Farmers protest in Patiala (Express photo by Harmeet Sodhi)

Dear Readers,

There was no dearth of news triggers for the economy this past week. Exports shrank for the 6th straight month, retail inflation continued to stay well above RBI’s comfort zone, the upper limit for foreign direct investment (under automatic route) in India’s defence sector was raised from 49% to 74% even as the Parliamentary Standing Committee on Finance suggested that Indian start-ups should reduce dependency on foreign funding sources such as the US and China.

And yet the biggest economic news was masquerading as a political event all week long. I am referring to the three agriculture ordinances that the government wants to formally legislate into laws.

There was much consternation as Punjab and Haryana saw widespread protests against the proposed Bills. The Narendra Modi led BJP government even lost one of its oldest allies — the Shiromani Akali Dal — when SAD’s Harsimrat Kaur Badal resigned from her ministerial portfolio of Food Processing Industries Minister.

At the Express, we have tracked the protests closely and tried to explain, repeatedly, why farmers are unhappy with these legislative changes. Notwithstanding the pushback, PM Modi has reiterated that farmers will benefit from the changes, which were first mentioned as part of the Atmanirbhar Bharat Abhiyan package.

Here’s a quick look at what the fuss is all about.

The first thing to do is to simplify the names of these three ordinances as agriculture economist Sudha Narayanan (of the IGIDR) has done.

So, think of “The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020” as the APMC Bypass Ordinance.

Similarly, treat “The Essential Commodities (Amendment) Ordinance, 2020” as The Freedom of Food Stocking by Agribusinesses Ordinance and “The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020” as the Contract Farming Ordinance.

Farmers protest in Patiala on Wednesday. Express Photo By Harmeet Sodhi.

So, what the first one attempts to do on paper is to allow farmers to sell their produce at places other than the APMC-regulated mandis. It is crucial to note that the idea is not to shut down APMCs but to expand the choices for farmers. So, if a farmer believes that a better deal is possible with some other private buyer then instead of selling his produce in the APMC-mandi, he can opt out.

The second Bill proposes to allow economic agents to stock food articles freely without the fear of being prosecuted for hoarding.

The third Bill provides a framework for farmers to enter into contract farming.

The idea with all three Bills is to liberalise the farm markets in the hope that doing so will make the whole system more efficient and allow for better price realisations for all concerned, especially the farmers.

The central concern, presumably, is to make Indian farming a more remunerative enterprise than what it is right now.

There are two diametrically opposite ways to look at these changes.

One is to believe that the plan on paper will operationalise perfectly in real life. This would mean farmers will get out of the clutches of the monopoly APMC-mandis and rent-seeking behaviour of the traditional intermediaries (called the Adhtiyas). A farmer would henceforth be able to pick and choose who to sell and at what price after making an informed decision. And, most crucially, that when he does this, more often than not, he will end up earning more than what he typically did in the past via the exploitative Adhtiyas and APMC-mandis.

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The protest in Sirsa on Friday. (Express Photo)

The polar opposite viewpoint, which is what presumably the protesting farmers have, is to see this move towards a greater play of free markets as a ploy by the government to get away from its traditional role of being the guarantor of minimum support prices (MSPs). The MSPs work in the regulated APMC mandis, not in private deals.

The farmers, especially in areas where MSPs are more prominently employed, are suspicious of what the markets will offer and how the so-called “big companies” will treat them. The farmers can influence the most powerful governments through the electoral process but vis-a-vis big companies, they are exposed as minor players, incapable of bargaining effectively.

There are no easy answers apart from saying that while both have some valid points, neither view is fully correct.

For instance, the proposed laws are not shutting down APMC-mandis, nor are they implying that MSPs will not be functional. Moreover, it is true that — across sectors of the economy — liberalisation has expanded the size of the pie and improved wellbeing.

Why should a farmer not have more choices? If the private deal is not distinctly better, a farmer can carry on as it is. If corporate farming does manage to weaken the APMC-mandi system then it would only be because hordes of farmers chose corporate farming or selling outside existing mandis. Could it be the case that the Adhtiyas and existing elites are the ones who are threatened by this reform?

Moreover, there is an unwarranted fascination with MSPs in India. The last Agriculture Census (2015-16) showed that 86% of all land holdings were small and marginal (less than 2 hectares) — See chart below. These are such small plots that most farmers dependent on them are net buyers of food. As such, when MSPs are raised they tend to hurt the farmers the most!

Chart on size of land holdings

This is notwithstanding the data that shows more and more farm produce is being sold to private players — instead of the government via MSPs — already.

On the other hand, one can understand why farmers are so sceptical about markets. A good example is what happened when the government enforced a ban on onion exports. In doing so, the government prioritised the interests of the consumers over the interest of the farmers (the producers).

This is not the first time. There are innumerable examples when the government’s decision to protect the consumers from higher prices have resulted in farmers being robbed of the higher prices a free market could have provided them. In fact, the MSP, it can be argued, is the embodiment of this distrust.

Another underlying structural problem is the lack of information with farmers, which inhibits their ability to make the best decision for themselves. For instance, what is the right price for their produce?

Similarly, in the absence of adequate infrastructure to store their produce, they may never have the capacity to bargain effectively even if they knew the right price.

In the end, what will determine the results of this latest set of reforms will be their implementation.

If farmers feel robbed and exploited when they participate more fully in the market, they will blame the political masters but if they taste success via better returns on a sustained basis — one that allows them to afford better standards of living — then long-standing doubts will melt.

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