The President of India, Ram Nath Kovind gave his assent to the three contentious farm bills on 27 September 2020.
The passing of these bills brought along with it, major controversy and mass protests in the states of Punjab and Haryana. Amidst the rail blockade in Punjab, leaders from the opposition parties called the day a ‘black day’ for Indian agriculture. Since then, the protests have grown to an unprecedented extent. Farmers have been protesting at the borders of the national capital for more than 100 days now.
On 26th January 2021, India saw a strange and sad Republic Day when the Red Fort was used by the protesters to voice their anger. The protesters unfurled their flag on the fort to symbolise their anger and frustration.
What can now be done to break the impasse? Let us dig deeper into the issue.
The first act, The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 breaks the monopoly of Agriculture Produce Marketing Committees (APMCs). FPTC act allows the farmers to sell their produce outside the established APMCs. Earlier, it was mandatory for the farmers to sell their produce in the designated APMCs. Intra-state and inter-state trade were not allowed on the level of a farmer.
The act makes the concept of ‘One nation, One market’ a reality. The rationale behind this legislation is to provide a greater choice and better prices for the produce to the producer. This also leaves scope for online trading of the grains to get a boost. In case of any dispute, a farmer can go to the Sub-Divisional Magistrate (SDM) of the area and later to the Collector, they have been provided with the powers of a civil court.
The second act, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 allows contract farming and defines rules for the same.
The third act, The Essential Commodities (Amendment) Act, 2020 removes the stocking limits mainly on food items. The stocking regulations will be applicable only in extraordinary circumstances. This is an amendment of an act by the same name passed in 1955. The extra-ordinary circumstances include War, Famine, Price rise of 100% for fruits and vegetables and Price rise of 50% for cereals and pulses. The earlier limiting act was seen as being against the Freedom of Trade and Commerce guaranteed in Article 19 of the Indian Constitution.
The bills were introduced primarily because of the ‘Problem of Plenty’ in Indian agriculture. Food Corporation of India (FCI) is the sole authority that acquires the food grains produced in the country at a Minimum Support Price from the farmers. According to the data on the FCI website, India has reserves of 512.9 lakh tonnes when it requires around 214 lakh tonnes to be distributed under the Public Distribution Scheme (PDS). Reserves as of December 2020, were around 2.7 times more than required.
This is despite the fact that this year India distributed free grains in the lockdown to more than 80 crore people under PM Garib Kalyan Ann Yojana. To put things into perspective, the value of extra grains waiting to be used is around $39 billion.
FCI needs to acquire the grains at MSP and later sell a part of them at a much lower cost through the PDS shops. The loss incurred in the process as a difference between the cost and price received is borne by the exchequer. As of December 2020, FCI was under a debt of $51.83 billion or 3.81 lakh crore rupees. It has literally turned into a money guzzling entity.
Apart from this, the lazy system of MSP has benefitted the farmers of North India more than the farmers of other parts of the country. Excessive production of paddy in Punjab and Haryana comes with twin problems. One, receding water table and second, rotting of good quality rice in ill-kept warehouses. To promote crop diversity, the Haryana government even announced a transfer of 7000 rupees per hectare to NOT grow paddy in the fields.
On one hand, crops like wheat and rice are being overproduced, on the other hand, fruits, vegetables, maize and oilseeds are being imported to meet the demand. A shift in the cropping pattern is mandatory and these bills seem to promote it.
The rigid system of APMCs has for decades promoted cartelisation. A few powerful oligarchs control the price mechanism in the local mandis and farmers cannot sell their produce anywhere else. Along with it, there are expenses including Market fee, Rural Development Cess and Commission of the arhtiyas (commission agents), that a farmer needs to pay. They add up to 8-10% in states like Punjab and Haryana. It further leads to a cascading effect or simply increases the price of the final product.
The bills seem to promote innovations in the sector of cold-storage and supply chains to ease the load on FCI. Also, the dilution in the powers of APMCs will lead to the formation of more Farm Produce Organisations (FPOs) which will strengthen the demands of farmers. Contract farming, in the long run, may help in promoting crop diversity with big players like Reliance Fresh and Easy Day having a huge demand for good quality fruits and vegetables.
The bills provide a very flimsy redressal mechanism to the farmers. There is no provision for appeals in civil courts and High courts in case of the breach of contract. Indian bureaucracy is infamous for red-tapism and corruption. To give powers to SDM and DC regarding the redressal is not the best option in this scenario. Also, there are very weak regulations for buyers. Anyone with a PAN card can take make a contract and deal with the farmers. This can lead to many frauds.
Another legitimate concern of the farmers is the chance of hoarding and the creation of artificial demand by the private warehousing companies. This may lead to inflation and ultimately, farmers will be the worst hit because they will get a pre-decided, less than the deserved price for the same produce.
There will also be a huge loss of revenue to the states because, in the new bill, the Market fee and other cesses have been made optional. This is one of the primary concerns of Punjab and Haryana.
The centre should, at the earliest, release a ‘Model Contract’ for farmers and contractors so that farmers do not need to fight with big corporates over technical and slyly made contracts. Along with that, special tribunals can be set-up to resolve the disputes arising from the contracts. The government can also give an option to file an appeal in High courts in case of dissatisfaction.
The regulations for the buyers must be made more stringent. Only PAN Card as eligibility is a very weak and risky parameter. Also, a provision of price range must be introduced in the contracts. The farmer should be able to quote a range of price at which he will sell his produce in future. It will help the farmers negotiate better. It will give them a cushion to fall back on in case of any contingency.
According to Professor Ashok Gulati, chair for Agriculture at ICRIER, “Some states fear losing revenue from mandi fees and cess. The Centre can promise them some compensation, for say 3-5 years, subject to reforms in APMC markets. Arhtiyas are smart. They can take on new roles of aggregation for the private sector.”
The agriculture sector is the lifeline of our country. And reforms are essential to remove the stagnant water and keep the flow running. The bills mean more good than bad. The government should not miss this bus and return to the old ways of ‘reforms by stealth’. It should try and take more and more farmers’ unions in the confidence and remove the deficiencies in these bills. At the same time, unions need to understand the importance of these bills and make an environment conducive for the talks to continue. These reforms can very well be India’s biggest reforms post-1991.