Big changes are afoot in Indian agriculture, driven by Prime Minister Narendra Modi at considerable political risk. Freeing up farming markets may be as significant as dismantling industrial licenses in 1991. However, if the state’s protection withers away only to reveal a few large capitalists as the new overlords, there will be chaos and misery rather than progress and prosperity.
To gauge the scale of what’s being done, picture the depth of the stasis: 119 million cultivators and 144 million farmhands — taken together, 10 times Australia’s population — yoked to a marketplace designed to be anti-competitive, and denied the lift in productivity that propelled urbanization from Japan and South Korea to Taiwan and China.
“It’s like a massive old table in the center of the room, crawling with parasites.” That’s how Hemant Gaur, an entrepreneur who’s bringing technology to potato farming in India, describes to me the “mandi,” or the designated market yard in which produce changes hands. “We dared not discard it, because how would we ever replace it?”
Finally, Modi has thrown out the old furniture by ramming legislation through parliament, passed by a dubious voice vote. Now growers don’t have to bring their harvests to the mandi. They can sell it at farm gates, factories, warehouses, silos, and cold storages. The market yard remains, but can’t charge any fee on transactions outside its physical space. Trades can take place online. Farmers can enter five-year, fixed-price contracts with corporate buyers. The government will tame only excessive price increases rather than impose caps on incremental jitters; free markets will be the rule.
The repercussions will reverberate across the world’s second-most populous country. India’s sheer size as a producer and consumer means ripples may also be felt as a long-term deflationary wave in global food prices.
Gaur’s SV Agri Pvt. operates at the intersection of technology and farming. It produces and markets seeds and inputs to farmers, buys back and stores their potatoes in modern warehouses before supplying firms that make crisps and snacks. In one stroke, the 2.5% mandi tax Gaur pays in Uttar Pradesh, India’s largest state, is gone. With the more efficient procurement that makes possible, he reckons on savings of up to 10%. The efficiency gains will be shared by farmers, processors and consumers. They’ll lead to more investments in cold chains, and less wastage, a huge problem.
But without the fees and commissions, the market yards may atrophy, and the local elite that’s thrived off the system but also buffered it could lose its sway, leaving farmers at the mercy of traders’ cartels controlled by corporate monopolies. This could be particularly true in the grain-producing belt of Punjab and Haryana, where the percentage cut in mandi taxes and other levies is in double digits. No wonder that political opposition will be fiercest in these northern states.
Modi has gambled big before, with some disastrous results. It’s asking a lot of people in rural India to trust him again. The ban on most currency notes in 2016 was supposed to immobilize tax cheats. It froze the economy. His goods and services tax became a compliance nightmare. Opposition parties claim that the agricultural “reform,” too, will fail, especially since freedom from the regulated yard in the poor eastern state of Bihar 14 years ago brought the market to the roadside, with no infrastructure and no open auction for price discovery.
Cultivators’ biggest fear from deregulation is losing their most important bargaining chip: minimum prices guaranteed by the state. Modi has assured farmers the support will stay by announcing prices for the winter crop, though as farmer activists have noted, the 2.6% increase for wheat is only half the cost escalation.
The need of the hour is for farmers to establish large sales organizations of their own. If state support could give them bargaining power, they wouldn’t be selling cotton to private traders for a quarter less than the guaranteed minimum. How will Modi assure base prices once the mandi system slips into disuse? The professionally run dairy cooperative in Gujarat, the prime minister’s home state, has $5 billion in annual revenue from its Amul brand of milk, butter and cheese. But that movement took shape in a very different political firmament of the 1960s, and it didn’t succeed everywhere or in all commodities.
With all the risks involved, a new farm-to-fork model is still worth it. Boosting agricultural productivity is important for societies to reach the “Lewis turning point.” Beyond that threshold posited by the economist Arthur Lewis, surplus rural labor ceases to be a drag on urban wages and living standards. Japan got there by nearly tripling per capita output between 1950 and the early 1960s, thanks to the shakeup from General Douglas MacArthur’s postwar land reforms. After independence from the British, India missed its chance to give land to tillers, and allowed absentee landlords to remain backseat drivers of policy.
Almost 9 out of 10 Indian farmers have less than five acres. A majority carry on reluctantly, barely able to scratch out a living. Landless labor is paid to stay in villages with a rural job guarantee from the taxpayer. The pressure of feeding India’s 1.3 billion people has led to suboptimal choices, like a water-guzzling rice crop grown in abundance in Punjab that bleeds aquifers dry. The burning of the paddy residue causes unbearable pollution in New Delhi.
