A brief look at India’s Agricultural Reforms

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Traditionally, India has had three major challenges in attracting investments. Our farm laws, labour laws and land laws were primarily responsible for India’s relatively slower economic growth compared to other manufacturing powerhouses like China. Our land acquisition laws dissuade foreign firms from setting up factories in India, many industries are not allowed to hire skilled workers on a temporary basis, and it is almost impossible to do food processing on a large scale across multiple states in the country. While the land laws were designed with the intention to protect the rights of small land owners, the reality is that they make it really expensive to build roads, factories anywhere in the country. Similarly, the labour laws that were designed to safeguard worker rights actually leads to unemployment as we end up losing out to competition from workers in countries like Vietnam, Bangladesh etc. Finally, the farm laws that were supposed to ensure a minimum guaranteed income and safety to the farmers, in reality, prevented them from getting more value and greater economic freedom. As a step towards addressing these issues, the parliament passed three reform laws in June 2020 as part of the Aatmanirbhar Bharat scheme that were aimed at liberating the farming sector and reducing the role of middlemen and bureaucrats.

1. Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020: This allows farmers to perform inter-state and intra-state transactions freely. They are no longer forced to sell their produce at designated mandatory APMCs (Agricultural Produce Marketing Committees). The APMCs would still exist, but the farmer has the choice to sell outside these mandis if they wish. The ordinance limits the powers of the mandis and private players are now free to open trading platforms for trading in commodities. It also clarifies that there won’t be any licensing fee requirements if the transaction takes place outside the mandis.
2. Farmers Agreement on Price Assurance and Farm Services Act, 2020: This law allows farmers to enter into contracts with private players even before the harvest, fix prices and deliver the produce after the harvest. While farmers were earlier forced to sell their produce only through licensed traders, they are now free to sell to corporations and individuals alike.
3. The Essential Commodities (Amendment) Act, 2020: This act was enacted by the British to control India’s agricultural output during WW2. It gave the government the right to regulate the stock limits, exports, production quantities etc. of certain crops, leaving the farmer completely helpless. The recent amendment limits the powers of the government and specifies that regulations can be imposed only under extraordinary circumstances. The idea is to reduce the interference and protect the intermediaries from frequent changes to stock limits.

Economic Implications

1. Since farmers are allowed to sell anywhere, it increases the competition between consumers, thus leading to better prices for the farmers.
2. The presence of multiple middlemen has always been a challenging issue in India. They tend to form cartels and use their muscle power to exert control over the entire supply chain. Since direct contracts have now been made legal, the power of these middlemen reduces considerably and consumers now have to pay much lesser for food.
3. Large organizations can now source their raw materials directly from farmers. This can encourage small traders, increase competition and maybe even establish a national market for agricultural commodities.
4. Farmers now have the choice to produce crops of different varieties including pulses, fruits and vegetables. This not only allows them to diversify their incomes but also reduced the soil erosion caused by the over-cultivation of water-intensive crops like rice and sugarcane.

Objections

1. Most of the protests have been from big farmers in the Punjab, Haryana region. They tend to own large pieces of land and are actively involved in organizing the mandis. Now that the mandis are no longer necessary, this can lead to loss of incomes and jobs.
2. Earlier, the government used to procure crops from farmers at a guaranteed Minimum Support Price (MSP) from the mandis. Farmers are concerned that this guarantee would not be present anymore, and they would have to accept the market prices set by corporations.
3. In cases of conflict between a large firm and farmers, the grievance redressal mechanism is heavily skewed towards the corporations. The farmer’s concerns might not even be heard.

Aftermath

The passing of these bills led to widespread protests from farmer unions (especially in Punjab and Haryana) and politicians from the opposition. The removal of the MSP assurance remained the central point of argument between the farmers and the union government. Farmers felt that government agencies like the Food Corporation of India (FCI) would buy in much lesser quantities if the MSP system is rendered irrelevant. The government responded by stating that the MSP was not scrapped and the protests were largely driven by misinformation. The protests turned ugly on 26 January 2021, when thousands of farmers held a farmers’ parade and drove tractors into Delhi. Violence ensued between the police and the protesters, leading to one death and several injured. Ultimately, in wake of the upcoming state elections, the government succumbed to the protests and repealed the laws in November 2021.

What now?

The strength of a democracy is in being able to push for strong reforms. The current government came into power with a huge majority and this was the best time to get the reforms done with minimal opposition. However, though the intention was right, the hurried and haphazard process did not take into account the enormity of the backlash. The reform proposal should have addressed the loss of livelihoods and listed down measures that would be undertaken to employ people whose jobs would be lost. However, the government made the mistake of not convincing the farmers (and the general public) about the merits of the reforms and was almost complacent in believing that the bills would be passed without much resistance. Ultimately, they paid the price for this complacency, and with two more big reforms to be made (land and labour), the future does look bleak. Hopefully, governments would be more cautious in pushing for difficult reforms in the future and not succumb to political pressure at the cost of the national interest.

Written by- Gopi Krishna G

PGP 2021–23, IIM Bangalore