Indian Agricultural Crisis

December 9th, 2020

By: Mohammad Amaan Siddiqui



Introduction


Indian resources and industries were depleted before gaining independence, and the socioeconomic status of the nation was in ruins. A lot was done to alleviate the perils that the young nation faced leading to various successes and failures. The Green Revolution was one of the biggest initiatives, resulting in food security, high productivity, and increased income. However, it was a short-lived success, it put small farmers at a disadvantage due to the lack of affordability and damaged the soil and water tables. There is a dire need for agricultural reforms because Indian farmers face issues such as climate change, high suicide rates (28 a day), and low bargaining power. 


The 2020 Agricultural Bills


Earlier this year, three bills were passed by the Indian parliament:

  1. Farmers Produce, Trade and Commerce (Promotion and Facilitation) Bill
  2. Farmer’s (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill  
  3. Essential Commodities (Amendment) Bill. 

These bills claim to tackle ‘decades-old flawed policies’ and aim to ‘free’ farmers. Contrary to these claims, Partap Singh Bajwa (Congress Lok Sabha Member) believes that these bills are “...the death warrant of farmers.” These bills have led to widespread protests and sit-ins involving farmers in Punjab, Haryana, Uttar Pradesh, and more blocking train and highway routes. Many farmers distrust politicians and have rejected meetings. “...We know these legislations are against the farming community,” said Jagmohan Singh, general secretary of Bhartiya Kisan Union. 


The Questions Behind the Discussions of the Bills 


Punjab CM Amarinder Singh described the new laws as “...Blatantly crafted to fill the pockets of capitalist cronies of the BJP at the cost of the poor farmers.” These bills were introduced without consulting the agricultural sector, and the lack of discussion with India’s largest workforce community is questionable. The debate was also rushed amidst the pandemic and many political figures have demanded answers. While many agree that Indian agriculture needs reforms, they believe that the current bills will not be beneficial.

The wording of these bills is also concerning since the vague wording gives the central government unlimited defining and discretionary power. Such ambiguities and lack of debate raise concerns about the intentions of the bills. 

Overview of Changes Brought By The Bills:

  • Farmers were obliged to mostly sell their produce in state-owned markets. While this system differs between states, these bills call for uniform changes. Economists claim that these state regulations hurt farmers’ profits as in this system they can be cornered by buyers because of the smaller customer base.

  • These bills lay down proper obligations that buyers and sellers must adhere to when entering into formal contracts. This is also seen as a measure against buyer exploitation of farmers as predetermined prices prevent on-the-spot bargaining.  

  • Cereals, pulses, oilseeds, edible oils, onions, and potatoes will be deregulated. Their production, storage, movement, and distribution will no longer require a license.


Government-Percieved Benefits From These Reforms

The reforms laid out in the three bills revolve around establishing neoliberal economic policies and free-market forces through deregulation. The central government wishes to establish a ‘one nation, one market’ policy. The government and their supporting economists believe that replacing socialist policies with capitalist ones will create long-term benefits and growth, despite the damage in the short-run. “...our farmers will be empowered,” says PM Modi. 


Short and Long Term Impact on Minimum Support Price (MSP)


A large part of many states’ revenues is earned through state farmer markets. This revenue is important to fund development expenditures. Annually, Punjab and Haryana alone may lose about Rs 3500 crore ($4.75 billion) and Rs 1600 crore ($2.17 billion), respectively, as a consequence of these changes. The loss of this revenue would damage their ability to make guaranteed purchases from farmers too. The price at which this guaranteed purchase is made is called the Minimum Support Price (MSP). 

In 2006, Bihar repealed the state-market system entirely. However, full control of agricultural produce was taken by private traders who ended up charging commission from farmers through private markets. These traders abuse the lack of storage, the difficulty in being able to afford to store, and the availability of alternative customers to the farmers, forcing them to sell at low prices (distress sales), often below the MSP. The example of Bihar indicates that new policies will damage agriculture if not accompanied by other supportive measures.

