New farm bills in India: Focusing on farms or farmers?

India recently got three crucial bills related to farmers and related sectors. These three bills are The Farmer's Produce Trade and Commerce (promotion and facilitation) Bill 2020 and The Farmers (empowerment and protection) Agreement Bill 2020 and The Essential Commodities (Amendment) Bill 2020. 

While the first bill allows farmers to sell their produce anywhere in the country, bypassing mandis and without paying any cess and fees, the second bill facilitates contract farming and the third one removes restrictions regarding production, storage, movement, and sale of essential foodstuffs like cereals, pulses, edible oil, and onions.

These bills have led to protests by farmer groups who view this as the corporatization of the farm sector and an attempt to do away with Minimum Support Prices (MSP) in due course. The opposition has been critical of the ruthless manner in which such bills were passed in parliament without any space for debate and consider them as encroachment into the power of state governments as 'agriculture primarily is a state subject' apart from its implication towards loss of revenue to state governments.

Punjab and Haryana are major producers of wheat and paddy in the country and farmers in these states primarily sell their produce through mandis to the Food Corporation of India (FCI). These states have witnessed sustained protests to protect farmer's interests. The chief minister of Punjab has gone to the extent of considering a legal course to fight this bill.

Despite this opposition against this bill, on one hand, the government has actively engaged in working to clear apprehensions regarding its implications. A critical assessment of this bill in view of the status of our farm sector thus assumes significance.

Status of Agriculture and Allied Sector in India in recent times

According to FAO's Food and Agriculture statistics (2019), India had 204.2 million hectares of land for harvest in 2017, the highest in the world followed by China at 186.7 million hectares. Out of total arable land, 62 percent are rainfed, dependent exclusively on monsoon. At the same time, agriculture and allied sectors still support the livelihood of more than half of the population. According to the latest data from MoSPI, GoI, while the contribution of agriculture to GDP has come down to 15 percent, its share in employment stands at 42.4 percent. In contrast, in developed economies, the share of agriculture in GPD (nominal as well as real) is less than 2 percent while in employment it is less than 5 percent. The agriculture sector in India is overwhelmingly dependent on monsoon as 62 percent of cultivable land lacks an assured source of irrigation.

Indian agricultural growth is shrinking in recent times and the annual growth rate of agriculture for the financial year 2019-20 is estimated to be at a mere 5 percent and lower than the previous year. Out of 12.5 crore beneficiaries enrolled in the Pradhan Mantri Kishan Samman Nidhi Scheme (PMKSN), 80 percent are small or marginal farmers as per the scheme's website. Since most of the farmers are small and marginal, they hardly have a surplus to sell in the market. Various estimates show the benefits of MSP reach at least 6 percent of the farmers in India on the lower side while some claims state that nearly half of the farmers are directly or indirectly benefited. However, a large section of farmers is still outside the preview of MSP at present.

Low Productivity and Subsistence Farming

Farm mechanization in India is still at a very low level (40 percent-45 percent) when compared with other developed or developing countries, according to Economic Survey (ES) 2019-20. The productivity of Indian farmers in major cereals/pulses/cash crops compares poorly with their counterparts in other developing countries. The share of agriculture and allied sectors in Gross Value Added (GVA) at current prices has declined in the last five years to 16.5 percent in 2019-2020 as per the recent ES 2019-20. The crop-intensity ratio for China and other developing regions are way ahead of India's 1.2 at present. Subsistence farming is the dominant feature of Indian agriculture for the majority of our farmers. The country's agricultural exports account for a meager 2.15 percent of global agricultural trade as per ES 2019-20. As per the Central Statistical Organisation (CSO) estimates, the Gross Capital Formation (GCF) in Indian agriculture has also declined to 15.2 percent between 2012-13 and 2017-18.

Poor Access to Farm Credit and Crop Insurance

India's rank in the Agricultural Growth Enabling Index (2015) by OECD and IFPRI is 16th among 32 countries for which the exercise was carried out. Only 23 percent of Gross Crop Area (GCA) is currently covered under Pradhan Mantri Fasal Bima Yojana (PMFBY). Access to formal credit is one of the major hurdles in developing the sector. Agricultural Census (2015-16) revealed that only 45 percent of farmers in India had Kishan Credit Cards (KCC) despite the scheme being in place for the last two decades. According to RBI's report of the internal working group to review agricultural credit (2019), only 41 percent of 12.56 crore small and marginal farmers have bank accounts which is a primary requirement to access formal credit. Most of these small and marginal farmers are without any formal education depriving them of their entitlements under various schemes meant for them. Incidence of Indebtedness (IoI) as per National Bank for Agriculture and Rural Development (NABARD)'s financial inclusion survey 2018 shows that 52.5 percent of all agricultural households in India had an average debt of Rs 1.04 lakh per household.

