More reform needed

A major agitation led by farmers from several states, but particularly Punjab, has convulsed north India and reached the borders of Delhi. The protesting farmers, who are now being supported by some opposition parties, are unhappy about the new agricultural marketing laws brought in by the government as part of the long overdue reform of the sector. These were originally introduced through Ordinances in June, and anger has been building since then at the ending of the monopoly of Agricultural Produce Marketing Committees. Since then, out-of-mandi transactions have grown in number sharply. Other reforms have also been introduced to strengthen the supply chain, allow easy stockholding and inventories, and permit contracting with farmers for their produce. These are, most economists agree, essential steps in order to ensure that food inflation is curbed, agricultural productivity improves, infrastructure investment takes place, and average farmer income increases.

However, some farmers’ unions are dismayed. Some of this is just concern at the loss of power, since the introduction of market factors into the supply chain and the destruction of monopolies will naturally hurt those with an interest in the status quo. Other farmers are ideologically or otherwise concerned at what they see as the corporatisation of the agricultural marketing system. Yet others have been made subject to misinformation about the fate of the minimum support price (MSP), under the current produce procurement system. While economists and even some bureaucrats have been arguing that the MSP has long passed its sell-by date and there are other forms of support to the sector that are more sustainable, the government itself seems to have no intention of ending the MSP system at the moment. Finally, there are well-grounded objections to the nature of support farmers might receive in the future, particularly when it comes to the questions of income volatility surrounding sudden spikes or crashes in prices of produce at harvest time.

The prime minister was correct when he said that every party had in the past contemplated such legal changes to improve the lot of farmers, and were opposing them now for political gains. But his ministerial colleagues should also have done their bit by anticipating that there would be some objections to the agricultural reforms — which is why these have been so hard to pass in the past, after all. The march of farmers to Delhi to protest the farm reform laws requires deft political management of the situation. The government must explain its stand better to farmers and not make things like the protest venue a factor in engaging with them. The government will also now need to ensure that alternative mechanisms of support are designed and publicised so that farmers understand that they are not being abandoned and therefore this agitation does not spread. Many support systems can be designed that would not undermine the new agricultural marketing laws.

The fact is that current forms of price support distort the market, cause overproduction of certain foodgrains, are regionally imbalanced, and are environmentally and otherwise harmful. Most of all, they are inefficient forms of livelihood support and skirt close to violating India’s international trade obligations as well. Warehouse receipts can be used to ensure that distress sales are avoided, as recommended in the past by the Commission for Agricultural Costs and Prices. The ideal mechanism would be an all-India income support plan. Other alternatives include price compensation schemes that make up for the difference between market prices and the MSP. In this cases, the solution to concerns about existing reform is more reform.

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