Towards a new deal for Indian farmers
When the stimulus package was announced in May 2020, many raised questions on the immediate viability of the measures in the current economic scenario. The package, though it guaranteed medium-to-long-term benefits, was criticised for not addressing the basic issues of farmers—including the loss they suffered due to the lockdown intensifying the monopoly of local traders, not receiving fair remuneration for their produce and the lack of seed capital facilities.
Yet, the agricultural sector registered a strong growth in the first quarter of the financial year at 3.4 % on a year-on-year basis compared to 3% in the preceding year. However, a major bone of contention was the limited number of mandis, and their accessibility to small and medium farmers thereof. The three new farm laws have witnessed polarising debates on the subject and these differing views are consistent with the prevalent political ideologies of individuals. However, it is important to analyse these reforms in the context of Indian agriculture to be able to make better sense of their implications for India’s rural economy.
The agriculture sector has a huge number of small and landless farmers. These farmers produce little marketable surplus, that is, additional produce that could be sold in the market to generate income. These farmers are invariably net buyers of food grains and they resort to working as labourers on the lands of richer farmers to supplement their income. Further, the prevalence of feudal production relations in Indian agriculture makes it extractive and exploitative in nature.
The big landowners are often also the money lenders to small farmers, acting as the suppliers of seeds and fertilisers in the region. They play a disproportionate role in the government-regulated markets—the Agricultural Produce Market Committees (APMCs). The big farmer produces excessive marketable surplus and thus benefits from the increase in minimum support prices (MSPs). The control over markets tends to create a system of exploitation of small and landless farmers.
In many ways, it is intriguing why the previous governments did not liberate Indian farmers from the clutches of such malpractices, even as the rest of the economy deregulated and delicensed. It is important to also recognise that Indian agriculture has come a long way and our policy objectives must also reflect this change. Food security concerns should no longer be the sole objective behind our agricultural policy. The new laws precisely mark this shift.
These are long-pending reforms that provide choices to farmers to sell agricultural surplus at lucrative prices, an opportunity for barrier-free, inter-state exchanges and even e-trading of farm produce. Involving private players would improve competition, force APMCs to become more efficient and result in a systematic breakdown of feudal production relations in agriculture, thereby improving price realisation. A consequence of this would be an improvement in agricultural incomes. The move will also have several second-order and third-order effects, as a greater agricultural surplus would also serve as an important catalyst for expanding our industrial sector.
Many have, however, raised the issues of MSPs and private markets in an attempt to conflate them. MSPs were primarily provided as income support to farmers, and the same is now extended through the DBT-based mechanism under the PM-Kisan Yojana. The new law retains the MSPs and APMC system but only attempts to create a parallel system of private markets. The farmer would only sell at the private market in the event of the price realisation being better than the one at the APMC.
The provisions of contract farming will further reduce price volatility for the farmers. They would receive the prices quoted to them in the contracts, thus eliminating last-minute negotiations after harvest as in the case of MSPs given by traders. It is unprecedented that the government has sought to establish a legal framework to enable farmers to engage with various stakeholders such as processors, large retailers and exporters through contract farming.
The best example of how such a model benefits the farmers is that of Amul. With the burden of marketing, packaging and supplying the products on the cooperative, farmers could focus solely on maximising production. The Amul model helped transform India from a milk-deficient nation into the world’s largest milk producer. These laws have the potential to lead to a similar success for the agricultural sector.
The onus of strategically planning the supply chain to increase profits while ensuring minimum wastage would be on the buyers. The government is often forced to procure in bulk, without being equipped to redistribute these across the country. This leads to food wastage, and delay in supply, thereby leading to skyrocketing prices for the end consumer, while the farmer only gets 10-15% of this.
These laws seek to expand the supply chain and negotiating capacity of farmers, and protect them from the malpractices of traders in the informal sector. The legislation ensures that farmers have the ball in their court as this would ultimately protect and empower them. It is thus, necessary to understand, educate, and in fact accept that these laws are in sync with the already existing schemes to increase the income of farmers.
Karan Bhasin
New Delhi-based economist and policy researcher
Rashi Sharma
Research Assistant at ORF, New Delhi
(Views are personal) (karanbhasin95@gmail.com)