The Narendra Modi led Bharatiya Janata Party government in India has put all its weight behind the new agricultural laws, which it has heralded as a watershed moment in the history of India’s agriculture. Yet, thousands of Indian farmers are protesting on the borders of the country’s capital since November 2020, seeking repeal of these laws.
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Indian agriculture mostly falls in the informal sector and is characterised by small land holdings, increasing marginalisation of land, highly unequal growth across crops and regions, heavy monsoon-dependence, low infrastructural investment, and a very small class of accumulating large landowners. Agricultural marketing has been a contentious issue in India and three-fourths of the trade takes place in the unregulated sector. Though state-run primary agricultural market yards or mandis were set up in 1960s to facilitate the sale of agricultural produce, their number and coverage remains abysmally low to this day. This is borne out by the fact that there are only around 7000 such market yards in the country, as opposed to around 42000 recommended by a recent government committee. Instead of paying heed to the demand for increasing the number of such market yards, overhauling their functioning, and making them more democratic and transparent, the new reforms seem to have broken the back of the existing set-up.
Three laws, namely, The Farmers’ Produce Trade And Commerce (Promotion And Facilitation) Act, The Essential Commodities (Amendment) Act and The Farmers (Empowerment And Protection) Agreement On Price Assurance And Farm Services Act were passed in a rushed manner by the Indian parliament in the midst of the COVID pandemic. Taken together, these three acts allow for the creation of two marketing regimes—a regulated one comprising of primary agricultural market yards, which function under the aegis of the state governments, and the other outside the purview of government regulation. In the government-run market yards, a small fee is levied on the buyers, comprising of registered traders, and the revenue is used for their maintenance. Now, the new laws have legalised transactions outside these market yards without the payment of taxes. This will make it more profitable for buyers to shift the trade outside. Eventually, this will weaken the revenue-generating capacity of the yards and create a shortage in funds, required for their maintenance and the payment of salaries to their employees. In fact, similar laws implemented in 2006 in Bihar, a state in eastern India, spelled the death knell of market yards there and proved unsuccessful in attracting private investment in agricultural marketing. So, the fears of farmers that these reforms might translate into closing of government market yards are not entirely a matter of speculation.
The guiding assumption behind the deregulation of agricultural markets is that private trade will result in increased competition, which will help in better price discovery. However, farmers fear that deregulation will result in shift of trade outside the premises of mandis, with increased chances of cartelisation by large corporate buyers. This will further erode the negotiating power of the farmers, an overwhelming proportion of whom own and operate extremely small land holdings.
Issues of procurement and public distribution of food are closely linked to agricultural marketing. Crops such as paddy, wheat and black gram are procured at Minimum Support Price (MSP) by the government to be distributed as part of its food security programme. It is instructive to note that though MSP is declared for 23 crops, the government only procures 3-4 crops from a handful of states in the country. Successive governments in India have regularly declared MSP for various crops, but there is no law which makes the payment of MSP mandatory in transactions in the open market. In fact, it has been observed across crops and regions that the prevalent prices are much below the declared MSP. Incidents of farmers destroying standing crops in the face of high cost of cultivation and extremely low prices are common across the country. In this backdrop, farmers, protesting against the new laws, are also demanding a legal guarantee to MSP.
Paradoxically, the recent legislations by the government can be seen as a signal of state withdrawal from the agricultural sector. They mark a reversal in the policy stance of successive governments. The present government is incentivising private trade by freeing private transactions from taxes and regulations. In doing so, it is now informalising what it earlier sought to formalise. Deregulation in this manner will lead to the collapse of the investments made over the decades in strengthening agricultural markets. Also, no mechanism has been put in place to collect information on prices and transactions taking place in the unregulated market. This will further dent the government’s capability to make targeted interventions in the agricultural sector in the future.
According to official claims, the new reforms will help in augmenting agricultural incomes and act as a cushion against adverse price fluctuations. But, in reality, these reforms do not seem to be backed by any concrete evidence. Moreover, a parallel unregulated market regime will sharpen the power asymmetry between buyers and sellers. Instead of capitalising on the investments, already made, and strengthening the agricultural marketing structure, the government seems adamant on going ahead with these reforms, which amount to liberalisation and deregulation of agricultural markets. Thus, on a deeper level, the ongoing protest is also about securing from the government, promise of continuation of support to agriculture.
Sunit Arora is a doctoral candidate in Economics at the School of Social Sciences, Jawaharlal Nehru University, New Delhi, India. Her research attempts to study the social, economic and political transformations, underlying agrarian change in India.