Farm Laws Repealed, but Agricultural Reforms Are Still Needed

Indian agriculture needs careful and calibrated reforms. The Centre needs to reach out to farmers.

5 min read
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The Centre’s retreat from the three farm laws after a year-long protest by farmers tells us that without trust, even well-intentioned and much-needed laws will be suspect. The laws on agri-trading, contract farming and stock holding were promulgated as ordinances in June last year, when COVID-19 restrictions on movement and public gatherings were in place. They were ratified last September without debate or reference to a Parliamentary Standing Committee for clause-by-clause scrutiny. Given this government’s record of doing the exact opposite of what it says (for example, ‘sabka saath, sabka vikas’), the haste in passing the laws aroused suspicion.

The repeal of the laws does not invalidate the reforms they sought to achieve. The victory of protesting farmers from northwest India will blow back on them. The laws needed improvement, not repeal. If the Prime Minister had behaved like a Pradhan Sevak and reached out to the protesting farmers, the laws could perhaps have been saved.


Mandi System Needs Reforms

The need for reforming the regulated mandi system has been felt for long. It has had multi-party support. The Centre drafted a model Bill for states to enact – as agricultural marketing is a state subject – in 2003. Most states complied but inserted caveats and carve-outs. Sharad Pawar, Agriculture Minister in the Manmohan Singh government, therefore, set up a committee of state Agricultural Marketing Ministers in 2010 to advise on how agricultural marketing could be freed up. Maharashtra’s Cooperation Minister, Harshvardhan Patil chaired, it. (He quit the Congress Party in 2019 to join the BJP).

In its report in January 2013, the committee noted that regulated markets have become barriers to agricultural trade as commission agents must own shops or godowns in them to get a license. Many of these market yards don’t have space to expand. Traders and commission agents organise themselves into associations and don’t allow new entrants, the committee said.

The commission agents don’t want change. They earn fat fees for little work. Punjab’s arhatiyas, for instance, earned Rs 652 crore in commission from wheat procured earlier this year. Mandi boards are controlled by politicians. In collusion with officials, they siphon off money collected as cesses. For this reason, Mandi board elections are hotly contested.

The mandi cesses and levies were payable even on trades executed outside the mandi yards within their ‘notified area’, which could be a block or district. Punjab levied 3 per cent mandi cess and 3 per cent rural development fee.

ITC, which sells flour under the Ashirvaad brand, had to pay this 6 per cent charge for produce it procured at its Kapurthala centre, even though it did not use mandi infrastructure or services.

This put organised players who don’t or can’t evade the cesses at a disadvantage (Punjab reduced the levies after the three laws were enacted).


Procurement Skewed in Favour of Punjab & Haryana

Punjab and Haryana farmers, who produce mostly wheat and common rice for distribution through ration shops, are not affected by these charges or the commission agent’s fee of 2.5 per cent because they are borne by the Food Corporation of India, the procurement agency, though they end up inflating the food subsidy bill.

One of the three repealed laws allowed cess-free trading outside the precincts of the mandis. The protesting farmers thought that if trades shifted outside, the mandis would suffer a loss of income and fall into disrepair. They suspected that the laws would have a domino effect. They feared that in the next phase, the government would reduce the procurement of wheat and rice. They have reason to be anxious. Far too much rice and wheat than needed is procured. And the procurement is skewed in favour of Punjab and Haryana farmers. This year, 72 per cent of Punjab’s wheat output was procured, as against 10 per cent of Uttar Pradesh’s.

Cess-free trading outside the mandis has indeed resulted in trades shifting out. Mandis across the country have suffered a loss of income. The mandis allow price discovery. They are meeting grounds for buyers of all kinds of produce. Without the mandis, small farmers will have to fend for themselves. The network should be improved upon. The fees and charges should be reduced. Farmers should have a choice of selling platforms. Some mandis might wither away, unable to stand competition. But policy should not hasten their demise.

Assured procurement of wheat and rice at Minimum Support Price (MSP) gives Punjab and Haryana farmers a steady income, despite the rising cost of production. It has also created a vibrant land lease market.

Punjab has to diversify out of rice and wheat for its own ecological good. The alternatives will have to be at least as paying.

The government will have to ease the transition with assured procurement of these alternative crops or per-acre payments to farmers. It will also have to stop giving power free to farmers.


Open Up Exports & Imports

The amendment to the Essential Commodities Act needed to be retained. It said that stock limits and export restrictions would be imposed in exceptional cases – if prices of perishables doubled over the average of the past five years, or rose 50 per cent above that level in the case of non-perishables. But the government banned the export of onions on 14 September last year, just days before the three laws were approved in Parliament, denting its reformist credentials. The whimsical export bans and stock limits have affected India’s credibility in the export market. Farmers lose money when there is abundant production, but are not allowed to recoup the losses when there is scarcity and prices rise.

The mechanism for resolving disputes proposed in the farm Bills was faulty. It was entrusted to state revenue departments, which are over-burdened, corrupt and are not trusted by farmers.

Anil Ghanwat, member of the Supreme Court committee and former President of Maharashtra’s Shetkari Sanghatana, says agriculture needs more market reforms, not less. He says agricultural trade must be de-regulated. There should be no export or import bans. But agriculture is subsidised in developed countries. The subsidies may not be ‘market-distorting’, but farmers there are supported. India will have to move to such a system. Instead of subsidising inputs or giving price support, farmers should be given income support instead.

Agriculture reforms cannot happen piecemeal. They have to be a package. Can Indian maize, with an average productivity of three tonnes per hectare, compete with American maize yields of 11 tonnes per hectare? American maize and soybean are genetically-modified. India does not permit the use of that technology.

Agricultural land markets in India are also constricted. Farmers are not allowed to sell land except to other farmers. Even legalised leasing is not possible.

Without an ecosystem approach to reforms, Indian farmers will be the losers. They have practised input-intensive agriculture so far. They will have to shift to climate-smart farming.

Andolan ki jeet hui, kisan haar gaye,” (the protest won, but farmers lost) says Ghanwat. Given the government’s ‘control’ mindset, its ideological blindspots, and the hole it has dug itself into, comprehensive agricultural reforms are unlikely to happen soon.

(Vivian Fernandes is a senior journalist and runs a website called Smart Indian Agriculture. He tweets @VVNFernandes. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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