Indian Farm Bills: The potential positives and criticisms

POSITIVES

The enactment of the 3 farm laws introduced by the central government namely the farmers’ agreement on price assurance and farm services act, 2020 (FAPAFS), The Essential Commodities Act, 2020 (ECA) and the farmers’ produce trade and commerce act, 2020 (FTPC) – has resulted in huge turmoil in the agricultural and the political economy of India. 

The FTPC, by far is the most controversial bill, also called the “APMC Bypass Bill” reduces the oversight of the APMCs to their “Market Yard”, outside of the market yard entities are free to transact in agriculture produce freely, without having an obligation to pay a fee to the APMC and no licenses are required by the buyers. The act also aims to facilitate a framework for electronic trading for agricultural produce. These trade areas across the country therefore constitute an alternate marketing space and frees farmers from the corruption of the agents and the mandis.

The second act is ECA and it attempts to remove arbitrariness and unpredictability in notifying stocking limits, by limiting to the transparent rule-based price triggers. Currently, it has been set at 100% increase in retail prices for horticulture produce and 50% increase for non-perishable items, using a base price. This act makes it easier for the large private players to enter Indian Agriculture and boosts its productivity.

The third bill is FAPAFS, which is more commonly referred to as “Contract Farming Bill” aims to provide a framework for written agreements between farmers and sponsors without mandating them. The bill also provides for timely payments by the sponsors to the farmers. Just like the APMC Bypass Bill, this bill frees downstream players in the supply chain from the regulations of the state APMC, enabling them to undertake written contracts freely across the country, outside the purview of any ‘State Act’. This Act is stated to help the Agri-tech start-ups in India, as India houses 11% of the world’s Agri-tech start-ups.

CRITICISMS

1. The arguments that these bills will remove middle man and therefore will lead to farmers having an increased income, assumes that an unfair exchange is the greatest problem faced by Indian Farmers, but inflation data shows that retails and wholesale prices of important food items, cereals, pulses, vegetables and fruits move in tandem. This means that farmgate prices are not completely disassociated from the prices prevailing in retail markets. This shows that intermediaries do pass on profits/losses in food markets to farmers.

What could be a colossal problem for farmers is the large volatility in prices of crops such as vegetables and pulses. Cereals, where the MSP regime is in place for rice and wheat (over 33% of the total rice and wheat production is procured by the government), face the least price volatility. This is exactly why farmers keep pressing for MSP-based procurement for all crops.

2.The main reason for the agrarian crisis is that agriculture employs for too many people to be remunerated. At least40% of the country’s workforce is employed in agriculture when it only contributed 15% to India’s GDP. The present set of reforms does not address this basic income employment asymmetry in the agriculture sector.

That Indian agriculture, including the green revolution states, has a lot of inefficiencies and that is a well-known fact. A few of these inefficiencies, such as overexploitation of groundwater, have emerged as a grave threat to sustainability of farming itself. Procurement of rice in states like Punjab under the MSP regime has contributed to the sustainability crisis of agriculture.

3.India spends much less on agricultural research and development than China and other comparable countries. As per the data from the Food and Agriculture Organisation (FAO), spending on agricultural research in China was 0.62% of its value added in agriculture, while this number was just 0.3% for India. This is why the yield of Indian cereals is half of that of China.

To sum up, liberalisation of agricultural markets is the much-needed direction leading to diversified agriculture and increased farm incomes and yields. Needlessto say, this is not a magic bullet. The process of diversification and growth requires a lot of support. The process of growth would a lot more inclusive if farmers were organised into marketing associations. It is also clear that agricultural markets (APMCs) need more governance.