Indian democracy has been at full play in reaction to the new farm laws.
The Bills aim to do away with government interference in agricultural trade by creating trading areas free of middlemen and government taxes outside the structure of Agricultural Produce Market Committees (APMCs).
They also aim to remove restrictions on private stock holding of agricultural produce.
However, see that both sides of the political spectrum want farmers’ incomes to increase.
The Opposition parties want to ensure that through higher and more effective MSP (minimum support prices), while the government is offering greater choices to farmers through markets, without demolishing the existing MSP system.
Having analysed the MSP business over decades, clearly that the regime was the creation of the era of scarcity in the mid-1960s. Indian agriculture has, since then, turned the corner from scarcity to surplus.
Why are the farmers of Haryana and Punjab more concerned?
The public procurement in these States is large. These fears gain strength with the experience of States such as Bihar which abolished APMCs in 2006.
After the abolition of mandis, farmers in Bihar on average received lower prices compared to the MSP for most crops. For example, as against the MSP of ₹1,850 a quintal for maize, most farmers in Bihar reported selling their produce at less than ₹1,000 a quintal.
So, despite the shortcomings and regional variations, farmers still see the APMC mandis as essential to ensuring the survival of the MSP regime.
The attempts to reform the APMC are not new and have been part of the agenda of successive governments for the last two decades. Most farmer organisations also agree that there is excessive political interference and there is need for reform as far as functioning of mandis are concerned.
Reforms in MSP:
- The policy instruments of dealing with shortages are different from those dealing with surpluses. In a surplus economy, unless we allow a greater role for markets and make agriculture demand-driven, the MSP route can spell financial disaster.
- This transition is about changing the pricing mix how much of it should be state-supported and how much market-driven.
- The new laws are trying to increase the relative role of markets without dismantling the MSP system.
- Currently, no system is perfect, be it the one based on MSP or that led by the markets.
- But the MSP system is much more costly and inefficient, while the market-led system will be more sustainable provided we can “get the markets right”.
FCI’s economic burden and MSP as government burden:
- MSP rates were hiked for wheat, barley, gram, masoor dal (lentil), safflower, and rapeseed and mustard.
- However, the MSP has seen a lower hike compared to 2020-21. The wheat MSP has seen an increase of just 2.6%, the lowest increase in 11 years.
- The increase in MSP is in line with the principle of fixing the MSPs at a level of at least 1.5 times of the All-India weighted average Cost of Production as announced in Union Budget 2018-19.
- The increase in MSP comes in the midst of a vehement protest by farmers, who fear that new agricultural marketing reforms will result in the phasing out of MSP and public procurement.
- The economic cost of procured rice comes to about Rs 37/kg and that of wheat is around Rs 27/kg. However, market prices of rice and wheat are much lower than the economic cost incurred by the Food Corporation of India (FCI).
- Due to this, the FCI’s economic burden is touching Rs 3 lakh crore.
- This amount eventually will have to be borne by the Union government and may subsequently lead to divergence of funds from being invested in agriculture infrastructure.
Market prices to realise better prices:
Government is relying on the market to realise better prices. However, recent data suggest limitations of market intervention in raising farm gate prices.
For most crops where MSP-led procurement is non-existent, the decline has been sharper. Even cash crops such as cotton have seen a collapse in prices in the absence of government intervention.
With rising input costs, farmers do not see the market providing them remunerative prices.
The farmers also raise concern about the intent of the government to leave the price discovery mechanism on the market.
It has time and again made ad hoc interventions, such as raising import duties on masur and a ban on onion exports.
Way Forward: Strengthening FPO:
Agriculture lies at the backbone of Indian economy. Therefore, more sustainable solutions lie in augmenting productivity, diversifying to high-value crops, and shifting people out of agriculture to the high productivity sector.
With the changes brought the recent farm legislation, it is expected that many companies will be encouraged to build efficient supply lines somewhat on the lines of milk.
However, there is a genuine demand for protection of farmers from ruthless market orientation for Profit.
Thus, there is a need for strengthening of Farmers Producer Organisations (FPOs), this will increase bargaining power of farmers on one hand and provide a suitable investment climate on the other.
Government must come up with a suitable transition to agricultural pricing policy, whereby partial agricultural pricing should be state-supported and partially market-driven.
Agriculture is a State subject in the Constitution, listed as Entry 14 in the State List (List II). Apart from this, entry 26 in List II refers to “trade and commerce within the State”; entry 27 refers to “production, supply and distribution of goods”; and entry 28 refers to “markets and fairs”.
For these reasons, intra-State marketing in agriculture was always considered a legislative prerogative of States.
However, there is a case to argue that the current three farm legislations, have poor legal validity and may weaken federalism.
Therefore, any reform pertaining to agriculture and farmer’s income must come up after consultation with the states.