Liberalisation is a double-edged sword.
Improvement in the flow of capital, possible rise in the rate of growth and control of price, increase in performance of stock markets, motivation for market-players to improve efficiency in their working, reduction of political risks to investors and greater opportunities for diversification in investors’ portfolio are some of its positives.
Protection of interests of local players in the market-space, protection of rights of stakeholders (particularly workers), severe pressures on small-scale ventures to evolve quickly to compete with larger entities, possible increase in unemployment and unbalanced development of sectors in the economy are some negatives that may arise from it.
In 1991, Dr Manmohan Singh liberalised the Indian economy when faced with an extremely serious economic crisis (with a twin deficit constituted by a deficit in India’s trade balance along with a significant fiscal deficit). In 2020, India’s agricultural sector was extensively liberalised with the introduction of the Farm Bills 2020, which posited the elimination of intermediaries, attraction of investment into the agricultural sector and enhancement of technology used in the sector.
The agricultural sector, which employs 58% of India’s population and adds ₹19.48 lakh crore of Gross Value Added (GVA), grew by 4% in 2020. Agriculture marketing in most states of India is regulated by the Agriculture Produce Marketing Committees (APMCs) established by the state governments.
The Standing Committee on Agriculture (Ministry of Agriculture and Farmers Welfare) chaired by Shri Hukumdev Narayan Yadav submitted a report in January 2019 titled Agriculture Marketing and Role of Weekly Gramin Haats, which highlighted the major problems faced by farmers, especially small and marginal farmers, with regards to the existing framework around APMCs in the states.
It includes long distances to the nearest APMC markets, inadequate marketable surplus and lack of transportation. The Committee highlighted that the APMC Acts’ provisions were not being implemented. There were a limited number of traders in APMC markets, thereby reducing competition and undue deductions in the form of market fees and commission charges. There was cartelisation of traders observed by the Committee, which also spoke on the observed lack of farmers’ access to government procurement facilities including APMC markets.
The report recommended the government to prioritise the establishment of alternative marketing platforms such as GrAMs and suggested widespread stakeholder consultations for reforms and implementation of reforms in the area of agricultural marketing. The Committee noted that the state governments had a lukewarm response to calls by the Centre to pursue reforms in their APMC Acts. There were glaring problems such as collecting market fees and commission charges from the farmers, sometimes even when not applicable.
The average area served by an APMC market was around six times higher than the National Commission on Farmers’ recommended area. Therefore, there was low availability of such markets for farmers. To make matters worse, the infrastructure and civic facilities in the available APMC markets are very poor. The Committee also recommended that the central government increase the Electronic National Agriculture Market (e-NAM) to states that do not have APMCs.
In recent decades, a glaring problem under the status quo is how lack of competition has led to consumers paying a lot. Yet, farmers do not quite obtain this money’s benefits, often remaining underpaid for their produce and hardwork.
For instance, urban consumers are sold vegetables at around 10 times the amount they are purchased from farmers. Moreover, the price rise does not benefit the farmers, but rather the middlemen. Also, thousands of farmers cannot travel to major townships and markets, which they are forced to do due to lack of access to APMC Mandis in many parts of a state, due to high transportation costs.
The current NDA government introduced the Farm Bills 2020 to address and resolve these glaring problems in the system. In this essay, I would like to study the nuances of the Bills, the arguments of those opposing it, and more broadly discuss the key point of balanced liberalisation.
Farm Bills 2020
The Government of India proposed the Indian Agriculture Acts of 2020 in September 2020. These bills aimed to provide farmers with multiple marketing channels and provide a legal framework for farmers to enter pre-arranged contracts, among other things. The bills were passed by the Lok Sabha, Rajya Sabha and President Shri Ram Nath Kovind on 17 September 2020, 20 September 2020 and 27 September 2020 respectively. There were three acts introduced as part of these bills:
- Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020
- Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020
- Essential Commodities (Amendment) Act, 2020
Since the passage of these Acts, the responses towards the Bills have been polarised between immense praise and intense opposition from different sections of society. Protests against the Bills in Delhi, Haryana and Punjab came to the fore in September-October 2020. This eventually led to the honourable Supreme Court of India’s decision to stay the implementation of the Bills on 12 January 2021.
The protesters’ primary concern is that of possible tampering with the Minimum Support Price (MSP) system in the country by the government, as raised by Rakesh Tikait, national spokesperson of the Bharatiya Kisan Union. The Minimum Support Price is the price of agricultural products set by the Union Government to purchase directly from the farmer, as a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices.
To expand on the questions raised around this with regards to the Farm Bills, the question is that if selling in APMC Mandis becomes optional, will these mandis even exist and whether procurement at Minimum Support Price (MSP) will stop?
The concern arises from the recognition that the MSP system works well in states where the state government has made efforts to support it by levying taxes on the procurement that may provide for infrastructure. If there are two markets, as will happen with the recent Bill, and one of them selectively has no barrier on traders (as under the Farmers’ Produce Trade and Commerce Promotion and Facilitation Act 2020), the trade will invariably move to the market that has no taxes levied.
