Farm Bills will give India’s farmers more economic freedom

Food policy since Independence has been trying to chase the chimaera of an impossible trinity of ensuring the supply of food grains to the consumers at an affordable price, ensuring a fair return to farmers, and ensuring food security.

Using the State apparatus to artificially ensure higher prices to farmers benefits medium and large farmers — the beneficiaries of the green revolution. Whereas the small and marginal farmers, the majority, are net buyers of foodgrains need support as the consumers. Higher prices to benefit politically and socially influential farmers hurt the consumers, and this brings upon a counter political pressure on the government, especially from the urban populace.

Over the decades, the objective of food security has resulted in unpredictable and ad-hoc policies such as the essential commodities Act, banning the exports of agricultural products at the whims of the government when farmers could have benefited from the higher international prices.

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That it is impossible to achieve these objectives simultaneously did not force the rethink under successive governments, but instead caused them to double down with even more rules and regulation — and micromanagement. The result was an agriculture sector where the worst form of license-permit raj reigned supreme even as India was progressively dismantling them in other sectors.

The reason is not difficult to understand if we look at the rural politically economy spawned by decades of such policies. The control over Agriculture Produce Market Committees (APMCs), co-operative bank and other co-operatives, fixation of higher MSP for specific crops are the sources of power for the local elites. Moreover, for the political parties, these local semi-feudal elites are the route to political power.

It was, therefore, impossible to introduce any reforms that would disturb the prevailing equilibrium even though the need for it was widely recognised in all policy circles. It was impossible until a full-majority government decided to put its political capital at stake.

The Narendra Modi-led Bharatiya Janata Party (BJP) government has succeeded in passing three farm Bills in the Lok Sabha and two in Rajya Sabha. The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 ends the monopoly of the APMCs and their political overseers. It allows the farmer to sell their produce directly anywhere in the country at any prices.

Neither are the APMCs abolished nor is the MSP discontinued. Instead, the absurdity of the farmer being the only producer without the right to fix the price of their produce is over. Contrary to the apprehensions, the MSP isn’t included in the legislation because it’s an administrative mechanism, not legislative so that it can have flexibility as per the requirement. Also, the farmers will only sell to the private player if they get a price above the MSP under the State procurement.

It also seeks to promote barrier-free inter-state and intra-state trade and commerce without any fee or levy outside the physical premises of markets notified under the State Agricultural Produce Marketing legislation.

The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 allows contract farming. It enables farmers to enter into a contract with agribusiness firms, processors, wholesalers, exporters, or large retailers. It will enable them to access credit, technology, and assured prices. The small and marginal farmers can also benefit via aggregation under contract with a single buyer.

The Essential Commodities (Amendment) Bill, 2020 removes cereals, pulses, and other products from the essential commodities list. It removes the imposition of stock holding limits except in situations like war. It will enable businesses to operate freely without bureaucratic and regulatory hassles. In 2019, 76,000 raids were conducted under the Act with zero impact on price volatility which actually increased. Hardly 2-3 percent cases stand in the court, and the Act was used to harass traders and enabled rent-seeking by the officials.

The roots of the APMC goes back to colonial rule with the aim of ensuring the cheap supply of raw cotton to mills in Britain. The basic idea of these policies could never produce prosperity or stability for the farmers no matter if they were 'adapted' in the socialist era. Dismantling of these regimes will allow more economic freedom to the farmers.

These reforms will attract private investment in rural infrastructure such as cold storage, and transportation. It will enable modern agri-business tech companies and startups to enter the market and provide innovative solutions while leveraging new economic opportunities. The results can only be beneficial both for the farmers and consumers as it reduces the 'farm to table' distance.

It will, however, require a robust legal and intuitional mechanism for fair play, protection of the farmers and reduce the time and cost of dispute resolution. The success, in the end, will depend on the co-ordination between the Centre and states, unlike the politics of protests we see today.Abhinav Prakash Singh is assistant professor, Shri Ram College of Commerce, University of Delhi, Delhi. Views are personal.