consumption, seeds and animal feed.
Sahib, Jalandhar,
Source: Same as Table 1.
Tarn Taran, Kapurthala,
Gurdaspur, Pathankot This affirms the obligation of farmers to sell their produce
Sub-total 13 3 3 30 150 through the commission agents. In Punjab, on an average,
South-western Faridkot, Muktsar, Bathinda Rampura 10 50 each commission agent facilitates selling of as much as 5,899
(zone III) Bathinda, Mansa, Mansa Phul, Bhikhi 10 50
quintals of wheat, 7,036 quintals of paddy, 369 quintals of
Firozpur, Fazilka
Sub-total 6 2 2 20 100 cotton and about 245 quintals of maize. Farmers bring their
Total 22 6 6 60 300 produce to the already scheduled open markets where the
Source: Field Survey 2012–13. buyers can reach them easily. The farmers pay for unloading,
Economic & Political Weekly EPW novemBER 7, 2015 vol l no 45 57
SPECIAL ARTICLE

the Punjab Mandi Board arranges for the infrastructure and inputs worth Rs 10,550 (48.33%) were obtained from shops
required equipment; and the charges for various activities like owned by people connected to these agents. Hence, the table
sieving, cleaning, filling of gunny bags, etc, which have been shows that commission agents—or the people connected to
fixed by the board, are borne by the buyers. The only activity them—are the main suppliers of required inputs. These agents
performed by the commission agents is arranging labour. But provide an alternative to purchasing inputs from the market
the picture that is often painted by the associations of these by supplying them on credit, thereby making the utmost of the
agents is that they perform the most important role (acting as feeble financial health of farmers which is aggravated by long
a link between buyers and sellers) in the marketing process. gestation period.
They deserve a commission for that purpose, the burden of
which lies on both the farmers and buyers of produce. (c) Supply of Credit: Being a seasonal profession, the time lag
between the cash inflow and outflow in farming is long enough
(b) Supply of Farm Inputs: Capital-intensive agricultural to make farmers involuntarily dependant on borrowed funds.
practices require use of various inputs like seeds, fertilisers, Farmers require funds not only to meet farm expenditure, but also
pesticides, fuel and lubricants. Commission agents supply almost for domestic requirements. The modern farm technology, being
all these inputs to farmers either from their own or connected capital-intensive, has increased the requirement of finance mani-
shops. A large proportion of the seeds are available with the farm- fold. Dismal profitability levels mean a farmer fails to cater to
ers themselves—they are retained from the previous year crop. farm as well as domestic needs, and hence, falls prey to the vicious
Apart from such seeds, the per farm expenditure by farmers on circle of indebtedness. As a result, their dependence on outside
seeds was found to be Rs 8,009, of which seeds worth Rs 545 sources for finance has increased (Singh and Toor 2005: 345). The
(6.80%) were supplied by the commission agents (Table 3). commission agents, through their role in the rural economy, have
Table 3: Supply of Farm Inputs by Farmers from Different Agencies in Punjab managed to sweep a large share (about 36%) of the total credit
(Rs/farm) market of the agricultural sector which is as much as Rs 35,000
Farm Inputs Commission Agents Public Cooperative Total
crore. These agents, also acting as moneylenders, charge exorbi-
Owned Shops Connected Shops Agencies Societies
Seed 545 5,624.40 1,839.92 0 8,009 tant interest rates. The average rate of interest charged by the
(6.80) (70.23) (22.97) (0.00) (100.00) commission agents was about 18% per annum and that charged
Fertilisers 574 2,873.24 0 25,259 28,706 by the institutional sources of finance was 8% (Singh 2014a: 2).
(2.00) (10.01) (0.00) (87.99) (100.00)
A research study highlighted that the rate of interest charged by
Pesticides 2,132.04 11,362.16 0 710.68 14,205
(15.01) (79.99) (0.00) (5.00) (100.00) the commission agents varied from 15% to 24% (Singh 2014b: 79).