Expected 20-fold growth in online grocery sales over the next five years is the surest shot to end the stifling status quo, provided farmers can unite and hold their own in negotiations with aggregators. With the Covid-19 lockdown hollowing out urban production centers, the rural economy has become more crucial. But free markets should also be fair. Otherwise, India’s farmers will crawl out of a hole only to land in a ditch. –Bloomberg
Also read: Only 6% ‘elite’ farmers opposing the bills, says BJP veteran who recommended farm reforms
If the govt was working FOR the corporates why did it come out with the Insolvency and Bankruptcy law? If it was working FOR the corporates why would it come out with RERA? That these half read intellectuals won’t tell you.
Yes the tax consessions have been granted, but if you have a better solution for cash strapped companies, I am all ears. Tax consessions and Bankruptcy law co-exists to ensure that companies who have taken loans for indiscriminate expansion etc. go down while genuine companies worth saving are saved. That is how it is done in every capitalist economy worth it’s salt. Now again, if Mr. Pattabiraman AK has a better solution to saving companies we are all ears. May be Mr. Pattabiraman AK needs to read about the states of USSR and Venezuela more recently to see the damages done by what he is proposing…. Well, he isn’t proposing much any way. Which is also typical of half-read Modi haters…. Spew venow but never give a constructive feedback on how things can be made better.
When committee after committees have recommended what the govt has done through the latest regulatory changes, I do not understand the need for more “consultation”. That is why you have committed isn’t it?? Also I think people forget that it was through these committees that Dr. MMS made sure that FMC was never merged with SEBI within time…. There were four committees set up one after another to study the recommendations of the previous committee and arrive at the same recommendation of merging the two. That facade went on and crucial 10 years were lost between 2004 and 2014 till NSEL crisis broke and finally FMC was merged with SEBI. People can’t be so stupid and have such short lived memory.
Next, When people say that the govt is short of “strong economic and policy making talent”, they should realize that MMS being the one of the biggest economic minds had only one solution to give to overcome the economic downturn faced post 2007 crisis. That was to ask banks to do indiscriminate lending, that led to immediate inflationary pressures seen till 2013 and bad loan problem that will take decades to clean up. Electorate can’t ask for old problems just because news ones ain’t working… That’s stupid. We don’t need such “strong economic and policy making talent”.
Why do you have these column. You invite views. And when views are given, you do not publish. Waste of time,
Modi is like the Don Quixote. He is an honorable man – and tilts the windmill thinking that he is protecting the honor of the fair lady. He damages the windmill alright, but does not protect the honor of the fair lady. I have read several posts in other papers by our netizens. They almost unanimously appeal to our prime minister not to announce any more “historic reform” or ” game changing initiatives” with folded hands saying : “Sir, we have had enough. Leave us in peace. No more reform, no more damage, we cannot take your benevolent torture any more.” Notwithstanding, Modi still enjoys tremendous popularity because of two factors: One he is personally honest ( Leave aside Electoral Bonds or PM-Cares); Second, he espouses Hindutva which resonates with every patriotic Indian. However, there is a view, which is gathering a lot of traction among the middle class and pensioners, that Modi is driven by business tycoons. The mindless pursuit of low interest regime, touted by the Govt as a necessary step to increase demand, enhance production, create jobs, and expand economy has failed in all its objectives in the last six years. It is a disaster unmitigated at that. It has not achieved its stated objectives but killed many a middle class and pensioners. Ultimately it is discovered that it is a ploy to help our business tycoons who make ‘their money’ by using ‘others money’. While depriving the old people of their livelihood, our Prime Minister has showered a financial bonanza of Rs 1.42 lakh crores in the form tax concession upon select business tycoons. People see connectivity between the largesse to business tycoons and the opaque and secrecy ridden Electoral Bonds, to which these tycoons make sky-high contributions – and it is BJP which is the major beneficiary. Sir, please declare that your govt stands for rich and stands against others who voted for you. akp
It’s always a pleasure to ready Andy and he didn’t disappoint here too. As always he manages to capture a full 360 degree view of the farm bills that the govt has rammed through in the parliament.
The changes were needed, yes, but true to its form, the Indian govt under Modi again failed to hold wider consultations on this critical piece of legislation. One won’t be surprised if eventually it turns out they didn’t hold any consultation even within the govt. The govt is severely short of strong economic and policy making talent having earlier chosen to either actively drive out or let go professionals with sterling record, like Dr Arvind . Also given the emerging reality in areas like Telecom, Retail, Airports etc, that some of this action occurred by design can’t also be ruled out.
In summary with the track record of the govt in pursuing critical legislation or administrative actions, chances are incredibly high that farmers are going to take a big hit.