The sudden announcement on November 19 of the Government of India’s decision to repeal the three farm laws, promulgated through ordinances in June 2020, came as a surprise as there was a complete stalemate since the last round of talks in January. The announcement is yet to be formally approved by the Cabinet.
The laws could have been repealed through an ordinance, but the government has decided to place them before Parliament. One hopes that the debate in the two houses will express regret over the baseless allegations made against the protesting farmers.
A more important question that has surfaced is the future of reforms in this sector. Is it the end of the road, at least till 2024? In the last two decades, several reforms have taken place in agriculture sector, and we think that the process will continue in different states.
There are six major areas in which reforms are urgently needed.
First is the serious ecological disaster emerging in the north western region of Punjab and Haryana, primarily due to cultivation of paddy in kharif season, and over extraction of groundwater. The paddy produced in these states is procured by the Centre at minimum support price (MSP) for distribution to the poor, open market sales, to maintain price stability and buffer stocking.
Diversification to crops consuming less water has been discussed and encouraged for more than two decades now. Since the farmers realise the MSP for paddy, they want an assurance that the alternative crop, maize for example, will also fetch an MSP. In 2020-21, the maize farmers in Punjab realised 40 to 50 percent lower prices than the MSP. Because maize is not distributed under the public distribution system (PDS), the Centre has refused to support large scale procurement. Moreover, these states lack resources to bear losses arising out of maize procurement.
The second item of reform relates to unpredictability of policies on stocking, movement, and trading of agricultural commodities. Despite the Essential Commodities (Amendment) Act, 2020, the government itself resorted to imposition of stock limits on pulses (July 2021) and edible oils and oilseeds (October 2021), and ban on export of onion. Private investment in warehousing and supply chain can come only if the policies are predictable. In the last few months, sudden restrictions were imposed on future trading of chana (August 2021) and mustard (October 2021).
The third reform waiting for several years is in the distribution of electricity, and fertiliser subsidies. Direct benefit transfer (DBT) of subsidy on urea has been under discussion since 2014. In the absence of a record of tenancy, there is no way the DBT can be paid to the actual cultivator, rather than the landholder. Similarly, there is rampant misuse of subsidy on electricity given on agricultural connections. The Punjab Farmers Commission recommended a pilot of the DBT of electricity subsidy, but the state government could not build a consensus with farmers on how to implement it.
The fourth item of reform is the policy on leasing of agricultural land. The Haque Committee set up by the Niti Aayog had given its recommendations, and proposed a model land leasing law in March 2016. As per the Situation Assessment Survey 2019 (NSS 77th round), out of total area of operational holding, 13 percent area is leased in. In the absence of an accurate record of leasing, it is not possible to switch over to large scale adoption of the DBT for extending various subsidies.
The fifth area of reform is agriculture marketing. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 attempted to reduce the role of the agriculture produce marketing committees (APMCs) by introducing the concept of trade area which would be out of the jurisdiction of the APMCs. This law was seen by farmers as a precursor to weakening of the APMCs which they feared may lead to an end of procurement at the MSP.
Agriculture marketing is already witnessing enormous interest of start-ups by directly connecting farmers with a large consumer base. Hopefully, this momentum of investment and marketing efficiency will continue. The announcement to repeal the farm laws 2020 on pretext that the Centre could not convince a section of farmers clearly indicate that reforms are hard for any government, but no reforms will be fatal for agriculture.
The sixth area of reform, regarding the statutory backing for MSP, is going to be the most difficult, and contentious. Best global practices to shield farmers from price fluctuation may help in this respect.
In each of these major areas, the farmers of various states will have different viewpoints, and it would not be easy for any expert committee appointed by the Union government to formulate a policy uniformly applicable to the entire country. For instance, the demand by the protesting farmers to legalise the MSP for wheat and paddy is neither economically nor practically feasible. The states not cultivating these crops will have little interest in such a price policy.
The road to deep reforms in agriculture is going to be difficult unless the states, rather than the Centre alone, formulate sound policies for faster growth in productivity, and farmers’ income. Unfortunately, not many states have been investing sufficiently in agriculture, perhaps due to higher capital requirements vis-à-vis returns. Ultimately the private sector will have to be tapped for investment in agriculture.
One hopes that states will not see farm loan waivers as the only way of addressing the farmer’s distress.
Siraj Hussain, a former Union Agriculture Secretary, is Visiting Fellow at Indian Council for Research on International Economic Relations. Seema Bathla is Professor at the Centre for the Study of Regional Development, Jawaharlal Nehru University, New Delhi.
Views are personal and do not represent the stand of this publication.
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