Fuel and lubricants 436 18,887.52 0 261.6 19,585 However, by providing facilities of easy borrowing procedure,
(2.23) (96.44) (0.00) (1.34) (100.00) all time, and by providing all purpose and non-collateral credit,
Animal feed 11,280 10,550 0 0 21,830 these agents attract farmers to borrow at high rate of interest. An
(51.67) (48.33) (0.00) (0.00) (100.00)
oft-repeated plea of these agents is that they advance loans with-
Total 14,967.04 49,297.32 1,839.92 26,231.28 92,336
(16.21) (53.39) (1.99) (28.41) (100.00) out any security. However, by receiving the amount of produce on
Figures in parenthesis are percentages from respective totals. behalf of the farmers from the buyers and then disbursing the
Source: Same as Table 1.
amount only after deducting the outstanding loan amounts
Seeds worth Rs 5,624 (70.22%) were supplied by shops owned ensures repayment. The study exhibited that Punjab farmers
by people connected to these agents, and the share of public were indebted to the tune of Rs 2,18,092 per household (Table 4).
agencies was 22.97%. For fertilisers, the total per farm expendi- The amount of debt per household was directly related to farm
ture was about Rs 28,706, of which fertilisers worth Rs 574 (2%) size. It was the lowest for marginal farm households (Rs 1,07,217)
were supplied by commission agents, while fertilisers worth followed by small farm households (Rs 1,45,964), semi-medium
Rs 2,873 (10.01%) were procured from the shops owned by people farm households (Rs 2,28,951), medium farm households
connected to these agents. The share of cooperative societies (Rs 2,42,146) and large farm households (Rs 3,97,883).
in the total expenditure on fertilisers was as high as 88%. The Table 4: Incidence and Magnitude of Farmer Indebtedness in Punjab, 2012–13
total per farm expenditure on pesticides was Rs 14,205, of which (Rs/household)
Farm Category Sample Size Indebted Institutional Commission Others Total Amount
pesticides worth Rs 2,132 (15.01%) were supplied from owned (No) Households (%) Sources Agents
shops of commission agents, while pesticides worth Rs 11,362 Marginal 28 89.29 64,187 25,330 17,700 1,07,217
(80%) were procured from the shops owned by people connected (<1ha) (59.87) (23.63) (16.50) (100.00)
Small 66 90.91 76,303 49,622 20,039 1,45,964
to these agents. The share of cooperative societies in this expendi- (1–2 ha) (52.28) (33.99) (13.73) (100.00)
ture was 5%. Fuel and lubricants are other important inputs. The Semi-medium 79 93.67 1,17,096 1,08,382 3,473 2,28,951
per farm expenditure on them was Rs 19,585, of which fuel (2–4 ha) (51.14) (47.34) (1.52)(100.00)
worth Rs 436 (2.23%) was supplied from shops owned by these Medium 102 86.27 1,48,520 93,048 578 2,42,146
(4–10 ha) (61.33) (38.43) (0.24)(100.00)
agents while, fuel worth Rs 18,888 (96.44%) was obtained Large 25 68 3,56,819 41,064 0.00 3,97,883
from shops owned by people connected to these agents. (>10 ha) (89.68) (10.32) (100.00)
Similarly, the per farm expenditure on various kinds of dairy Average 300 88 1,33,844 76,880 7,368 2,18,092
(61.37) (35.25) (3.38) (100.00)
inputs was Rs 21,830, of which inputs worth Rs 11,280 (51.67%)
Figures in parenthesis are percentages from respective totals.
were procured from shops owned by commission agents, while Source: Same as Table 1.

58 novemBER 7, 2015 vol l no 45 EPW Economic & Political Weekly

Punjab farmers borrowed from both institutional and non- farmers and handing it over to the farmers only after deduct-
institutional sources. An average farm household in the state ing the outstanding loan amounts, the commission agents
was indebted from institutional source of credit to the tune of cover all their risks and earn huge interests at the same time.
