Farm Laws 2020: Correcting a Historical Wrong (Part-I)

Prime Minister Narendra Modi in a speech in August earlier this year succinctly summed up the crux of the issue bedwelling with the farming sector. He said, “Just as industries have the freedom to fix the price of their produce and sell it anywhere in the country, why can’t farmers get such a facility too?”

To understand what this means in practice, think of a world where a producer of a good or service is told that you put in your own money, utilise your specialised know-how, put in your hard labour, create your own storage capacity and manage your own transport for producing and transporting the good that you want to market. One would think that is standard practice, right? That every producer does precisely the same thing.

However, what would be your reaction when you are then told that the producer of such finished good has been told that where you sell, how much you sell and at what price you sell will be decided not by you but by us, a group of people who are neither producers nor consumers but just a group of strong-arm middlemen who are insisting on this way, because we can.

Would not the first reaction of anyone when told of such a system would be that of incredulous disbelief? Sure, some may argue, that such systems existed in the medieval ages but do they still exist now? For now, the argument would be, in the modern times the entire systems have evolved everywhere in the world and producers of goods, and indeed services, are free to sell their produce wherever they want and to whoever they want and at whatever price they can command. Sounds logical right? Except that it was not so for Indian farmers, who constitute more than India’s 50% workforce.

It is quite ironic that even 70 years after Independence, India was continuing with a system in agriculture which was not just medieval in method and practice but was actually first introduced in the medieval period itself. Alauddin Khilji, the Turkic invader who ruled India in the 14th century, first introduced the trade and price control policies to support his large and marauding army and enrich the Turkic nobility. Later, East India Company during the late 18th and early 19th century further chained the freedom of the farmers by forcing them to grow Indigo and Opium and then sell it dirt cheap rates. A few decades later, The British, now ruling directly, followed the same policy to procure cheap cotton for their mills in Manchester. In 1887, they even promulgated an act that has survived in one form or the other till recently.

The end result, the Indian farmers — who had created a prosperous nation that lasted more than multiple millennia — were impoverished within a few centuries and the rural economy completely decimated. A country with no significant record of famine or deprivation during the dark centuries of Europe was suddenly facing a devastating famine every few decades!

One would have thought that with India gaining Independence in 1947, the first order of business would have been to dismantle these destructive policies. The reverse happened. The 1887 British predatory law took rebirth as the Essential Commodities Act (ECA), and the state-level Agricultural Produce Marketing Committee (APMC) Act in 1955.

The ECA act was used to control production, supply, trade, and storage of commodities arbitrarily deemed essential. The APMC act forced the farmers to sell their produce only through designed channels and mandis (markets) and prevented trading outside their local area. So, soon after Independence, while the nation had been politically integrated after great efforts by Sardar Patel, the agriculture market was by design fragmented into a thousand pieces!

The net result of these policies, promulgated in a free India, were ironically the same that the policies of Khilji had seven centuries ago. A small, connected group of middlemen emerged, who monopolised the entire farm trade. The farmer got a pittance for his produce, since it was a monopoly buyer situation, while the consumer often faced high prices for essential items. The intervening layers of middlemen, controlled by politicians, were the big fat earners.

It is in this context that we need to understand the three reform bills passed by India Parliament that completely dismantled this unholy nexus. Let us understand the background to these reforms, the need for these reforms and the almost two-decade-long consultation process for these reforms.

While the farmers have made India extremely productive with their sweat and toil, the issue of profitability in the agriculture sector was always being side-lined. The reforms in agriculture and agricultural markets would upset cartels of middlemen and therefore were never attempted with any serious attempt.

Despite economic liberalisation starting during the nineties, agriculture as a sector was left out. What was the outcome of this? Consider this data point. The difference in the annual income of Farmer and Non-Farm worker, which stood at Rs 25,398 in 1993-94 further widened to Rs 54,377 in 1999-2000 and, in the next decade, it further increased to more than Rs 1.42 lakh. Or consider that the dairy and fisheries sector where government intervention is minimal is growing at an annual rate of 4% to 10%, while the growth in the food grain sector, where regulations have been excessive, has been at an average of 1.1% annually after 2011-12. Hence, it was always known that the agriculture sector too needed pro-farmer reforms, just like the reforms in other sectors, to increase the income of farmers.

