Commentary: India has liberalised its farm sector. But not everyone is happy with it

SINGAPORE: India is in a pickle over three controversial agricultural laws, which has led to a major political backlash involving farmers.

Unruly scenes and disorder have prevailed, particularly in the northern states of Punjab and Haryana, as major agricultural bills – the Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Bill, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, and the Essential Commodities (Amendment) Bill – after being approved by the Parliament, obtained Presidential assent for becoming laws on Sep 27.

The Indian government and businesses have heralded the new laws.

The Indian Prime Minister Narendra Modi described the reforms as a “watershed moment” in Indian agriculture while industry leaders – like S Sivakumar, head of the agri-businesses and IT at ITC and Kapil Mehan, strategy advisor to a few agribusiness companies and the former managing director of fertiliser company Coromandel International – describe the changes as “transformative” .

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Despite their intended benefits, the new laws, however, have generated considerable political unrest, as commission agents, several farmers and opposition groups are angry that the reforms undermine the state control over agricultural marketing, disrupting the economics and politics thriving around such control for decades.

The Congress Party – currently in government in the state of Punjab – is looking to capitalise on the discontent against the Modi government into a political opportunity by mobilising disgruntled farmers across India. 

Angry farmers took to the streets across India on Friday, intensifying protests over major new
Angry farmers took to the streets across India on Friday, intensifying protests over major new farming bill they say will benefit only big corporates AFP/NOAH SEELAM

On Tuesday, Congress leader Rahul Gandhi criticised the government over the new legislations writing on Twitter: “The farmers gave the country food security, and the Modi government only betrayed them.”

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Rahul has made recent visits to Punjab and Haryana where he held tractor rallies and public meetings against the new laws.

WHAT IS THE BONE OF CONTENTION?

Indian farmers have been selling their produce for several years in markets regulated by the Agriculture Produce and Marketing Committee (APMC) Acts of various states. The produce is sold to commission agents appointed by state governments under these Acts. 

The APMC Acts have been the instrument of control exercised by state governments for monopolising the buying and selling of agricultural produce. Farmers have functioned within this restrictive prism for decades without the opportunity of selling elsewhere.

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The Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Bill, allows farmers to sell outside APMC markets. 

The Bill removes restrictions on intra- and inter-state trade in agricultural products enabling farmers of states governed by APMC Acts to step beyond these markets and earn higher returns by selling elsewhere. 

This should enable greater flow of agricultural produce from surplus to deficient states promoting a national agricultural market. 

Once these APMC markets cease to remain the sole choice for farmers, states suffer economically and politically. Economically, they lose taxes, collected from sellers mandated by APMCs to buy from farmers. These are substantial for a state like Punjab, which is spearheading protests against the reforms.

Indian farmers pile harvested potatoes: the economy seems to have turned a corner with fast
Indian farmers pile harvested potatoes: the economy seems to have turned a corner with fast third-quarter growth. (Photo: AFP/Sam Panthaky)

Politically, over the years, APMC Acts have enabled and sustained a self-reinforcing patronage culture. Formal intermediaries between governments and farmers have flourished, acting as agents for interface between political parties and farmers. 

The structure can change significantly if more and more farmers give up on APMCs.

DEEPER CORPORATE CONTROL

Political agitation has also been fuelled by the business interests of large corporate houses dominating agricultural trade, which have been hampered as a result of the policy changes.

The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill encourages contract farming. It enables farmers to tie up directly with businesses, exporters and retailers, for supplying produce at pre-determined prices.

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Apart from assured prices, the changes enable transfer of risks from the farmer to the buyer, safeguarding the former against unanticipated setbacks to production, and enabling access to quality inputs.

Contract farming opportunities can encourage more farmers inclined to move away from APMC markets to tie-up with businesses, precipitating economic and political reverses for state governments.

However, farmers are also worried that this development could be a double-edged sword for them as they fear eventually being squeezed out of the agricultural market by corporate players.

Indian tea farmers, many of them women, are scraping a living, Oxfam says
Indian tea farmers, many of them women, are scraping a living, Oxfam says AFP/STR

The concern has been aggravated by recent investments of foreign retail and technology firms, such as Amazon, Walmart and Facebook, in Indian telecom and retail companies like Reliance Jio and Flipkart fueling distrust for the corporate sector.

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Shiromoni Akali Dal (SAD) leader Harsimrat Kaur Badal, who resigned from Modi’s Cabinet in September to stand in solidarity with the farmers, alluded to Reliance Jio’s example in an interview recently, wherein it first dropped telecommunication prices and raised them later, after acquiring a significant number of customers.

Harsimrat quoted farmers who feel the same could be repeated in agriculture at their peril.   

MINIMUM SUPPORT PRICE

There are growing concerns among farmer groups over the changes being precursors to the discontinuation of the minimum support price (MSP) scheme for the central government’s procurement of food grains and agricultural products.

If farmers get better prices by engaging with businesses and if food supplies across the country stabilise from the free movement of produce allowed by the amendment of the Essential Commodities Act of 1955, then the economic justification of MSPs, in terms of providing farmers assured prices on their produce, greatly reduce.

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The central government might, over time, be tempted to discontinue MSPs, given the high subsidies they entail for the exchequer, in addition to mounting costs of storing grains.

Such an outcome will be significant for states like Punjab and Haryana, where large land-holding farmers have benefitted for decades by offloading their produce at pre-determined MSPs.

The Modi government has assured states on the retention of the APMCs and MSPs.

An Indian farmer carries rice seedlings
An Indian farmer carries rice seedlings at a paddy field in Rani village on outskirt of Guwahati, the capital city of India’s north-eastern state of Assam, on Aug 4, 2017. (File photo: AFP)

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Nonetheless, the reforms clearly limit state government monopolies over agricultural marketing for decades.

They also disturb the rent-seeking incentive structure that has consolidated over years in rural India around farm product markets. With the laws bringing such large-scale disruption in the agricultural ecosystem, no wonder it has caused political ripples in India. 

Whether the changes will significantly improve prospects of farmers or not, will depend on how they respond to the reforms, and the returns they obtain over time. But for now the country should unite in what appears to be progressive liberalisation for an age-old sector.

Dr Amitendu Palit is a Senior Research Fellow and Research Lead (Trade and Economic Policy) at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). He can be contacted at isasap@nus.edu.sg.