In September this year, India passed three farm laws amidst parliamentary uproar. The laws have been met with much resistance, eliciting protests from farmers who have marched to New Delhi from the states surrounding the nation’s capital. Notwithstanding the optics, India’s farm laws bring about long anticipated and much needed agricultural reforms. However, the Modi government’s commitment to farmers’ welfare will be tested in its ability to communicate and build bridges with the Indian farmer. And ultimately, the success of the farm bills will be determined by the existence of a conducive agricultural ecosystem.
The Reforms
- The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 facilitates barrier free inter-state trade while also providing a framework for e-trading of agriculture produce.
- The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 facilitates contract farming and direct marketing.
- The Essential Commodities (ECA) (Amendment) Bill, 2020 deregulates the production, storage, movement, and sale of several major foodstuffs, except in the case of extraordinary circumstances.
The new laws usher in long awaited reforms that have been part of the agricultural reform thinking for two decades, when the Shankarlal Guru Committee first advocated for a more liberal agricultural marketing structure. The earlier laws created structural problems and led to market distortions which are now finally being addressed.
The prior laws disincentivized private participation, for example. The listing of agricultural commodities under the ECA prevented their bulk procurement. Since the ECA applies uniformly to the supply chain, it has disincentivized private entry into agriculture due to unpredictability of regulations and threats of stockpile expropriation while creating a grey market of middlemen. Stockpiling limits also create a significant risk to the agriculture food processing industry and achieving economies of scale in agriculture.
They also led to poor investment in storage infrastructure. Due to frequent stock limits, there has not been adequate investment in storage infrastructure. India’s storage ecosystem is inadequate, its cold storage infrastructure is nascent, fragmented, and unorganized, and there is widespread wastage of food.
Furthermore, the prior laws thwarted exports. Products under ECA were subjected to a number of restrictions, including banning export of such commodities.
And lastly, they created a restrictive market. Under the prior laws, farmers were required to sell their produce only to the registered traders in Agricultural Produce Market Committees (APMCs).
The farmers’ concern surrounding these new laws is centered around fears of doing away with government procurement or the minimum support price (MSP) regime, corporatization of agriculture, and the collapse of the APMCs. There are significant vested interests that may be anxious of changes to the status quo, which includes states like Punjab and Haryana which are leading the protests and are major beneficiaries of revenues from APMCs. But the farmers’ fears also have some legitimacy.
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 states that in the case of a dispute, farmers and traders can approach the subdivisional magistrate, with appeals being referred to the additional collector or collector. Here, there is some merit in the farmers’ demand for keeping dispute resolution within the purview of the judiciary rather than the executive. Farmers are also concerned that these reforms could lead to a repeal of the MSP floor pricing. These specific legislative reforms do not alter the MSP regime, but due to misinformation or future reform considerations, the status of MSP has been included in the list of grievances. Also, disparities between different farmers could increase with these legislative changes. Some proactive farmers will modernize under these new rules and take advantage of a more flexible system, while other farmers prefer to stick with the traditional model they know well, even if it becomes less remunerative.
There have been voices within the government that want to do away with the MSP regime as the government ends up procuring more than it needs for consumption and the benefits of the regime are availed by merely 6 percent of the farmers. Similarly, some degree of corporatization of agriculture may be a necessity to improve agricultural productivity. India’s agricultural scenario is not very encouraging with about 55 percent of the total workforce engaged in agriculture and allied sectors while the contribution to the country’s gross value added (GVA) is merely 16 percent. The Indian farmers’ average land-holding size is less than 2 acres and contract farming can increase land holding and ensure some part of the currently engaged workforce migrates to other sectors of the economy.
Communicating these bitter truths that may, in the short-term, inconvenience some farmers is not an easy task. But the government also did its share to raise suspicion through the manner in which it implemented these reforms. The government passed the bills in the parliament in September through a mere voice vote amidst parliamentary uproar, it refused to refer the bills to parliamentary committees, did not engage farmers’ group in consultations, and initially ignored the farmers’ protests. Thus, it is unsurprising that there is a trust deficit between the protesting farmers and the government.
The Road to Reconciliation
One way to address the trust deficit and overcome the present deadlock is to provide assurances, even if it means amending the present laws. Assurances can ease farmers’ fears without diluting the agricultural reforms. For example, providing a written guarantee of MSP procurement by creating a new law may be cumbersome or even unnecessary but signals a willingness on the part of the government to meet the protestors half way. Similarly, the dispute resolution mechanism in the existing laws can be brought within the ambit of the judiciary – either directly or by creating an agricultural disputes tribunal. The government has signaled it is willing to make changes within the laws and provide reasonable assurances. However, it has not necessarily taken any concrete steps in that direction.
Finally, while the farm bills are positive, the government must not lose sight of the fact that no reform is a magic bullet. Ultimately, the success of these reforms will be decided by the agricultural ecosystem and how receptive it is to the new reforms. Reforms will yield fruits when they are accompanied by large scale investment in agricultural infrastructure – both public and private. Farmers will reap the benefits of contract farming and competitive markets when they have enough bargaining power by being organized into farmer producer organizations. A competitive and free market will be established when there is adequate market density with private markets emerging alongside the existing APMCs.
Mahatma Gandhi famously said that you cannot achieve durable reform by becoming impatient. The government may genuinely have the farmers’ interest in its heart, but this needs to be communicated to the farmers who are the main beneficiaries of these reforms. Being patient with the Indian farmer and making accommodation to alleviate her fears is one way the government can successfully instrument key reforms within Indian agriculture.
Kriti Upadhyaya is a research associate for the CSIS Wadhwani Chair in U.S.-India Policy Studies, where she specializes in Indian federal economic reforms and maintains CSIS’s India Reforms Scorecard. Full bio here.