India’s Farmers Stall Reforms ‘But May End Up The Losers’

By compelling the Indian government to repeal laws meant to liberalise agriculture, farmers may have stymied reforms in a major sector of the economy that is marked by inefficiencies and lack of investment, say economists.

Farmers called off a 14-month-old agitation on 9 December after receiving written assurances that the government would form a committee to study their demand for a formalised minimum support price mechanism to guarantee fixed returns for cereals and selected produce.

On 19 November, Prime Minister Narendra Modi in a televised special address announced the repeal of three laws, introduced in November 2020, to allow free trade and movement of farm produce and foreign direct investment in agriculture. Modi also apologised to the farmers who believed that the new laws would put them at the mercy of large agribusiness corporations with the power to dictate prices.

The three laws — the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, the Farmers’ (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, and the Essential Commodities (Amendment) Act — were moved through Parliament on 20 November, 2020 without discussion.

Biswajit Dhar, professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University, New Delhi, says: “The farmers may have won the battle this time, but they will be the losers in the long run if they do not make themselves ready for reform to address prevailing inefficiencies.”

Data from the Food and Agriculture Organization of the United Nations shows that while India is among the top producers of all major food crops, it lags behind many countries in terms of productivity. India’s rice productivity is 2.7 tonnes per hectare, while Australia produces 8.8 tonnes per hectare and Thailand, a major rice exporter, produces 4.31 tonnes per hectare. Similarly, India’s wheat productivity is 3.5 tonnes per hectares against China’s 6.0 tonnes per hectare.

Ashok Gulati, Infosys chair professor for the Indian Council for Research on International Economic Relations, a New Delhi-based economic policy think tank, blames existing procurement policies for the vast amounts of surplus grain, produced in farming states like Punjab, that lie rotting year after year. “This year, by October, we had 81 million tonnes of surplus wheat and rice, far exceeding the 31 million tonnes needed as buffer stocks.”

According to Gulati, India also has massive inefficiencies in its public distribution system to which the minimum support price and the buffer stocks in the state granaries are linked. “Our studies have shown massive leakages in the public distribution system — set up to ensure that people can access to affordable grain — of up to 46 per cent,” he said.

Aniruddh Tiwari, chief secretary of the Punjab state government, said that the “central government spends Rs 35 (US$0.46) to procure a kilogram of rice while selling it Rs 3 (US$0.040) per kilogram to people”. Subsidies are also provided for farm inputs such as electricity and fertilisers besides transportation, storage and distribution, he added.

Legislated guarantees to provide farmers with a minimum support price for their produce — one of the most contentious issues — can only add to existing inefficiencies, says Siraj Hussain, senior fellow at the Indian Council for Research on International Economic Relations. “Instead of direct support to farmers through the MSP, government could think through alternative ways to shield farmers from price fluctuations.”

The International Monetary Fund (IMF) in its India country report for 2018 listed the minimum support price as a key issue that could “skew farmers’ production decisions, add to inflation, and enlarge the fiscal burden. It said the mechanism should be temporary and “limited to correcting market failures”.

The IMF also said in the report that more should be done to “revamp government procurement processes and the public distribution system for food, including to restructure the role of the Food Corporation of India [which stocks and maintains the granaries] via outsourcing of cereal procurement and stocking operations as well as checking leakages in the public distribution system”.

Dhar suggests that the central government should hold discussions with state government to see how reforms can be effected. “The central government should reach a consensus with state governments because under the rules of the Indian union agriculture is a state subject and the central government cannot carry reforms through on its own.”

Evidently, the central government did not expect farmers to hunker down on the borders of Delhi in their thousands, defying all efforts to dislodge them, including arrests under various criminal charges. The assurances made to the farmers on 9 December included quashing of all cases pending against arrested farmers.

In January last year, the farmers rallied through Delhi in thousands of tractors in a show of strength before continuing their protests on the outskirts of Delhi in a satyagraha (passive resistance) first popularised by Mahatma Gandhi against British colonial rule.

A turning point in the agitation was an event on 3 October when Ashish Misra, the son of a union minister, drove through a group of protesting farmers at Lakhimpur Kheri town in Uttar Pradesh state, killing four people and sparking nationwide outrage. Four others were killed in clashes that broke out between Misra’s supporters and the farmers. Police reports said Misra’s mowing down of the farmers was deliberate.

The farmers braved extreme cold, heatwaves, and rainy weather while camping on the borders of the capital and, according to farmers’ organisations, at least 700 of them perished. The central government in its communication to the farmers on 9 December said the state government has taken up the responsibility of providing compensation for those who died, “in principle”.

With Modi’s Bharatiya Janata Party seen to be losing popularity among rural voters in politically important Uttar Pradesh state, which is due to elect a new provincial legislature in February-March 2022, commentators say there was little choice for the central government but to repeal the unpopular agriculture laws.

This piece was produced by SciDev.Net’s Asia & Pacific desk.