There is fear that states that do not have enough tax revenue or resources may discontinue the MSP system in such a scenario. Even though farmers themselves recognise that the skewed regional procurement patterns in state under the MSP system can cause environmental imbalances (such as with farmers in Haryana and Punjab who continue to grow rice even with water and soil depletion) which may be lessened under a more open market, the possibility of having the MSP system removed altogether is causing unease in certain sections of the agricultural sector.
Prime Minister Narendra Modi allayed doubts on whether the Farm Bills would affect the MSP system and highlighted that the system would continue. Union Minister of Agriculture and Farmers Welfare Narendra Singh Tomar stated the same in both the Lok Sabha and Rajya Sabha. Given this assurance, it now seems to be a crisis of trust that has caused the rift and the continuing deadlock over the Bills.
While APMCs may have their fair share of problems, many farmers see the MSP system as a method of ensuring price guarantees on produce. To take an example of a state that has already abolished the APMC model, Bihar was the first state to abolish the APMC act over 10 years back, thereby enabling private players to procure directly from farmers.
However, the results have not been entirely positive, with the erstwhile commission agents of the APMC model being replaced by the clout of private traders who now control the prices. This affected the poorer farmers with less landholding the most. With more than 86% of Indian farmers having less than 2 hectares of land as of 2018, the aforementioned possible adverse impact upon poorer farmers can become a major concern if the same trends are seen across the country.
It is of prime importance, in this context, that the Union government must work towards alleviating the concerns of farmers on this front, possibly with more than verbal assurance, maybe in the form of a written assurance on the continuation of the MSP model. I would go one step further in seeking to encourage the policy-makers to reform the existing MSP system. Only around 6% of farmers can sell their produce at the MSP with many farmers having to undertake distress sales, per the Shanta Kumar Committee Report 2015.
In my view, while corporate-owned infrastructure such as factories and warehouses may help farmers earn better prices, complete disappearance of APMC Mandis and regulated competition may lead to large companies obtaining a monopoly over the market that may lead to price exploitation of farmers. Therefore, there has to be a balanced drive towards liberalising the agricultural sector in this specific direction. I hope the government can reinforce and state more explicitly its commitment to doing the same.
Another major aspect that has been discussed extensively is that of contract farming. There is a concern that under contract farming farmers may be dictated to by corporate entities and that the farmers will not be able to fix prices according to their free will. Having read The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020, I would like to highlight clauses 4–9 in Chapter II.
In this section, extensive checks and balances for such contracts are given, along with comprehensive quality assurance measures during the contractual period. This includes the grade and standards for pesticides, food safety standards, good farming practices, social development standards and details on delivery, and the restriction of insurance or credit instrument usage under any government-initiated schemes for such an agreement.
Under this Act’s provisions, farmers will have full power to determine prices for their produce as much as the buyer would do, and the farmers will have to receive a payment within 3 days. On the question of how small farmers will be able to do contract farming when sponsors may not finance them, several Farmer Producer Organisations (FPOs) have come into being. These will bring together small farmers and work to ensure a remunerative pricing mechanism for the agricultural produce.
There has been quite a lot of work on FPOs under the aegis of the National Bank for Agriculture and Rural Development (NABARD), which is fully owned by the Government of India. Currently, contract farming requires registration with APMCs in some states, with the contractual agreements being recorded with the APMCs, which can undertake conflict resolution between parties to an agreement. As per the Dalwai Committee report, only 14 states have issued rules to govern contract farming.
I hope that the local dispute redressal system to be set up by the state government is effective since there has been a history of corporates steamrolling farmers when their corporate interests have been compromised, such as in the case of the PepsiCo lawsuit against farmers of Gujarat in 2019.
Balanced Liberalisation: A Middle Path
The entire Farm Bills episode stresses the importance of striking a balance when moving towards liberalisation. In this context, the need of the hour is balanced liberalisation. I do not believe that either blindly pursuing socialism dogmatically or promoting crony capitalism works.
I have recently written on a new framework of transcending, Turiyavaad, an ideology that is paradoxically about moving beyond rigid ideologies, emphasising truth and transcending dogma. I feel a Turiyavaadi element can be helpful here. It is a system of evidence-based policy-making and decision-making based on ground realities.
While I understand the importance of liberalisation and feel that the Farm Bills can bring in much-required capital inflow and infrastructure development, I stand for a hybrid approach. Not only should the MSP and APMC model be kept in place with an explicit assurance for the same, but there should also be specific systemic changes and reforms in the same, besides the private sector inflow as per the Farm Bills. To resolve how so, I think we must look at how farmers have been undertaking farming.