Nutritional Security and Agricultural Production

Nutritional Intake in India report (2011-12) by MoSPI said that the gap in the actual and recommended calorie intake in rural India was 30 percent and in urban India, it was 20 percent. Increased food production does not seem to result in increased calorie intake for a large number of Indians. Cereals still contribute to 57 percent of actual calorie intake in rural areas while in urban India this share is 48 percent. The vitamin and micro-nutrient rich food items like milk and milk products, vegetables and fruits, meat, egg, and fish contribute less than 10 percent of actual calorie intake in both rural and urban India. This implies that increased food production fails to ensure calorie compliance on one hand and balanced nutrition on the other.

The import dependence for pulses and edible oil persists except for the self-sufficiency in the production of major cereals like rice and wheat. The production of milk and milk products, fruits and vegetables, eggs, meat, and fish have reasonably improved in the last few decades but its per-capita availability remains a matter of concern owing to lack of adequate availability and affordability for the majority of Indians. The post-harvest loss in the Indian farm sector due to lack of adequate cold storage and supply chains results in wastage of 16 percent of fruits and vegetables and 10 percent of oilseeds, pulses, and cereals produced in the country every year as reported by the Central Institute of Post-Harvest Engineering and Technology (CIPHET), Ludhiana.

Do New Legislations Address the Issues of Farms and Farmers?

The plight of the agriculture sector as detailed above needs holistic interventions beyond an isolated focus on produce and the producer alone. The real constraint has been the limited budgetary support towards agriculture. Though in nominal terms, the allocation has been doubled between 2013-14 and 2019-20, the share of expenditure on agriculture and allied sectors remain below 3 percent of GDP. As regard to reviving the agriculture sector and addressing the vulnerabilities of those dependent on agriculture, India needs to promote private sector/farmer-producer companies/online retailing to help the sector to get much-needed financial as well as quality human resources.

On one hand, opening up the sector will attract young agri-preneurs, agri-start-ups, social entrepreneurs, and innovators into the sector. This will make the middle-man syndrome disappear, which constrains the effective marketing of the agricultural produce by the primary producer. This may lead to the expansion of supply and logistic chain network, storage, and management of farm produce to stabilize the price for ordinary consumers and better remuneration for the farm producer.

However, given the difference in skill, education, and know-how, many uneducated farmers might be at the mercy of market players who may collude to deny the right price for the farmer. Given the vagaries of nature, pests, and other unforeseen factors, the farmer may be trapped or manipulated to accept a lower price, bear adversities, and may be caught in a debt trap or worse, may be forced to part with the land itself. The pricing of agricultural produce and its value chain needs to be transparent in the sense that a reasonable share of the ultimate price paid by the consumer needs to reach the farmers. 

This can only happen when all stakeholders involved in the process of making the crops reach from the field to the consumer outlet are made accountable. The contracts between poor farmers and rich buyers may be skewed against the former without proper institutional mechanisms to safeguard their interests. Thus the farm bill is both an opportunity and a challenge for Indian farmers, who predominantly use obsolete technology and farming practices.

While the private sector can be allowed to strengthen its contribution to the sector, the state should not move away from its responsibility towards the sector given the skewed power relation in every aspect of Indian society including agriculture. The state role is important to strengthen existing tools and institutions like MSP, APMC, transport and storage, and increasing credit and insurance facilities for the small and marginal farmers.

We may need an intermediary institution to safeguard the interest of the farmer in the new setup to educate them about their rights under the new laws and help them in case they face exploitation at the hands of private buyers for their produce. Community-Based Organizations (CBOs) can very well act in the role of intermediary given their association with the farming community for years and play a crucial role in realizing the vision of new farm bills. This will help in improving farmers' financial literacy, introduce new technologies to improve crop-intensity, adoption of farming practices of global standards, motivate farmers for crop-diversification, promote rational use of water and other inputs and assure them of fair return at the end of harvest. 

Such diversification of the agriculture sector can make it vibrant with new employment opportunities for skilled manpower that is moving away from the farm sector and infuse new vigor in the sector that will lead to an increase in income, consumption of goods and services, and overall quality of life in India. Without these reforms, the agriculture sector may continue to lag behind and doubling farmer's income by 2022 will remain a pipe dream.