Rs 1,33,844 (61.37%). Although the banking system is highly Many measures have been adopted since independence to
developed in the state, 35.25% (Rs 76,880 per household) of improve the credit as well as product market. The expert commit-
the total farmer credit was still being advanced by commission tee constituted by the Government of Punjab in 1998 to see
agents and 3.38% by other non-institutional sources like big “Possibilities to Reduce the Number of Intermediaries in Agricul-
landlords, shopkeepers, relatives, and friends. The field survey ture Marketing System in State of Punjab,” recommended reduc-
also revealed that 6.88% of the total credit was borrowed from tion in the number of middlemen/intermediaries in agricultural
sources, with commission agents as middlemen. The fact to marketing. To streamline the marketing system and reduce
consider is that due to inability of the institutional sources to meet the dependence on agents in foodgrain trade, the committee
the credit needs, the farmers are left with no alternative but to suggested a separate licence for katcha and pucca arhtiya under
borrow from non-institutional sources at higher rates of interest. Section 10 of Punjab APMC Act 1961. The committee also rec-
Moreover, facilities like loan without security, availability of ommended direct purchase by the procurement agencies with-
both productive and non-productive credit, uncomplicated and out the help of commission agents. However, under Rule 11 of
less time-consuming procedures to avail loan, etc, were some the act, the indirect payment system again came to the fore-
of the undeniable attraction of these sources of finance. front and the commission agents through their political clout
and strong associations, once again proved their mettle.
(d) Supply of Credit and Produce Sold through Commission
Agents—Interrelationship: In Punjab’s agriculture, the com- (e) Supply of Domestic Articles: The system forces farmers
mission agent is one of the most common and easily accessible to buy substantial amounts of domestic articles and consuma-
source of finance for farmers, especially the smaller ones. It is ble goods like sugar, pulses, condiments and spices, tea leaves,
presumed that commission agents have been performing a washing articles, edible oil, clothing, etc, either directly from
challenging job as they advance non-collateral loans to farmers. the shops owned by the commission agents or it establishes
Ironically, to their best interest, the indirect mode of payment these agents as a link between third party suppliers and
acts as a surety/security for advancement of loans. Table 5 farmers. It was found that expenditure per household on the
exhibits the interlinkages between credit taken and produce food items was Rs 34,163, of which items worth Rs 19,278
sold through commission agents. (56.43%) were purchased from the shops of commission
Table 5: Interlinkage between Credit Taken and Produce Sold through
agents, while items worth Rs 14,885 (43.57%) were purchased
Commission Agents in Punjab (Rs/household) from other shops (Table 6). As far as non-food items are
Farm Category Produce Sold Credit Taken Gap concerned, the expenditure per household on these items was
Marginal 67,594 25,330 42,264
Rs 50,956, of which items worth Rs 7,487 (14.69%) were
Small 1,52,256 49,622 1,02,634
Semi-medium 2,87,381 1,08,382 1,78,999 purchased from these agents, and items worth Rs 43,469
Medium 6,14,375 93,048 5,21,327 (85.31%) were purchased from other shops.
Large 14,73,360 41,064 14,32,296 Table 6: Domestic Items Purchased by Farmers through Commission Agents
Average 4,47,150 76,880 3,70,270 and Other Agencies in Punjab (Rs/household)
Source: Same as Table 1. Article Commission Agent Other Shops Total
Owned/ Connected Shops
In Punjab, an average marginal farmer sold produce worth Food items 19,278 (56.43) 14,885 (43.57) 34,163 (100.00)
Rs 67,594, small farmer sold produce worth Rs 1,52,256; Non-food items 7,487 (14.69) 43,469 (85.31) 50,956 (100)
semi-medium for Rs 2,87,381; medium farmer for Rs 6,14,375 Total 26,765 (31.44) 58,354 (68.56) 85,119 (100)
Figures in parenthesis are percentages from respective totals.
and large farmer for Rs 14,73,360 through commission agents. Source: Same as Table 1.
The credit advanced by these agents was Rs 25,330, Rs 49,622,
Rs 1,08,382, Rs 93,048 and Rs 41,064 to marginal, small, medium, 2 Modus Operandi of Commission Agents
semi-medium and large farmers, respectively. What is left after The most common mode of exploitation of farmers is the indirect
deducting loan dues becomes the actual payment to farmers payment system, wherein the commission agents receive payment
which is further used for repayment of institutional loans as well of the sale of produce from farmers. Other tools of exploitation
as fulfilment of domestic, social and farm needs. This shows like non-registration as moneylenders, system of indirect payment
that commission agent advances credit to farmers on the basis of of farm produce, non-issuance of J-form, slip mechanism, multi-
volume of marketed surplus of the produce. Making farmers sell ple licences and multiple business constitute the modus operan-
their produce through commission agents ensures repayment di through which the business of commission agents flourishes.