Over the ages, farmers have planned season after season, deciding what crops to grow and in what area. These decisions are made as per their needs, labour and capital available and their knowledge of the land and the available technology. Ceteris paribus, the price received by the farmers in previous cycles has been one of the primary factors in their decision to allocate areas under specific crops, which are mainly produced to be sold.
The complexity of this analysis and problem increases manifold with more land and the number of people involved in the farming process. What is required is rigorous methods to accumulate information, analyse, and plan.
Unwise land usage can be an encumbrance. This can include the adoption of unsustainable systems of farming on poor soil. It also has to be adjusted based on market dynamics. If radish prices are about to crash and radishes have been produced more than demand, the government stepping in to buy this will only burden the taxpayers. With water and land resources, along with fertilisers, being limited and having been spent in surplus production, the case for area planning gets only stronger. As population increases and these resources become even more scarce, the land and resources’ optimal usage is of prime importance.
Area planning is a massive challenge for a large democracy like India, particularly with the population and acreage in agriculture. The total demand for agricultural commodities will have to be made before the sowing season for effective planning at the national level. Upon assessing this demand, the demand will have to be divided among states based on the proportion of land under cultivation of the specific crop and conditions that are appropriate for the same. This can further trickle down to more division between regions within a state.
But to bring this into action, what is most important is consensus among farmers and political will. While land reform and efficient allocation should be a broad aim we should move towards, optimum usage and planning would help small landholders and farmers and possibly alleviate poverty.
For developing consensus among farmers, good estimates about the programme must be made followed by local discussions through grassroot consultations and workshops. It is encouraging to see that farmers in Haryana and Punjab have themselves suggested controlling production under varied crops.
Now, does it mean we ultimately move towards a state-controlled-and-planned model or the license model we have followed till now for all crops? No. We liberalise, but for the protection given from the government’s side to those who do not feel either able or secure to avail this, we have a revitalised and improved MSP and APMC model. Regarding the extensive task of mapping resources, obtaining and analysing information on crop patterns and market dynamics, and planning, we can avail the power of the private sector again, albeit with government regulation (preferably through Public-Private Partnerships).
Some aspects must be developed for both these channels. Agricultural terms of trade, supply response and commodity prices can be improved only with greater public expenditure on technology development and distribution, rural infrastructure, human resource development and other support systems.
Smallholder farmers depend more on public services, and even in a liberalised economic scenario, public expenditure for these varied elements can only stimulate agricultural development. The capacity of producer organisations must be strengthened and enhanced to facilitate them to help with representation and risk management on behalf of their member-farmers.
For risk management, there must be extensive studies to assess smallholder farmers’ price risk-bearing capacity and the role that farmer organisations, producer organisations, and financial markets can play on this front. Farmers’ lobby groups and effective information systems run by the government (again possibly with a PPP model) are of prime importance to increase the control of farmers in a marketing chain and address the information asymmetries that may be present in a completely liberalised system.
We must also put in place discretionary policy measures to improve smallholder farmers’ access to consumption and production credit to boost farming efficiency and productivity. Given the dearth of APMC markets in various India regions, there is a need to increase access to rural markets and APMC Mandis.
Along with liberalisation, all of these policy elements, particularly area-planning and resource optimisation, focus on establishing institutional frameworks required to increase opportunities, improve access, reduce production and transaction costs, and bring farmers, particularly smallholder farmers, to resources and markets. This balanced liberalisation model can be used in other sectors and areas of life, particularly in developing countries.
While markets open up in this framework, a parallel robust and efficient public-sector regulated and planned system relies strongly on information-gathering, rigorous analysis, and resource optimisation planning. In this manner, everyone is given equal opportunities and a path for gradual movement up the economic ladder.
When a government makes a liberalisation policy, they cannot just expect the entire populace to recalibrate and orient themselves to extreme market changes and expectations, particularly in a country like India where people live in highly precarious situations, economically. I feel that it would be highly unfair and even inhumane to an extent.
An unchecked market and wanton capitalism have only helped materialistic tendencies to prevail and exploit the weak. The ideal of everyone “catching up” never quite happens in that way. If only private players remain in agricultural marketing in the country, what it is to stop them from changing prices dramatically to help fill their coffers? What makes them any better than neo-colonialists who (like the British did with Indigo farmers back in the Raj) monopolise agriculture and harass farmers to do their bidding?
These are all glaring questions that remain to be addressed. The current Union Government’s drive to liberalise the agricultural sector is commendable in seeking to bring in much-needed capital, energy and vigour into this sector. What may be required as well as a parallel channel that is either public-sector driven or PPP-model driven that puts in place regulation and planning (particularly area planning), with strict checks against inefficiency, redundancy, wastage and corruption, and is based on the Turiyavaadi tenet of looking at what the truth of the matter, the actual ground-reality is.
Truth is important as much if not more than liberty and equality, two ideals that are kept on a pedestal by the Right and the Left, respectively. In balance, in this case, balanced liberalisation, based on the triad of truth, efficiency and compassion, we may find a better tomorrow.