Crisis and reforms are like close cousins in India. The genesis of each and every big bang reform has always been a deep structural crisis. The Green Revolution followed severe food scarcity in the country caused by back-to-back droughts in the mid-60s. The liberal economic reforms in 1991 originated from a deep-seated foreign exchange crisis. The doubling of farm incomes policy announced by Prime Minister Narendra Modi, in a public rally in Bareilly in February 2018, came after gut-wrenching rural distress spread across the country following back-to-back droughts between 2014-16.
The three key marketing reforms in agriculture rammed through Parliament in September 2020, during the monsoon session and ignoring Opposition protests, were announced as laws in the aftermath of the economic recession because of the COVID-19 pandemic. In short, successive governments have been reactive in passing reforms, not proactive. As a result, imposed reforms without a proper debate about their implications with all stakeholders, have often resulted in battle-lines being drawn.
Consider the crisis-ridden environment during the passing of the three farm laws. None of India’s key economic sectors has been immune to the devastating impact of the pandemic. The first-quarter GDP growth in 2020 shrunk down to an unprecedented minus 24 per cent. Yet, while people stopped spending on travel, tourism, retail and entertainment as a severe lockdown came into force, they still needed to eat. Many families and even singles took the extra time in lockdown while working from home to improve their culinary skills. And the governmental machinery, both Central and states, went into a huddle attempting to save the rabi and kharif harvests and implement procurement of food-grains and secure food security. As a result, agricultural growth figures touched 3.7 per cent despite the challenges of the pandemic, higher than 3.4 per cent for the corresponding quarter in 2019. Agriculture in the country became the drowning man’s straw during the pandemic, with all sections of the population and the government clutching on to it for survival. Indeed, history is replete with examples that the agricultural sector remains sturdy and sustainable even during a crisis.
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Three Farm Laws
Seeing the potential of agriculture in a pandemic, the NDA-led Central government moved swiftly to pass three sweeping marketing reforms in agriculture, key legislative changes that were initiated as Ordinances in June 2020. The three key farm laws are The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 and The Essential Commodities (Amendment) Bill 2020.
The three farm laws are aimed at liberalising the agriculture sector, bypassing the traditional mandis (the APMCs), encouraging private and corporate investment in agriculture, especially in logistics and the supply chains like warehouses, cold storages and other infrastructure, encouraging exports and allowing farmers to sell their products anywhere in the country at a more competitive price.
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The first law—the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill 2020—seeks to allow barrier-free trade of farmers’ produce outside the physical premises of the markets notified under the various state Agricultural Produce Marketing Committee laws (APMC Acts). The law is likely to prevail over the APMC Acts in the area outside such markets. The aim is to increase the availability of buyers for farmers’ produce, by allowing them to trade freely without any license (from informal commissions) or stock limit, so that an increase in competition among them results in better prices for farmers.
Farmer unions strongly disagree. They argue that there is a need to create a free and accessible market for all farmers, especially the hapless small and medium farmers. This will be the first precondition towards a well-functioning farmers’ market. One of the primary goals is to create a fair and free market for small farmers from remote villages of the various states, who are often exploited by middlemen, the trade cartels, the high commissions and is likely to be exploited by the corporate agri-business. (See interview of Kavitha Kuruganti).
The second law—Farmers (Empowerment and Protection) Agreement on Prices Assurance and Farm Services Bill, 2020—creates a framework for contract farming through an agreement between a farmer and a buyer before the production of any farm produce. It provides for a three-level dispute settlement mechanism: the conciliation board, sub-divisional magistrate and appellate authority. This would mean that existing mandis established under APMC Act have been excluded from the definition of trade area under the new legislation. The government says the creation of an additional trade area outside of mandis will provide farmers with the freedom of choice to conduct trade in their produce. However, protesters say that this provision will confine APMC mandis to their physical boundaries and give a free hand to corporate agri-business, which is a potential recipe for the exploitation of farmers. Contrary to Central government claims, the farmers believe that the APMC mandis have been functioning well so far and are benefitting farmers in Punjab, Madhya Pradesh, Chhattisgarh, Uttar Pradesh, Rajasthan and other states.
The third law—The Essential Commodities (Amendment) Bill, 2020—seeks to remove commodities like cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of essential commodities. All three laws were passed as Ordinances in June 2020.