Due to the previous non-attempts to fundamentally reform the agriculture sector, several challenges arose that held the sector back. Some of these challenges are:

1. Fragmented Markets: Each market functioned as a separate entity, hampering intra as well as interstate trade.

2. Insufficient Markets: At the same time, there were not enough markets to deal with growing produce.

3. Market Fees & Charges: Taxes, various commissions raised the cost of the final product, while reducing returns to farmers

4. Inadequate Infrastructure: Despite market taxes, infrastructure in markets remained underdeveloped and not in tune with modern supply chains

5. Post-Harvest Losses: This inadequate infrastructure led to high post-harvest losses, estimated at as much as Rs 90,000+ crore in 2014

6. Restriction in Licensing: Entry as a licensed agent was restricted, discouraging competition and encouraging cartelisation

7. High Intermediation Costs: The fragmented system led to high intermediation costs, raising costs for consumers, while depressing prices received by farmers depressing prices received by farmers

8. Information Asymmetry: Farmers often lacked market information, which traders & commission agents withheld from farmers

9. Inadequate Credit Facilities: Informal credit channels still dominated formal channels.

Many ill-informed voices are arguing that these bills were brought in haste without any consultation. The reality is, extensive consultation has taken place since the last two decades and more in the run-up to the enactment of these three farm bills. The current bills are perhaps the only reforms in India for which more than two decades of consultations have taken place in various forms, and under multiple governments, and all have been moving progressively in the same direction.

The process of consultation started when the then Ministry of Agriculture, under the NDA government led by Prime Minister Vajpayee, appointed an Expert Committee in December 2000 under the Chairmanship of Shankarlal Guru, to review and recommend measures to make the agriculture marketing system more efficient and competitive. The Report of the Expert Committee on Strengthening and Developing of Agriculture Marketing, 2001 said, “the institution of regulated market, has, however, achieved limited success. Over a period of time, these markets have, however, acquired the status of restrictive and regulated markets, providing no help in direct and free marketing…”.

This process continued under the UPA government when they followed up with states to adopt the model 2004 APMC law and even framed new rules and regulations in 2007. Other forms of expert group consultations were taking place simultaneously. National Commission on Agriculture chaired by noted and respected scientist M.S. Swaminathan submitted its report in 2006, which recommended promotion of Unified National Market.

In March 2010, then Minister for Agriculture in the UPA government, Sharad Pawar, constituted an Empowered Committee under the Chairmanship of Agriculture Minister of the Government of Maharashtra and 10 State Ministers. This Committee, in its report in 2013, suggested simplification of procedure of contract farming, barrier-free national markets, waiving off of market fee on fruits and vegetables, among other things. The Committee also made the recommendation to “develop a National Single Market for agricultural produce, by removing all the existing physical, legal, and statutory barriers”. It also recommended a Central Legislation to deal with “Inter-State Agricultural Marketing, promotion of agribusiness, trade and commerce at the national level”.

The NDA government, led by Prime Minister Modi assumed office in 2014. On states’ persistent request for some model template, the Ministry constituted Dalwai Committee to formulate such a Model Act, with members from the States of Odisha, Bihar, Rajasthan, Telangana Uttar Pradesh. The Committee after extensive consultation recommended adoption of The Model APLM Act, 2017 in April 2017. This Committee also recommended, among other things, the promotion of the national market for agriculture produce. The Adoption of this Model APLM Act, 2017 happened in West Bengal (TMC), Punjab (Congress), Uttar Pradesh, Arunachal Pradesh and Haryana, pointing out the across the political spectrum nature of the consensus.

In order to protect the interests of farmers in Contract Farming, again the Dalwai Committee was set up which had representation from states of Punjab, Maharashtra, Odisha, Karnataka, Madhya Pradesh.

It is the process of this long and bipartisan consultation and consensus, spread over two decades, and under various governments, that finally led to the three new farm laws passed earlier this year. Therefore, it is clear that the charge that these laws were passed in a hurry, or without consultation is patently untrue.

Attachments area