of loans. These moneylenders charge exorbitant rate of interest
which is much higher than the institutional rate of interest un- (a) System of Payment: Paying farmers through commission
der the plea of charging for the risks they incur in lending agents is the system’s backbone. It is an exploitative system. The
without collateral security and without any assurance of timely Punjab APMC Act, sub-rule 24 (II) states that the commission
payment. However, under the existing indirect payment system, agent shall pay the seller after weighing of the produce is over.
by receiving the payment for the produce on behalf of the So, the procurement agencies do not make payment directly to
Economic & Political Weekly EPW novemBER 7, 2015 vol l no 45 59
SPECIAL ARTICLE

the farmers. But on 25 April 2013, the state government decided to for both the farmers and the government. The prime motive of
curtail the role of the commission agents by providing farmers commission agents for not getting registered is to evade taxes,
an option of directly receiving payments for their produce after pursue malpractices like exorbitant rate of interest, use of blank
negotiating with purchasers (Singh 2014c: 10). However, in the promissory notes, and so on.
current scenario of market structure, the farmers are not in a
position to avail the option of direct payment system as they are (c) Perceptions of Farmers Regarding Direct Payment System:
under the pressure of commission agents (Sidhu et al 2014: 21; To have an in-depth knowledge of the farmers’ reaction to the
Johl 2009: 8). Only if this decision is made mandatory and not proposed system of direct payment, the study examined the
left optional, the role of commission agents can be curtailed. perceptions of farmers (Table 8). Farm size-wise analysis of data
On the basis of the Punjab APMC Act, 1961, the Punjab Mandi revealed that, majority of the farmers (about 85%) are in favour
Board had fixed commission for different crops, including fruits of a direct payment system. There was a direct relation between
and vegetables. The rate of commission was fixed at 1.5% of the the farm size and preference for direct payment system. All
value of farm produce on 26 May 1961 on ad valorem basis, that marginal farmers sampled felt that the direct payment system in
is, it increases automatically with the increase in market arrivals agricultural produce will be beneficial and stimulate growth.
and prices of crops. However, commission agents have managed About 94% of the small farmers, 87.34% of semi-medium farmers,
to increase this rate from time to time by exerting continuous 81.37% of medium and 48% of large farmers were in favour of the
pressure on the state government. The rate of commission direct payment system for agricultural produce. However, 12%
charged for all agricultural commodities, except fruits and farmers were satisfied with the existing system of payment
vegetables was raised to 2% on 11 April 1990 from 1.5% in 1961 through commission agents for their produce (Singh and Bhogal
which was further raised to 2.5% on 22 May 1998 (Table 7). 2013: 39). Education plays an important role in deriving a rational
Table 7: Changes in the Rate of Commission Paid to Commission Agents decision by an individual. It was found that more than 88% of
in Punjab the illiterate farmers and all of the postgraduate farmers were in
Period Commission Average Annual
From To (ad valorem basis) (%) Commission (Rs crore) favour of the direct payment system. Also, as many as 85% of the
26–05–1961 10–04–1990 1.50 25.26* farmers who had primary and middle level education, about 81%
11–04–1990 21–05–1998 2.00 160.63 of the matriculate farmers and 84.62% of the graduate farmers
22–05–1998 Continue 2.50 508.84
*Average amount of commission from 1971–72 to 1990.
were in favour of direct payment system for their produce.
