MATTERS OF FACT. States can reap benefits of farm reforms

The recent farm sector reforms undertaken by the NDA government are described by many as Indian agriculture’s 1991 moment, and rightly so. One may wonder, if that is indeed the case, why are the farmers protesting? In India, any reform is invariably met with resistance. The economic liberalisation of 1991 too triggered protests.

Then Prime Minister Narasimha Rao and Finance Minister Manmohan Singh, architects of the reforms, were accused of selling the country to the IMF. Three decades later India has grown to become the fifth largest economy in the world and, in the process, many million citizens have escaped poverty. Similarly, the agri reforms, if implemented properly, has the potential to catapult Indian agriculture into a higher orbit and ensure farming becomes a profitable vocation.

The new laws correct many anomalies that weigh down the farming sector. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 allows farmers the freedom to sell their produce, if required, outside their mandis or even across the State. Earlier, a farmer was tied to a mandi under the Agriculture Produce Market Committee (APMC) Act.

Originally set up by States as a measure to protect farmers from exploitation by large buyers and intermediaries, these mandis have since become legal cartels hurting the very interest of those they sought to protect. Traders in the mandis , despite APMC’s supervision (often in connivance), ganged up and deprived farmers of the right price for their produce. The freedom to sell outside will check this practice as the farmer now has other options.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 empowers and protects farmers who want to engage in contract farming. Apart from ensuring a better price, the law will ensure that they are not exploited by large corporates who typically engage in contract farming.

The Essential Commodities Act belongs to an era when India perennially tackled shortages in farm produce. Stock-holding limits were imposed to prevent hoarding and those who violated it were severely penalised. Today, India is a surplus producer in most agri commodities and this outdated law only serves to prevent any significant investments in processing of farm produce. The Essential Commodities (Amendment Act), 2020 will correct this and enable large-scale investment in food processing which, in turn, should boost farmer income.

Why are farmers anxious?

So, why should farmers be agitated? Lack of proper communication and misinformation is at play. That the NDA government rushed through with the Bill without proper discussion in Parliament meant that it lost an opportunity to explain the salient features of the reform. It also gave room for the Opposition to spread misinformation. Farmers fear that these reforms will ultimately end the policy of Minimum Support Price (MSP), close down APMC mandis and leave them at the mercy of big corporations.

That the protests are concentrated mostly in Punjab and Haryana is not surprising as the farmers there are the biggest beneficiaries of the MSP regime. In 2020, according to media reports, as much as 78.7 per cent of marketed surplus as a percentage of production was procured in Punjab. In Haryana it was 75.9 per cent.

Also, the two States have the maximum number of mandis (every 6-7 kilometres) and charge the highest APMC fees of 8.5 per cent and 6.5 per cent, respectively, in the country.

That is a lot of revenue for the two State governments as Punjab and Haryana account for almost 20 per cent of India’s farm produce by value. These factors also explain why other States are not seeing similar protests.

The Congress party, which in its 2019 election manifesto called for the ‘repeal’ of the APMC Act and freeing trade in agricultural produce, including exports and inter-State trade from all restrictions and termed the Essential Commodities Act as belonging to the age of controls, leading the protests is rank opportunism. What the NDA government has done now is very much in line with what the Congress had promised.

Unlike the Congress plan, the BJP government has not repealed the APMC Act, but has allowed the mandis to exist and compete for farmers’ produce.

This blunts the very argument the Opposition is making — that is, farmers will be at the mercy of large corporations.

If farmers feel companies are exploiting them, they can very well sell their produce in the mandis . Yes, the mandis will have to reform too — end of the cartel and more farmer-friendly. The government has also repeatedly clarified that the MSP will remain.

Constitutional validity

Some have argued that the law passed by the Centre is unconstitutional as agriculture is a State subject. Congress leader Sonia Gandhi has even called upon the States to pass laws to overturn the Central enactment. While the constitutional validity will ultimately be decided by the Supreme Court, the States, instead of overturning the laws, should embrace them.

By doing so, the farm sector will become vibrant and lot of rural jobs will be created, leading to at a faster GDP growth at the State level.

These reforms have the potential to attract a lot of investments in the farm sector. States should move fast to grab them by creating the right climate. Bulk of the infrastructure to handle the produce are in the mandis today.

States can quickly tap into the ₹1-lakh crore fund the Centre has made available for building farmgate infrastructure. Early birds will have a clear advantage. Funding will be another challenge as traders in the mandis often bankroll the farmers. They now need to be given access to formal banking if they are to be made independent.

To assume Indian agriculture will suffer without APMC mandis is incorrect. The milk (its output by value is more than the combined value of paddy, wheat and sugarcane) and poultry sectors have shown enormous growth, despite being outside APMC, because the farmers had the freedom to sell.

Other produces need to get similar freedom. Mandis should not be allowed to exploit the farmers any more. They have, over the years, forgotten that they exist for the farmers and not vice-versa.