“Rebellion Underway?”
Written by SHRENIK KALAMBUR, Pooja Tamrakar, Aloysius Ethan de Sá, Raghav Chandra VS
Agricultural Laws and the Indian Economy
Passed on 17th September, 2020, The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, has sparked widespread distress among the Indian farming community and major political controversies. In this article, let us explore the Bills, their pros and cons, and reasons behind the unrest among the farmers.
Being the first major Agricultural reform since 1965, this Act aims at making trading of farm produce much more free and less regulated than before. Earlier, a key feature of agricultural trade was the Agricultural Produce Market Committee (APMC), a regulatory body formed by the states in order to prevent the exploitation of farmers by intermediaries and money-lenders.
The APMC- how does it work?
The APMC had established market yards or Mandis to ensure fair sale of agricultural produce and to provide storage for the crop. The Mandis assisted the farmers in making price and production choices. No farmer was allowed to directly sell his produce outside of his regional Mandi. The system gathered crops from all farmers and auctioned it off to licensed traders, thus earning the farmers a fair price for their hard work. In the event of an excessive price drop, the farmers were guaranteed a pre-decided Minimum Support Price (MSP).
Drawbacks of the APMC:
However, the APMC structure had certain drawbacks. It was essentially a monopoly that deprived farmers of better customers, and consumers of lower prices. Trading in the Mandis came with a set of additional taxes, driving up the cost of production. The expensive buyer licenses further proved to be a barrier to entry into the Mandis. Caste-based cartelization and corruption in issuing of licenses soon crept into the system. The MSP, albeit allowing farmers to get guaranteed rates in case of any issues, inhibits their growth because corrupt officials tend to buy everything at MSP, regardless of the market rate. All these factors made the APMC quite inefficient. To tackle these problems, the government has passed three new Bills.
The new Bills, what they mean and their impacts:
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, permits farmers to sell their crop anywhere outside the APMC mandis, including electronic trading platforms. No tax will be levied on the transactions carried out beyond the premises of the mandis. Additionally, if farmers believe that they aren’t receiving a fair price in the open market, they can always go back to the Mandis and sell their produce at the MSP, effectively dissolving the monopoly of the APMC.
There is, however, no mention of the validity or the enforcement of MSP in the new Bill. Farmers are therefore unsure about the existence of a fall back option. This new provision opens up a nation-wide market for business but also dissolves the farmers’ safety net.
With government intervention now looking bleak, farmers are vulnerable to exploitation from large corporations looking to make a few quick bucks at their expense. Moreover, online trade cannot be seen as a game-changer in a sector that depends on traditional farming techniques and technologically challenged workers. Additionally, the states will lose revenue that the APMC markets generated.
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 facilitates contract farming. Agricultural trade between farmers and buyers can now be fulfilled as per a legal agreement specifying the metrics of the exchange such as quantity, quality and time period. Any resulting dispute will be addressed not by civil courts but by a three-tier mechanism — the conciliation board, Sub-Divisional Magistrate and Appellate Authority. Eliminating the government from the process further cuts down the cost at the consumer’s end. Also, farmers can now directly grow expensive commercial crops for direct export and hence earn higher profits than earlier.
The direct involvement of corporates and their hidden terms and conditions would leave innocent farmers unable to cover their backs by themselves. An additional disadvantage is the fact that the majority of all farmers in the country hold very small agricultural lands. In the free market, they are prone to either losing their land or becoming labourers in case of not delivering their end of a contract.
The Essential Commodities (Amendment) Bill, 2020, loosens the regulations on the production, storage, movement and sale of several major foodstuffs, like cereals, pulses, edible oils and onion, except in the case of extraordinary circumstances like war or famine. The Bill allows buyers to hoard non-essential commodities, and removes the price cap that was previously set on them, unless there is a steep price rise. Thus, farmers can potentially earn much more than they were with the APMC. Exclusion of these products from the list of essential commodities leaves more of them for export.
With hoarding, the prices of non essential goods rise, giving the sellers high profit margins, while the farmers are left with much smaller shares in the profit. Moreover, price limits for “extraordinary circumstances” are so high that they will likely never be triggered. This will hike the costs of food.
While the government argues that these reforms will bring about freedom in agriculture and facilitate private investment in the sector, India’s farmers have grievous concerns, leading to Nationwide protests and outrage. Past experience with free agricultural markets in Western Nations such as the USA and The United Kingdom have resulted in a loss at the farmer’s end, exploitation being the root cause of this. In the Indian market, the abolishment of the APMC in Bihar, 2006, led the farmers to get much lower prices for their produce than before.
What can the government do?
The Indian agricultural situation is in dire need of attention. Economists suggest that, instead of transferring the responsibility to private entities, the APMC markets be retained and their shortcomings be worked on.
However, if the new system is to be implemented successfully, it requires refining too. The obvious improvement in the new laws is the enforcement of the Minimum Support Price. Additional protection in the form of sufficient market regulation (government monitoring and timely intervention), funding farmer’s self help groups and cheap, or even free legal advisories at the time of negotiating deals can be provided by the administration. Improving the accessibility of remote villages and modes of transportation for farmers will enable them to comfortably sell their harvest and maximize their earnings. Lastly, farmer cooperatives could strengthen their bargaining power. This will ensure better competition among the industries and earnings going directly to the farmers.
While the old system was inefficient and corrupt, the newer system can potentially end up the same. Either a modification in the new laws, or a modification of the old ones is absolutely necessary for the backbone of our economy to thrive and prosper.
What do you think the government needs to do?