Source: Punjab Mandi Board. Table 8: Perceptions of Farmers Regarding the Direct Payment System on
This could happen only on account of the continuous political the Basis of Their Socio-economic Characteristics in Punjab
Category No of Farmers Favour Against Indecisive
pressure and lobbying by these agents. Despite various sugges-
Farm Size
tions by academicians, protests by the farmers and visible exploi- Marginal 28 28 (100) 0 (0) 0 (0)
tation by these agents, various political parties in power have Small 66 62 (93.94) 2 (3.03) 2 (3.03)
disappointed the farmers and have not provided them any respite. Semi-medium 79 69 (87.34) 7 (8.86) 3 (3.8)
The regulations, though in the name of protecting the farmers Medium 102 83 (81.37) 16 (15.69) 3 (2.94)
from the unscrupulous agents, are such that even the most des- Large 25 12 (48) 11 (44) 2 (8)
Total 300 254 (84.67) 36 (12) 10 (3.33)
perate farmer cannot be bailed out. The agents in Punjab earned
Education level
Rs 25.26 crore per annum, they earned Rs 160.63 crore per Illiterate 94 83 (88.3) 10 (10.64) 1 (1.06)
annum during 1990–98 and Rs 508.84 crore per annum during Primary 26 22 (84.62) 3 (11.54) 1 (3.85)
1998–2013. The burden of the same falls entirely on the exchequer Middle 54 46 (85.19) 5 (9.26) 3 (5.56)
as the government is liable to pay the same to these agents. Matric 73 59 (80.82) 11 (15.07) 3 (4.11)
10+2 39 33 (84.62) 4 (10.26) 2 (5.13)
Graduate 13 11 (84.62) 2 (15.38) 0 (0)
(b) Non-registration as Moneylenders: As per the Punjab
Postgraduate 1 0 (0) 1 (100) 0 (0)
Registration of Moneylenders Act 1938, a person must be regis- Total 300 254 (84.67) 36 (12) 10 (3.33)
tered as a moneylender if he is involved in moneylending business. Figures in parenthesis are percentages from respective totals.
The act states that only a registered moneylender with a valid Source: Same as Table 1.

licence can file suits for recovery of his loan. If the commission (d) Non-issuance of J-Form: It is mandatory for the commission
agent registers himself as a moneylender, as per law, he has to agents to issue J-form to the farmers after procurement of the
maintain accounts for all transactions pertaining to all types of produce, wherein the name of buyer, seller, commission agent
loans for each debtor separately. The Punjab Registration of and crop, volume of produce, incidental and other charges, net
Accounts Act, 1930 laid an obligation for moneylender to furnish amount paid to the farmers are mentioned. Similarly, the com-
legible statement of accounts signed by the creditor or his mission agent issues an I-form to the buyer of the produce. The
agent to each debtor after every six months. This statement, details of commodity procured, volume, rate, market charges and
which includes balance or outstanding amount, must be fur- total amount paid are mentioned on I-form. However, our field
nished to the debtor on 30 June and 31 December every year. study revealed that about 71% of the respondent farmers had
Our field survey revealed that among the sampled commission received J-forms from the commission agents, while around 12%
agents, not even a single commission agent has been registered did not get it, and 17% of the farmers received only temporary slips
as a moneylender. The practice of non-registration is detrimental from the commission agents (Singh and Bhogal 2013: 51). The
60 novemBER 7, 2015 vol l no 45 EPW Economic & Political Weekly
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non-issuance of the J-form is beneficial to the commission legal system only one licence is issued to the commission
agents as they can evade taxes, market fee, and indulge in other agents and in case of malpractices, the licence can be cancelled.
malpractices. Due to the non-availability of J-forms as a certificate However, these restrictions hardly act as a restraint for the
of sale of produce, farmers also bear losses as they are unable to commission agents who often engage in exploitative practices.
get the “bonus price” (generally announced late) or any other They often operate with more than one licence, usually issued to a
compensation announced by the government. The temptation for relative. In our study, it was found that on an average a com-
this malpractice can be well-imagined as 1% exclusion of produce mission agent had 1.28 licences which facilitated extra earnings.
translates to the commission agent appropriating about 12% of
the value of this produce, which is equivalent to taxes and devel- (h) Earnings of Commission Agents: The total number of farm
opment funds levied, and charges from the buyers who in any households in Punjab is about 10.52 lakh. The estimated number
case pay these charges. However, this happens only for the private of commission agents in Punjab is 20,232. Though the average
buyers. Another study drew similar conclusions (Singh 2009: number of farm households per commission agent is about 52,
9–12). This highlights that the commission agents charge enti- they control the existing marketing system of agricultural pro-
tled commission for marketing of agricultural produce but in duce and manage to exploit farmers. Often these agents do not
some cases they attempt to evade taxes by understating quan- issue J-form to the farmers and earn money by selling farm
tity of produce sold. In this way, they swell their commission produce to private traders. The total earnings of commission
from the entitled 2.5% to 14.5% of the value of the produce. agents in the state through non-issuance of J-forms was about
Rs 76 lakh for the year 2012–13 (Table 9).
