The Narendra Modi government’s decision to repeal the three farm laws brings to an end one of the most painful and peculiar episodes of an attempted regulatory overhaul in the history of Indian agricultural law and policy. One reason for this was that by prioritising the rhetoric of making history, the Union government ensured that an existing and dynamic history of state-level reforms was completely ignored.
Over the last year, various attempts to draw on such experiences to discuss better, more appropriate regulatory frameworks ended up being marginalised as mistimed and misplaced nuance or naïve idealism at best, or simply dismissed as vested interests in favour of the status quo. But discussions about regulatory purpose, design and capacity must be at the centre of any such legislative reform effort. When seen from this perspective, the farm laws were not a case of the right intention and wrong process as many have lamented; the problem was that they seriously failed to address the basic need for regulation of agricultural markets in the public interest—for farmers and consumers—in the first place.
It has been argued that those opposing the laws are hypocrites since there was already widespread consensus on these reforms. But this misrepresents the consensus and understates the true extent of the departure. In the case of India’s agricultural markets, the consensus that had been built up over the last 20 years through two Model Acts and many state-level reform initiatives was that the mandi system established under different state-level Agricultural Produce Market Committee (APMC) Acts needed to be opened up to enable multiple sites and channels for exchange and trade between farmers and a range of buyers in primary agricultural markets across states. (27 of the 28 states that had APMC Acts had already made major amendments in line with the recommendations, including allowing a single unified licence for buyers, a single point levy of market fees, enabling the operation of private wholesale markets, direct purchasing from farmers outside APMC mandis, and e-trading).
Oversights in the farm law debate
What is usually missed out in the debate about the farm laws, however, is that there was absolutely no suggestion, let alone agreement, that the best way to achieve this would be for India’s agricultural markets to be arbitrarily fragmented via a single central law into ‘market areas’ (operating under different state laws) and free ‘trade areas’ (now under central law). All this does is introduce greater regulatory ambiguity and set up a turf war, which is a nightmare for any serious buyer of agricultural commodities, including large corporations, who now not only have to navigate different regulatory regimes across states but also within them. There was also no agreement that out-of-mandi sales required no regulatory oversight save for a PAN card: no registration or licensing of buyers, no counter-party risk mechanisms in place at all, no dissemination of market information or market intelligence system, and a distant and bureaucratic dispute resolution mechanism. All this does is further invisibilise transactions in markets with well-known information asymmetries.
These were not minor amendments; they were deep design flaws. There is a difference between enabling multiple well-regulated sites of exchange and trade in primary agricultural commodities, and drastically deregulating trade without putting adequate conditions and processes in place. If things like registration, recording of prices and transactions, and timely and trustworthy dispute resolution seem too onerous and oppressive to impose on buyers, then that reveals more about the lowly status accorded to agrarian exchange in our reform imagination and less about whether it is actually needed. One would not expect a move to enable private trade of stocks outside government-regulated exchanges to be celebrated in a similar fashion.
Ironically, these are precisely the conditions under which most farmers across most Indian states engage in primary exchange in any case. We know that the vast majority of Indian farmers, especially the small and marginal cultivators, in whose names these laws were brought in, do not access APMC mandis in the first place, even if many of them know that such mandis are supposed to exist in their vicinity or do so elsewhere, out of reach. In that sense, what is being construed as their silent support for the new farm laws is really a resigned understanding of how things work. I am reminded of conversations in Bihar with farmers who continue to sell to village traders and are yet to receive news that their APMC mandis have been wound up many years after the state act was abolished to rave reviews by policymakers and industry. This is not about ignorance on the part of farmers, but the irrelevance of reforms that do not place them and their actual existing conditions and constraints at the centre of reform proposals and processes. Genuine agricultural market reforms would have had to persuade farmers that their marketing lives and outcomes could be different, not that they could look forward to more of the same.
Begin with understanding APMC reforms
Now that the central farm laws are being repealed, a good starting point would be to understand what has worked well with the opening up of the APMC mandi system in so many states that have implemented these reforms already and what hasn’t. Have certain regions and commodity markets done better? What other changes need to be introduced? Which problems are legal and regulatory (for example, moving from a system of licensing to registration), and which ones might require administrative reorganisation (for example, separation of powers between state mandi boards and directorates of marketing)?
We also need to better allocate and utilise public funds for market infrastructure and development and understand whether the lack of private investment in agricultural supply networks (such as storage and processing) is because of regulatory hurdles, low demand, or missing public infrastructure (electricity, connectivity). Most importantly, what are the most effective ways to strengthen farmers’ terms of engagement in markets: what is really needed in terms of more substantial and effective investments in institutions such as farmer producer organisations (FPOs), agricultural credit systems, price and procurement support, and risk mitigation?
If market fees and taxes are a problem and revenue generation is defeating the regulatory purpose, how can one address this while ensuring that existing regulatory capacity is not hollowed out, but is strengthened in a way that promotes competition while ensuring fairness in agricultural markets? If there are inter-state conflicts that arise, what kind of institutional mechanism is required to resolve them? If there is a Centre-state issue, for example, on account of a foreign trade-related decision that significantly impacts producers in a particular state (as was the case with onion exports and Maharashtra’s farmers last year), how should this be addressed? When it comes to preventing, detecting and tackling restrictive trade practices in local or regional markets (where cartelisation among buyers is not uncommon), what can state regulatory authorities do? When it comes to the concentration of market power in key commodity markets, commodity groups and segments of agribusiness, trade and retail, how can we strengthen the institutional capacity of the Competition Commission of India and our anti-trust regulations to effectively address restrictive trade practices if and when they arise?
Take real agricultural markets seriously
To begin answering all these questions, Indian politicians and policymakers have to take real, actually existing agricultural markets seriously, not launch into revolutionary rhetoric and lapse into deregulatory logics of reform. This means understanding the general and specific structure and organisation of agricultural markets in a country with a large number of small producer-sellers and relatively few buyers in any given market area. This does not mean that all kinds of intermediation are inefficient and exploitative or that all kinds of consolidation are dangerous. Many primary markets are also ‘thin’ due to remoteness and limited marketed surplus. Sometimes a few village traders engage in competitive local markets but in other markets, oligopsonies do form; field researchers have encountered varied tales of local commodity cartels (like the green chilly syndicate we recently ran into in Odisha) in local and regional markets. What it does mean is that the concentration of market power in the hands of a few large actors is a real risk in local, primary agricultural markets. And at a larger scale, restrictive trade practices through concentration and control of key segments of the agro-commercial system are well-known, especially in heavily industrialised agricultural systems like the United States.
This is why a robust and multi-level framework for public regulation of agricultural markets in the interests of producers and consumers was required in the first place and is required now, more than ever. Given the enormous diversity and complexity that characterises these markets, this is also why the states have to be at the forefront of reform and regulation, with much better institutional arrangements for inter-state and Centre-state coordination and consensus. The good news is there is a great deal of knowledge and experience that we can draw on from across states and markets. And we will need all of it.
Balancing these multiple interests is enough to make the deftest of mandi weighmen dizzy. But our shared interests should (and will, if not now, then eventually) outweigh all this. Faced with the most fundamental and shared challenges of ensuring remunerative incomes and livelihoods, nutritional security, and agro-ecological sustainability for all Indians, India has no choice but to roll back the rhetoric and show some real commitment.
Mekhala Krishnamurthy is Senior Fellow and Director of the State Capacity Initiative at the Centre for Policy Research and Associate Professor at Ashoka University. Views are personal.
(Edited by Srinjoy Dey)