New Battle-Lines: Centre Vs States And Farmers
The three farm laws have dramatically redrawn the battle-lines across the country. It is an open war between the BJP-led NDA government and the Opposition-ruled state governments, and also the Centre versus various farmer organisations. Agriculture, usually relegated to the margins, has suddenly shot into prominence and has become the latest bone of contention. At the level of ideas, the clash is about free market versus state regulation in agriculture. While the NDA government pushes for ‘One Nation, One Market’ for agriculture, the states are fighting back by asserting the robustness of their traditional mandis run by the APMCs. Farmers are agitating for over a month with a list of demands, including legal sanction for minimum support prices (MSPs).
What impact are the new laws likely to have on the prospects of Indian agriculture? Will free marketing in agriculture via the creation of ‘One Nation, One Market’ increase the choices of the Indian farmers and make farming remunerative as agriculture ministry officials argue? Will greater private investment in agriculture by agri-business corporations lead to the creation of a better supply chain which will lead to less wastage of crops and other agricultural products? Or is it a merely a pie-in-the sky for the hapless small and marginal farmers who constitute 85 per cent of the farming community? Or, worse, are these laws an anti-democratic attempts to ultimately weaken farmer entitlements such as the MSP, as the farmer organisations seem to argue?
One Nation, One Market
The three laws have emerged out of the Modi-led NDA government’s vision of One Nation, One Market, says Ashok Dalwai, CEO of National Rainfed Area Authority, who chairs the Committee on Doubling of Farm Incomes. The primary purpose of the new reforms, Dalwai claims, is to ensure that farmers get remunerative prices, in other words, “recoup their cost of production as well as enjoy a margin of profit”.
The three new laws, says Dalwai, are in continuity with each and every market reform passed in agriculture since the NDA government assumed power in 2014. A completely new market architecture is being laid out so that farmers have easy access to the market and can sell at a competitive price. According to Dalwai, the new market architecture has three components: “First, set up an aggregation platform, so that markets are closer to the farm-gate; second, promote wholesale markets; and third, attempt easy entry to the global markets via exports.”
About 22,000 Gramin Agricultural Markets (GrAMs)—rural haats and fairs, periodic in nature, like weekly, monthly—were set up, according to the budget of 2018. These GrAMs have a storage facility, assaying (grading and quality testing of the product so that price can be determined). The attempt is to link all the GrAMs virtually and digitally through eNAM, thus allowing online trade. Earlier the trader would buy a license for each APMC within the state. With the passing of the laws, Dalwai informs, unified traders licence, one license for the entire state will be issued thus reducing transaction cost. In other words, a single-point market fee has been enunciated, at the first point of transaction. Additionally, the fruits and vegetable markets have been deregulated.
Chairman of Bharat Krishak Samaj, Ajay Vir Jakhar, strongly disagrees. “The 22,000 rural haats is simply a slogan. The truth is that not even one per cent of the money allocated by the 2018 budget was spent on these rural haats.”
Consider the issue of MSPs, the most contentious aspect of the new agriculture laws. Jakhar explains that the NDA government approved a new umbrella scheme under budget 2018: Pradhan Mantri Annadata Aay Sanrakshan Abhiyan (PM-AASHA). This was supposed to provide MSP for farmers. As a result, Rs 4100 crore was allocated in the 2018-19 budget and Rs 1,500 in the subsequent 2019-20 budget. Out of these merely Rs 321 crore was spent. In budget 2020-21 only Rs 500 crore were allocated. “The logic of declining budgetary allocations on PM-AASHA is simple: You don’t spend money, you don’t need money,” says Jakhar.
Former agriculture secretary Mohan Kanda is appreciative of the recent reforms but critical of the way they are implemented. The government cannot have a “cafeteria approach” and provide “one solution to all,” says Kanda. For example, Kerala has no illiteracy, Tamil Nadu has no shortage of houses, Punjab has no agricultural labour. Each state’s problems are very different from another state. Therefore, how can the Central government or agriculture ministry design one programme for all the states? Planning has to be done at the Central government level. But how to convert a programme into activity should be left to the states. Planning a programme has to be demand-based, not supply-based. Implementation and execution of the plan must be decided at the state-level or the district-level. The Centre is preoccupied with running a large number of programmes all across the country. There is a dangerous disconnect between various stakeholders in the agriculture sector. Although agriculture is a state subject all the funding is from the Centre. Most states are cash-starved, and whatever money they have they spend on other programmes rather than on strengthening the agriculture sector.
The agriculture ministry needs to undergo a self-imposed “one-time-catch up” exercise to remain in tune with the rapidly changing external environment, says Kanda. The Centre should give bulk funding to every state and set a target for them and then leave them to meet the target. The Centre should make a policy decision and set guidelines for states to follow it.