(e) Deduction in Farmers’ Payment: The commission agents Table 9: Estimated Total Earning/Exploitation by Commission Agents, Punjab
undertake various amounts of deduction at the time of paying Sr No Source of Earning Punjab (Rs Crore) Per Commission Agent (Rs)
1 Non-issuance of J-form 0.76 376
farmers. There is, of course, the rightful share of commission for
2 Income from high rate of interest 592 2,92,606
the sale of produce. However, the commission agents follow a 3 Income from normal rate of interest 780 3,85,775
practice of damami during times of low productivity. Under this 4 Charging arhat 1,033.89 5,11,017
practice, the commission charged by the agent is usually equiva- Total 2,406.65 11,89,774
lent to the previous year’s commission, irrespective of the low Source: Calculated from field survey 2012–13.

produce in the current year. This practice was mainly dominant in As mentioned earlier, the commission agents charge a much
the cotton belt of the state during the crop failure of 1997–2003. higher rate of interest than the government banks. By charging
However, after that, no such deduction has been made as there exorbitant interest rates they earn Rs 592 crore, that is, each
was no decline in production. It is a pity that the poor farmer, who commission agent earns Rs 2.92 lakh and from normal rate of
gets a poor crop in the first place is rendered poorer by damami. interest they earn Rs 780 crore (Rs 3.86 lakh/commission agent).
Besides, the commission agents charge commission (2.5%)
(f) Slip Mechanism: Commission agents also have allied from the farmers for facilitating marketing of farm produce. By
occupations. Farmers always demand money from commission charging this commission alone, the commission agents earn
agents for their day-to-day needs. The commission agents prefer about Rs 1,034 crore, amounting to an average of Rs 5.11 lakh
to sell articles to the farmer rather than paying cash. Thus, a farmer for each commission agent in the state. Thus, during 2012–13
becomes not only a bonded seller, but also a bonded buyer. the commission agents earned about Rs 2,407 crore from various
“Slip mechanism” is being used by the commission agents who sources. Each commission agent received about Rs 12 lakh per
issues a “slip” to farmers for obtaining items from their owned annum by acting as commission agent. Above all, the commis-
or connected shops. The price of these articles is always higher sion agents enhance their income through slip mechanism,
than the prevailing market price and commodities of compara- supply farm inputs and domestic articles and act as middlemen
tively lower quality are given to farmers with slips. Almost all in all transactions related with farming and domestic articles,
the farmers reported that they bought goods on credit through cheating in weighing and pricing, etc. There is a need to inhibit
this slip mechanism. On one hand, this mechanism is a way of the commission agents which have now become an integral
exploitation of farmers, and on the other, an efficient busi- part of the agrarian economy, and are flourishing at the ex-
ness tool which enables their entrenchment in the existing pense of the government and farmers in Punjab.
