The Modi government confronting agricultural reform
By: Gandhar Desai
Tags: Agriculture, Farmers Protest, India

In September the Indian government led by Prime Minister Narendra Modi passed three bills aimed at liberalising agriculture. The laws deregulate trade in agricultural produce and facilitate private investment. Experts have welcomed the reforms in the abysmally unproductive sector that employs over half of India’s workforce but contributes to less than 18 per cent of GDP.

Thousands of farmers have camped at the outskirts of Delhi and are demanding that the laws be repealed. They are largely from Punjab and Haryana — states benefitting the most from the existing agricultural marketing system. In a country where agriculture is a politically sensitive issue, the agitation has united the opposition against the government, portraying it as ‘anti-farmer’. Yet many of the political parties opposing the reforms have supported similar bills when they were in power.

The first of the three bills facilitates contract farming by simplifying the dispute resolution mechanism between farmers and buyers. Contract farming is particularly beneficial to smallholder farmers, as it gives them access to quality inputs and reduces price volatility. The second bill removes stockpiling limits for certain commodities, allowing agro-processors to achieve economies of scale. The third bill abolishes the monopsony of Agricultural Produce Marketing Committees (APMCs) and is the main reason behind the ongoing protests.

Many states, including Punjab and Haryana, established APMCs and affiliated market yards to provide farmers an assured marketplace to sell their produce in the face of uncertainties. Only APMC-licensed traders were allowed to purchase produce from farmers within APMC limits. This enabled the cartelisation of traders and prevented farmers from receiving a fair price.

The new bill limits the operations of APMCs to their market yards and allows anyone from the private sector to purchase produce directly from farmers, bypassing the APMCs. This will hopefully allow farmers to avoid middlemen and APMC fees, give them more avenues to market their produce and provide them with better remuneration.

Although policymaking on agriculture as a whole falls under the domain of states, the central government has justified the new laws citing its constitutional powers to regulate ‘interstate trade and commerce’.

Punjabi and Haryanvi farmers are protesting because both states have strong networks of APMCs. The Indian government procures most of the wheat and rice grown in these states and compensates farmers at minimum support prices (MSPs). MSPs are announced by the central government seasonally and are significantly higher than domestic and international market prices. The procured grain goes into the Public Distribution System, providing food security for the bottom 67 per cent of India’s population.

Punjabi and Haryanvi farmers benefit disproportionately from MSP procurement, dominated by wheat and rice. Only 6 per cent of Indian farmers avail MSPs. Yet over 90 per cent of the wheat and rice cultivated in Punjab is procured at MSPs. This assured procurement at above-market prices makes the state’s farmers the most ‘pampered’ in the country.

Protesters fear that the new laws will wean Indian farmers off selling through APMCs, leading to the dismantling of the APMC-MSP regime, though none of the new laws mention that possibility. The protesters are also demanding a guarantee from the government to make MSPs mandatory for even private sale of agricultural produce. This is bad economics and unfeasible at current MSP levels.

Farmers from Punjab and Haryana played a crucial role during India’s Green Revolution in the 1960s. MSPs were introduced to provide them a cushion for adopting new high-yielding varieties of crops. They also benefited from decades of state investment in building the best irrigation and road networks in the country. India, once dependent on foreign food aid, is now in food surplus and the second largest food producer in the world.

This subsidies-based model of agricultural growth has come at a high price. Unchecked subsidies for artificial fertilisers have led to soil degradation across the country. Highly subsidised electricity for agriculture has resulted in the over-extraction of groundwater. Over 80 per cent of water consumed in the country is for agriculture. Owing to the MSP regime, India produces more rice than it consumes, but not enough other essential crops like pulses, oilseeds and fresh fruits to meet its nutritional needs.

The new laws are an important step towards correcting distortions in India’s agricultural market and are essential for realising the government’s ambitious target of ‘doubling farmers’ incomes’ by 2024. But the Modi government has stumbled in rushing the passage of the bills without building political consensus on the sensitive issue and garnering support from stakeholders. The central government has enabled fears and misconceptions about the laws to flourish among farmers, allowing the opposition and groups with vested interests to unite against the economic reforms.

The protesting farmers are the richest in the country and do not represent the interests of and challenges faced by the average Indian farmer who stands to benefit from the reforms. Experts have proposed several measures to compensate affected farmers in the short run and enable a transition towards more sustainable agricultural practices. The Modi government must not relent and repeal the laws. Doing so will harm agriculture and dent the prospects of much-needed reforms in other areas.