One of the main demands of farmers is to link minimum support price to the production cost of a crop. MSP is not a solution, says Kanda. The market is a game of demand and supply. If you create demand in the market for the farmers’ products, they should get the price. It is the job of the government to ensure that the required quantities of a product are sown to avoid excess supply of a product.
According to a rough estimate, 45 per cent of the harvest in developing countries is wasted. What is the point in increasing our food production by 5 per cent annually if our wastage rate is as high as 45 per cent in some cases? We are short of 35 metric tonnes of warehousing capacity. Sixty per cent of the warehouses are in North India, little has been done in South and East India. There is also an urgent need for cold storage facilities to store perishable items. We have just 10 per cent of the cold storages we need, says Kanda.
Why Free Market In Agriculture Doesn’t Work
Notwithstanding the politics of the debate, many economists argue that free market in agriculture simply doesn’t work. The attempt by the NDA government to create a free market in agriculture is riddled with problems. Out of the three main sectors—agriculture, industry and services—agriculture, the primary sector of the economy, should never be left entirely to the market. Economist Prabhat Patnaik argues that unlike industry and services, where production is a continuous process, agriculture output appears not continuously but at discrete intervals, such as a rabi harvest, or a kharif harvest, in food-grains such as wheat and rice. As a result, output in agriculture, cannot be adjusted to continuous demand conditions with the same rapidity.
Given the average small-size of holdings in Indian agriculture, the scale-of-operations tend to be much smaller than the other two sectors. In theory, the ability of the agriculture producers, the farmers (or peasants), to hold stocks, is limited. Even if traders, arguably, can hold stocks in agriculture, what discourage the private stockholding of agricultural commodities are the high carrying costs in the primary sector. Furthermore, agricultural supply is subject to large fluctuations induced by weather and other natural conditions like the availability of water. As a result, agricultural supply cannot be adjusted rapidly to continuous demand for agricultural goods.
Moreover, demand for agricultural commodities tends to be price-inelastic. In short, both agricultural prices and incomes, are subjected to large fluctuations, thus leading to greater volatility in the agri-market. Given that 85 per cent of Indian farmers live a precarious life of hand-to-mouth, income fluctuations tend to hit the hapless farmer disproportionately higher. As a result, India tends to have a higher rate of farmer suicides even as agricultural production increases year after year.
From 1990 to 2020, P Sainath estimates more than 315,000 farmers have committed suicide and millions of livelihoods have been snuffed out. Ironically, the developed states such as Maharashtra, Karnataka, Andhra Pradesh, and among poorer states, Madhya Pradesh and Chhattisgarh have the highest rate of a farmer committing suicides.
Input Failures Of Agriculture
Although the NDA government has made several reforms on the output side of agriculture, especially marketing and insurance, the basic problems afflicting Indian agriculture remains on the input side. Half the country is monsoon-dependent. As a result, recurring droughts are regular phenomena. On an average, only 53 per cent of the cultivable area in the country is irrigated according to agriculture ministry estimates (see map). Some non-official estimates are as low as 45 per cent. While northern states like Punjab have almost 99.5 per cent irrigation, rain-fed states such as Rajasthan in the north and developed southern states such as Karnataka and Maharashtra have less than one-third irrigation.
Moreover, 65 per cent of the water used during irrigation is from groundwater, pumped by subsidised electricity. Water experts point out that 30 million bore-wells pump out 250 million cubic metres of groundwater annually. As a result, the water table is depleting precipitously all across the country. The water table is falling on an average of 0.3 metres and by 4 metres in some areas. The problem is not only lack of adequate water, but its reckless overuse. With a comparable population, China uses 28 per cent of groundwater compared to India.
According to the Central Water Commission (CWC), water demand is likely to climb from 634 billion cubic metres (BCM) to 1,093 BCM in 2025 and to 1,447 BCM by 2050. Despite this skyrocketing rise in demand, India’s water supply remains severely constrained. While agriculture accounts for around 75 per cent of all water used in India, rapid urbanisation and demand from industrial users have placed undue stress on an already fragile resource.
Regular floods are an equal problem in Assam, northern Bihar, eastern Uttar Pradesh and West Bengal. Both droughts and floods cause havoc and are the major reason for sharp dips in agricultural growth.
