India’s three new agricultural ordinances will weaken state finances – and shortchange farmers

By Narasimha Reddy Donthi

Three ordinances approved at a cabinet meeting on June 3 were hailed as landmark decisions that would benefit Indian farmers and transform the agricultural sector.

One of these, the Essential Commodities (Amendment) Ordinance, 2020, amends the existing act to remove all agricultural commodities from the list of essential commodities. The government assumes that “the freedom to produce, hold, move, distribute and supply will lead to harnessing of economies of scale and attract private sector/foreign direct investment into agriculture sector. It will help drive up investment in cold storages and modernisation of food supply chain.”

Even though the government claims that the Essential Services Ordinance will help achieve price stability and benefit consumers, it will primarily help traders.

Also approved by the Cabinet was the Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, to promote barrier-free inter-state and intra-state trade and commerce outside the physical premises of markets notified under State Agricultural Produce Marketing legislations.

It basically aims to create trading opportunities outside state-run Agricultural Produce Marketing Committee yards. The government said that “this is a historic-step [in] unlocking the vastly regulated agriculture markets in the country”. Apparently, it will also supplement the existing minimum support price procurement.

The third ordinance in the approval list was The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020, which provides for a national framework for agreements with the farmer by any third party. It is an enabling legal framework for contract farming.

Who benefits?

Despite the government’s claims, not one of these ordinances benefit farmers in any way. However, as the text in the ordinances note, they will help traders, especially big corporations. Together, these ordinances are targetted at usurping state powers, and overriding state laws and market committees.

While agriculture is a state subject, the Central government is involved in many aspects – from planning, fund allocation and implementations. For a long time, agri-input companies, especially seed companies and agrochemical companies have been developing the view that the “centralisation” of agricultural decisions would benefit them.

As per the Essential Services Maintenance Act amendments, the Central government retains the power to impose restrictions on identified agri-produce, in emergencies, or as per prescribed procedure. This also takes away the “state government control” obtained from the same Act. In a way, this is also trying to bypass state governments. Farmers did not benefit from the Act earlier – and will not do so from the amendment either.

Over the past several years, the Central government has been pushing for reforms in agricultural trade through “model” legislation, which is part of the Centre’s attempt to dilute local Agricultural Market Committees and area monopolisation.

State governments have not been inclined to switch to the model system, simply because it erodes their sources of income. But in its newfound enthusiasm to reform and liberalise, energised by post-lockdown conditions, the Central government wants to take action.

This triumvirate of ordinances, as a trishul, wants to hack down the control state governments have over markets and agricultural produce to the last mile. With the removal of the “essential” tag, traders could still have to face barriers from the state, due to Agricultural Produce Market Committee Acts. Forward contracts, assured by one of the ordinances, and barrier-free trade, traders and agricultural corporations have been assured of non-interference from state governments.

State governments would lose incomes from Agricultural Produce Market Committee-controlled trading. These three ordinances on agricultural commerce cut through state government incomes. The suzerainty of states over agri-produce will get diluted. Three actions, together, have the objective of reaching the last mile, leaving no scope for any intervention from state governments.

But consumers – all citizens of this country – may have to face increased prices. Agri-imports are likely to increase in a “liberalised atmosphere”, even though the amendment has no reference to it. If that happens, farmers will be shortchanged due to competition from imports and an information asymmetry in the market.

It is going to be a power game, with different parties in control of state governments. We need to watch the reaction of state government that are not controlled by the Bharatiya Janata Party. Farmers do not matter for any power-mongering parties. They never did.

For now, the Central government has decided to throw its weight behind traders, investors, aggregators, corporations, sellers, wholesalers and processors. Will other state governments also fall in line behind these powerful lobbies that want to take India into industrial agriculture?