While there is no explicit mention of the removal of state-markets and MSP, the government hesitates to guarantee that these systems will remain protected, which raises concerns that the current changes will only facilitate the dismantling of these systems. Through deregulation-induced agricultural information drought, the government will easily be able to dismantle the aforementioned.


How These Bills Will Make Farmers Corporate Slaves and Harm Consumers


Contract farming is not new in India, and research shows that those who have indulged in it have earned less than those who haven’t. Contract farming has been most prevalent in poultry, in which contract farmers only earn Rs 11.06 per broiler, whereas non-contract farmers earn Rs 17.05 per broiler. Additionally, whether or not the government would hold a buyer accountable for an agreed price that turns out to be lower than the MSP is another inhibitor to contract farming. While protection for price exploitation and contract farming is mentioned in the bills, price fixation methods are not, which allows the private sector to exploit. Rendering a relatively weak sector to legal obligations with large corporate entities will not be beneficial. The farmers would not have the financial resources to battle big firms in courts when conflicts arise. 

Despite the freedoms, farmers will still be forced to make distress sales as they lack storage and bargaining power. One of the primary reasons behind this is the size of landholdings. As per the 2015 Agricultural Census, 86% of Indian farmers have only between about two hectares of land. Small landholdings translate to smaller yields which implies a lesser income which inhibits growth, wealth, and security. If anything, exploitation remains a constant while the parties that carrying it out change. 

The changes add even more risk to an already high-risk industry. This brings us to another factor about the MSP; not every product has an MSP. Indian farmers will avoid risks because of the qualitative and statistical reasons that have been discussed previously. Consequently, diversification in the agricultural sector will remain limited as farmers will resort to growing crops that are supported by the MSP to have a safety net, which in itself is also at risk. 

The deregulation of storing certain food items allows hoarding. The amount of information states have about stocks will decrease, which creates difficulty in examining food security. In the event of famine or its risk, governments will not know how much stock is available, nor where to purchase it. During harvest season, exporters and buyers will hoard products at low prices and sell them later at higher prices which will upset consumers.

Implementing these bills may also harm consumers. The intention of the bills is to allow competitive agricultural trading, however, the farmers may profit less by selling locally than exporting. If they began exporting, will the Indian population need to pay higher prices to purchase agricultural products, and can they afford to do this?


Lack of Private Sector Willingness to Invest 


Whether or not these changes work out, would the private sector invest? 90% of fruits and vegetable sales remain informal through networks of traveling stores, Kirana stores (small-scale family-owned shops), and door-to-door sellers. Big sized supermarkets and malls cost more. It has been easier to access the Kirana stores and door-to-door sellers than malls given the transportation costs. 

Assuming that culture is not a barrier, the economic state remains one. High real estate, electricity, and manpower costs discourage private sector investors. If they spent on these factors anyway, the final products would have higher costs to cover up those expenses.

According to a Financial Times article from 2019, “The real problem facing India is not that it is too expensive to do business but the fact that there is no demand". The government is trying to pave the way for investment without making sure whether the factors that induce investment (demand and household purchasing power) are available. 


Ignored Factors


There remain a lot of unanswered questions. Many middlemen and commission agents thrive because of their role in providing credit to farmers. Although unprofitable, they make at least some credit available to farmers which is better than none at all as it enables the purchase of requisite goods. If the government wants to diminish this exploitation and bring development to farmers all around, it needs to give more importance in making affordable, easy, and quick credit available to farmers. 

Research and Development (R&D) in Indian agriculture also remains weak. Since 2001, R&D spending in agriculture has remained at about 0.5% of agricultural GDP only 0.1% of which is available for actual use after daily operational costs and wages are accounted for (Ashok Dalwai Committee report on Doubling Farmers’ Income, 2018). According to Nobel Laureates Abhijit Banerjee and Esther Duflo, “The fad of the moment is turned into a policy without any attention to the reality...” The lack of debate in the parliament and consultation with stakeholders coupled with poor R&D pave way for problematic policies.

