New Delhi: Kaushik Basu, one of India’s top economists, has been critical of the three new farm laws passed by the Modi government, calling them “flawed” and “detrimental to farmers”.
But turns out, Basu, as India’s Chief Economic Advisor in the UPA government, had favoured similar if not the same reforms.
Over the last few days, Basu has trashed the reforms on Twitter and also in a newspaper article.
“Our agriculture regulation needs change but the new laws will end up serving corporate interests more than farmers,” he said in a tweet.
I’ve now studied India’s new farm bills & realize they are flawed & will be detrimental to farmers. Our agriculture regulation needs change but the new laws will end up serving corporate interests more than farmers. Hats off to the sensibility & moral strength of India’s farmers.
— Kaushik Basu (@kaushikcbasu) December 11, 2020
In an article published in The Times of India Friday, Basu and co-author and economist Nirvikar Singh said, the farm bills have “serious problems” and sought their withdrawal. They pointed out that the laws will hurt small Indian farmers as risk mitigation measures to protect them are absent.
But his positions contradict his earlier stance where he talked about reforms in the farm sector.
The economic surveys authored by Basu favoured freedom to farmers to sell outside mandis as well as encouraged private investment in agriculture — reforms enabled by the three farm laws enacted by the Modi government.
Basu was Chief Economic Advisor between 2009 and 2012 when the Congress-led United Progressive Alliance (UPA) was in power. As CEA, he authored three economic surveys — 2009-10, 2010-11 and 2011-12 — in which he talked about the need for agricultural reforms.
Basu was chief economist of the World Bank between 2012 and 2016 and is now a Professor of Economics at Cornell University.
Basu, in an email response to ThePrint, said, “Concerning agriculture and the marketing of farm products I take the same view now as I did when I was Chief Economic Adviser. I believe agricultural markets should be liberalized and farmers should have access to many traders beyond the APMC mandis. But that innocuous word “many” is vital. Without that, the seemingly right move will backfire. The end result will be worse than where we are now. That is the concern of all Indian farmers and I cannot deny I share that concern. All advanced economies worry about monopolistic and monopsonistic capture. It is folly to ignore this while liberalizing markets.”
The Modi government enacted three farm laws in September — Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act , 2020, Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 and the Essential Commodities (Amendment) Act 2020.
While the first law allows farmers to sell their produce outside of the mandis, the second seeks to ease regulations around contract farming, and the third is aimed at encouraging investments in storage infrastructure by removing limits on storage of cereals, pulses, potatoes and onion.
Most economists have favoured the farm laws but some have opposed what they call the hasty enactment without discussion with stakeholders or debate in Parliament.
What economic surveys authored by Basu said
The three economic surveys authored by Basu favoured reforms in the agricultural sector to increase productivity.
The surveys pointed out how mandi governance is an area of concern and suggested that a greater number of traders must be allowed as agents in mandis and farmers should be provided the option to sell outside mandis.
“Anyone who gets better prices and terms outside the Agricultural Produce Marketing Committee (APMC) or at its farm gate should be allowed to do so,” one of the surveys said.
It also pointed to the need for setting up efficient supply chains so that farmers get adequately compensated.
It had also suggested ways to promote inter-state trade. “A commodity for which market fee has been paid once must not be subjected to subsequent market fee in other markets including that for transactions in other states. Only user charges linked to services provided may be levied for subsequent transactions.”
Citing the spike in inflation due to high vegetable and fruit prices, the survey had also favoured taking perishables out of the ambit of the APMC Act.
“The government-regulated mandis sometimes prevent retailers from integrating their enterprises with those of farmers. In view of this, perishables may have to be exempted from this regulation,” it noted.
The survey had also flagged the need to raise capital investment in agriculture both by the private and public sector.
“Higher levels of investments are required for not only increasing farm productivity but also creating adequate infrastructure for transport, storage and distribution of agricultural produce.”
It had also favoured organised trade in agriculture and foreign direct investment or FDI in multi-brand retail. “Considering significant investment gaps in post-harvest infrastructure of agricultural produce, organised trade in agriculture should be encouraged and the FDI in multi-brand retail once implemented could be effectively leveraged towards this end.”
Economists recommended ‘similar reforms’ earlier
In a column in The Times of India, Arvind Panagariya, Professor at Columbia University and former vice-chairman of the NITI Aayog, said that both Basu and his successor Raghuram Rajan had “recommended reforms similar to those just enacted” and have “now come down heavily on them.”
He went on to cite instances from the economic surveys authored by Basu and Rajan and pointed out that both not only favoured entry of private investment in agriculture but also foreign multi-brand retailers in agricultural marketing.
“Yet both have now argued that the new laws open the door to the exploitation of the farmers by private companies,” Panagariya said.
Rajan’s stance on farm laws
Rajan, in his interaction at ThePrint’s ‘Off the Cuff’ show in October, had maintained that the intent behind the farm laws is ‘right’ but also stressed that reforms can’t be treated as ‘fire and forget’ and have to be constantly worked upon to address concerns.
Rajan, who had a brief one-year stint as the CEA before he was appointed as the governor of the Reserve Bank of India, had authored the economic survey for the year 2012-13 in which he had flagged the need for urgent reforms in the agricultural sector.
“Yet India is at a juncture where further reforms are urgently required to achieve greater efficiency and productivity in agriculture for sustaining growth. There is a need to have stable and consistent policies where markets play a deserving role and private investment in infrastructure is stepped up. An efficient supply chain that firmly establishes the linkage between retail demand and the farmer will be important,” it argued.
“Another critical issue is supply-chain management in agricultural marketing in India. It is necessary to evolve mechanisms for linking wholesale processing, logistics, and retailing with farm-production activities so as to generate enhanced efficiency, better farm prices, etc. Recently the government allowed FDI in retail, which can pave the way for investment in new technology and marketing of agricultural produce in India,” it added.
In an email response to ThePrint, Rajan, a professor at University of Chicago’s Booth School of Business, said there is a need to build greater competition as well as price information, logistics support, and credit for lifting farmer produce.
“Each state is different in the institutions it has and the gaps it has. So, while it is important to remove the compulsion on the farmer to sell in the mandi (the long-standing need to amend the APMC acts which many of us supported and still support), we should acknowledge this is not a problem in every state, and ensure that useful institutions that help the farmer do not simultaneously disappear,” he said.
The government, he added, would do well to acknowledge the diversity in situations. “That means listening to the critics and acknowledging some have a point.”
The report has been updated with Kaushik Basu’s response