Soil degradation is another serious problem. Although most farms in the Indo-Gangetic belt have the rich alluvial soils and plenty of water, yet soil degradation has depleted it of fertility. Soil degradation is caused by intensive cropping, excessive use of chemical fertiliser, increasing alkalinity because of seepage of industrial waste or soil erosion. An Indian Council of Agricultural Research (ICAR) study estimates that of the country’s total land area of 330 million hectares (mha), a little less than one-third, 120 mha is afflicted with land degradation.
Given enormous population pressure on land, the average plot size for cultivation in India has shrunk from nearly 2.3 hectares in 1970 to less than 1.2 hectares today. According to census figures, the number of marginal land holdings (less than one hectare) has increased from 36 million in 1971 to 93 million in 2011. Agricultural economist Yoginder Alagh estimates that “70 per cent of farmers own less than 30 per cent of cultivable land”. The small size of the landholding makes agriculture non-remunerative. Economists explain the phenomena of tiny plot size as “agricultural involution”, and in Bihar and Uttar Pradesh, the non-viability of agriculture is the main reason for large-scale migration outside the state.
The Way Forward
The relationship of India’s agriculture sector to the overall economy has undergone a significant transformation since independence, with its share of the GDP falling steadily from 51.8 per cent in 1950-51 to 17 per cent in 2019-20, indicating a shift away from the traditional primary sector of the economy towards one dominated by the services sector. This decrease has not, however, been accompanied by a matching reduction in the share of agriculture in employment, says Kanda. More than 70 per cent of the total workforce is still employed by the farm sector and a large proportion of the population is dependent on agriculture for sustenance.
Agriculture today cannot exist without educating the farmers. India needs to make farming more profitable to ensure a healthy flow of labour. The Modi government has committed to doubling of farm incomes by 2022. But today’s youth is not interested in farming, and with an ageing population and rapid urbanisation, farming is losing labour at an explosive rate worldwide, as high as 2,000 per day in India, according to one estimate by the Economist magazine. Kanda quotes a CSDS survey which points out that majority of farmers’ children do not want to be farmers anymore.
The government emphasis has always been on food security, and in that regard, Indian agriculture has come a long way, from a food-import-shipments-to-mouth status in the 1960s to food-export-shipments today. Total food grain production has increased from 51 MT in 1950-51 to 291.95 MT in 2019-2020, a six-fold increase in the past 70 years.
Unlike the pre-Green Revolution era of the 1960s, rural distress today is not because of food scarcity but due to market volatility caused by global price fluctuations in commodity prices. The global boom in food grains production has led to a sudden drop in market prices, affecting poor farming populations that lack the savings cushion to buffer the impact. But while the prices of output fall sharply, input costs rise steeply, making farming extremely risky. This is especially true in the markets of perishable goods such as fruits and vegetables. Unless a price protection mechanism is evolved by the government for small and marginal farmers, farming becomes an unviable proposition. Successive governments have failed to resolve the basic structural imbalances in agriculture.
“Protect farmers against price fluctuations. Rural distress today is largely due to falling prices, especially of potatoes, tomatoes, other vegetables and even fruits and cotton. While falling prices have slashed farmers’ incomes substantially, the MSP (minimum support price) system is benefitting less than 10 per cent of the rural sector,” says former agriculture secretary Siraj Hussain. “Governments cannot control prices but can surely help build clauses to protect vulnerable farmers.”
According to ICRIER professor Ashok Gulati, “If the government is to realise its dream of doubling farm incomes by 2022, it needs to treble the resources for irrigation to ensure water for every farm. The minimum annual investment needed would be Rs 3 lakh crore for irrigation for the next five years. The growth rate needed to reach doubling of farm incomes in five years is a minimal 14 per cent per annum, an impossible dream to achieve.
“Reduce farmers’ dependence on the monsoon, introduce crop variation, extending irrigation facilities and fix imbalances in government policy. Government policy is biased in favour of the urban consumer rather than the farmer. If the government is serious about its commitment to double farm incomes, it must work sincerely towards correcting policy distortions. Its aim should be to empower the farmer. Unless farming becomes sustainable and viable in the long run, the vicious cycle of rural indebtedness and rising farmer suicides will never end,” Gulati adds.
M.S. Swaminathan, one of the fathers of the Green Revolution, hoped for the birth of an Evergreen Revolution movement designed to improve productivity in perpetuity without associated ecological harm. “The climate change calamity can then become a blessing in terms of reorientation of our agricultural research and development strategies based on principles of ecology, economics, equity, employment and energy security.”
Instead of letting politics stymie agricultural development, it is time to rethink the Evergreen Revolution.
