Sunday, December 5, 2021


Script: Dr. B.K. Pandey, Former Cheif Economic Advisor to Government of India 

In September last year, India’s Parliament passed three farm laws to take farmers towards economic gains that have thus far been held back by outdated laws, manipulated markets and vested interest. The earlier laws created structural problems and led to market distortions which are now finally being addressed. These are major reforms in the agriculture sector that will remove middlemen and allow farmers to sell their products anywhere in the country. These laws have been met with resistance, mainly from Punjab, Haryana, and part of Western Uttar Pradesh by some Farmers’ groups as they want the status quo. Notwithstanding the optics, India’s farm laws bring about long-anticipated and much needed agricultural reforms.

The previous laws disincentivized private participation and economies of scale in agriculture. This also led to poor investment in storage infrastructure.  Furthermore, the prior laws thwarted exports and 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 three Farm laws together would facilitate barrier-free inter-state trade while also providing a framework for e-trading of agriculture produce; facilitates contract farming and direct marketing and deregulate the production, storage, movement, and sale of several major foodstuffs, except in the case of extraordinary circumstances.

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 although, these specific legislative reforms do not alter the MSP regime.  The Indian government has assured farmers that MSP would continue as per administrative measure as in the past and there is no need to include the MSP in the law. As per the direction of the supreme court of India these laws have been put on hold. The government of India is committed to resolve all the issues through discussion with the farmers and remove any misgivings. The government has indicated that it is ready to consider necessary amendments to address these concerns. The government has further clarified that the rights and facilities that were available before the formation of the three farm laws have not been cut short, in fact with these new agricultural reforms would provide new facilities and rights to farmers.

The three laws are part of agricultural reforms that have taken more than two decades to fructify. It is worth keeping in mind that these reforms have been carried out after a series of deliberations/ consultations spanning over a period of two decades.  Between 2001 and 2019 several Expert Committees advocated for a more liberal agricultural marketing structure and a barrier-free national market with private markets as part of the ecosystem for the benefit of farmers and consumers. The MS Swaminathan Commission constituted in 2004,  recognised the problem of cartelisation among traders in a particular (APMC) and thus recommended the establishment of One Nation-One Market.

As envisaged by the Commission, new farm Act creates space for barrier and tax-free inter-state and intra-state autonomous agricultural trade. State governments are forbidden from levying any market tax, cess or levy outside APMC zones. Thus, farmers would be able to enter into direct contact with the consumers or food processing companies without going through any middlemen or licenced traders.

The MSP system benefits only a handful of farmers at the all-India level, to be precise only six percent. Putting this in the law will bog down Indian farmers to distortions in perpetuity. Extending this to all crops is unaffordable. A related issue is that of sustainability of farming and the damage to Punjab and Haryana’s soil due to cropping of water-guzzling crops and overuse of urea. The present status quo is an obstacle to diversifying the cropping pattern of Punjab and Haryana to non-MSP crop and livestock.

Some degree of the corporatization of agriculture is a necessity to improve agricultural productivity. Though about 55 percent of the total workforce is engaged in agriculture and allied sectors the contribution to the country’s gross value added (GVA) is merely 16 percent. The Indian farmers’ average land-holding is less than 2 acres and contract farming can increase landholding and ensure migration some to other profitable sectors. The Chief Economist of the IMF, GeetaGopinath also has underlined the need for reform in Indian Agriculture.

While the farm bills are positive, but 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.
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