marketing system. Even if commission agents provide quality
goods to farmers at a competitive price, the farmers are 3 Significance and Relevance
bound to lose sovereignty of being a consumer. This mecha- Historically, moneylender or commission agent has been a
nism enables commission agents to fully exploit the situation key player in the two interlinked markets, credit and product
to their own benefit and tactfully make extra money which is markets. This traditional system played an important role in
deducted before the payment of the produce to the farmers. the pre-market agrarian economy of the state, wherein the
government was disinclined to enter into the rural lending
(g) Multiple Licences: In Punjab for a person to trade in com- market, but with the passage of time, the traditional money-
modities notified under the APMC Act 1961, one has to get a lending system has undergone varied changes. The emergence of
licence from the Punjab Mandi Board for purchase, sale, storage financial institutions and assured marketing of important crops
and processing of produce as per Section 10 of the act. Under this at predetermined prices are attempts to make the traditional
Economic & Political Weekly EPW novemBER 7, 2015 vol l no 45 61
SPECIAL ARTICLE

role of commission agent as a creditor and marketing facilitator, shows the loopholes in the existing legal set-up. The farmers
less significant; but this seems to be a pipedream. It is impor- remain in dark about their outstanding debts for they are not
tant to make structural as well as functional changes in the provided statement of accounts every six months. They are
prevailing commission agent system in Punjab’s agriculture. also not provided any certificate of sale in the absence of which
The dominant and exploitative role of commission agents in they are unable to avail the various relief schemes introduced
the existing agricultural marketing system must be checked. by the government. There is a need to get all the commission
The main cropping pattern of Punjab is that of wheat and agents registered so as to bring about transparency and effective
paddy which enjoy the assured market price fixed by the gov- regulation of the vast rural credit market, especially in view of
ernment. Also, under the APMC Act 1961, the government fa- the fact that about 36% of the farmer’ credit is sourced through
cilitates marketing of these crops. In such a scenario, the exist- commission agents. Though the exploitative and profiteering
ence of the so-called middlemen raises eyebrows as the farmer nature of the commission agent business is well known, chang-
gets produce to the markets, pay for unloading, loading, siev- ing the current system is a challenging job. The owners of agri-
ing, cleaning, filling and sewing of gunny bags and the govern- cultural produce lose their status in the market over time as
ment provides the required infrastructure and equipments; these agents receive 100% payment from the procurement
while the agents just arrange for labour. Those supporting the agencies—even though they are entitled to only a fraction of
existing system of payment argue that the commission agents it. These agents form a strong political lobby that is strength-
would deny credit to farmers if the money is not routed through ened by strong biases of political parties.
them, thus making the small farmer suffer. But this is not a fact Although, some legal provisions have been enacted and modi-
as the farmers have a favourable alternative. The existing vast fied from time to time, the commission agents find many ways of
network of the financial institutions provides impetus to farm- embezzlement which continue even when the market is more or
ers to break away from the age-old indirect payment system as less a monopolistic one and where public agencies are the major
these institutions offer loans at lower rate of interest and also, buyers. The regulations are not strong enough to completely up-
the farmers gain from any kind of credit waiver schemes if they root these agents. Since times have changed and procurement
have borrowed from institutional sources. agencies are ready to reach the doorstep of the farmers, the gov-
The commission agents charge a higher rate of interest to ernment must amend the rules to safeguard the interest of farm-
which the farmers unwillingly accept in desperation. Under the ers. In a recent meeting to discuss the Food Security Act in New
current scenario where the farmers are bonded to the commission Delhi, the union government officials instructed Punjab govern-
agents for the sale of produce, financial needs, supply farms and ment to make direct payments to farmers for foodgrains procured
domestic inputs on credit either from their own or connected for the central pool. The onus is now upon the state government
shops, etc, at least the rate of interest on borrowing funds must to check the activities of these agents. The indirect payment sys-
be at par with the institutional sources. The flow of institutional tem should be scrapped and replaced by a direct payment system
credit to agricultural sector should be increased and the credit through cheques or online payment to farmers. Though such pro-
should be easily available not only for productive, but also for visions have been introduced, their effective implementation is
purposes such as health, education and social festivities. The still under a cloud as some farmers reported during our field survey.
cumbersome and costly credit delivery system should be improved Therefore, alternative marketing systems like direct state pro-
so that the farmers can get adequate and timely loans with low curement system and the cooperative marketing system should
transaction costs. Easy repayment facilities, along with rebates be developed. These systems will be beneficial for the producer,
on interest rates for timely payment should be encouraged so consumer and the state. Several provisions of the Punjab APMC
that the farmer can get the required amount of money from in- Act, 1961 favour commission agents, and the government too
stitutional sources rather than going to private moneylenders. devised norms in the manner that benefited these agents. An
The current study found that not even a single commission expert committee that analysed the agricultural marketing sys-
agent was registered as a moneylender in Punjab in violation of tem in the state suggested that intermediaries were superfluous
the rules of Punjab Registration of Money-Lender’s Act 1938. This if paddy and wheat were procured by the state agencies.

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62 novemBER 7, 2015 vol l no 45 EPW Economic & Political Weekly