The increasing economic neoliberal policies are often shown to be fruitful in the long run like in the U.S. However, many factors have been ignored. The average size of landholdings is about 180 hectares in the U.S., while it is only 1 to 3 hectares in India. According to Dr. Sachin Kumar Sharma, (Associate Professor of the Centre for WTO Studies, Indian Institute of Foreign Trade) the average amount spent on a farmer is $61,286/year in the U.S. and only $282/year in India. Why do we let the Indian Government experiment with policies that were developed for a country so different than itself? Blind implementation of economic neoliberal policies is equivalent to a doctor trying to prescribe the same medicine to all patients. 


Conclusion


The bills have evidently been passed quickly without proper consultation, and the results are disastrous. While free-market economics may work in some cases, they cannot fix the increasing economic disparities of a country with ever-increasing economic disparities and multiple socio-economic hardships, a strict free-market approach will only worsen the scenario. This issue further proves the notion that the government is working only for the rich corporations and not the people. Social welfare must not be ignored. A democracy is meant to work with consultation, discussion, and debate. The rushed and hollow nature of these bills do not represent the values upon which the Republic of India was built.


Reference


  1. THE FARMERS (EMPOWERMENT AND PROTECTION) AGREEMENT ON PRICE ASSURANCE AND FARM SERVICES BILL, 2020      

  2. Why Are The Agricultural Bills Being Opposed?

  3. PM Modi defends farm bills, says critics misleading farmers

  4. Cooperative federalism

  5. Cooperative Federalism in India

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  7. ‘Will not sign on farmers’ death warrant’: Heated debate in Parliament as farm bills tabled in Rajya Sabha

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  9. ExplainSpeaking: What farmers should be demanding instead of MSPs

  10. Farmers Will Reap the Benefits of Modi’s Reforms

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  12. Why Indian farmers are protesting against new farm bills

  13. Farm bills: Are India's new reforms a 'death warrant' for farmers?

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  15. An Expert Explains: The broad arguments for and against the three farm laws

  16. Indian farmers driven to debt as banks turn risk-averse during pandemic

  17. India's Modi defends new law as critics warn of risks to farmers

  18. Indian farmers block roads, railways as protests mount over farm bills

  19. India’s controversial farm bills become law despite protests

  20. Why many Indian farmers and politicians oppose Modi's farm laws

  21. Indian farmers block roads, railways as protests mount over farm bills

  22. Modi's promised handout to Indian farmers gets lukewarm response

  23. Farm bill protests: All you need to know in 10 points

  24. Rebooting Economy XXIX: Exposing farmers to unregulated market is more likely to harm them

  25. Rules, precedent were ignored to push through anti-farmer Bills in Rajya Sabha

  26. Everything you need to know about the new farm laws

  27. Explained: Why are farmers unhappy with the Agriculture Bills?

  28. What India’s farm reforms aim to change, in three charts

  29. Why The Farm Bill May Not Be The 1991 Moment For Indian Farmers

  30. Why are farm bills opposed? Hostility is based on a discredited economic model that upholds vested interests

  31. Punjab farmers reject Centre's invite for talks on farm laws

  32. India: extreme inequality in number

  33. Farmers Will Reap the Benefits of Modi’s Reforms

  34. India may have worst income inequality levels for almost a century

  35. India hopes digital tech will save its floundering farm sector – but it’s working without evidence

  36. Report of the Committee on Doubling Farmers’ Income

  37. Lessons from Bihar’s abolition of its APMC system for farmers

  38. Critical Analysis on The Farmer Bills, 2020

  39. Digging Deeper | Will corporate tax cut boost Indian economy? 

  40. Farm Truths: Here’s what makes us optimistic about Indian agriculture