(ATF) In one of the largest protests yet against the government of Indian Prime Minister Narendra Modi, millions of farmers have been demonstrating against three agricultural reform laws enacted this year.
While the government says the new laws will modernise farming and bring about much-needed reform, farmers – mostly from the populous northern states of Punjab, Haryana and Uttar Pradesh – say they will cause their ruin.
Economists generally agree that India’s farm sector needs to address many problems, but some have also criticised the manner in which the laws were imposed.
In September, at the height of the pandemic in India, the government passed three agricultural reform laws that loosened rules around the sale, pricing and storage of farm produce that have protected farmers from an unfettered free market for decades.
The new laws will allow private buyers to stock farm products for future sales, which only government-authorised agents could do earlier, and outline rules for contract farming, where farmers can tailor their production to suit a specific buyer’s demand.
One of the biggest changes of the new laws is that farmers will be allowed to sell their produce at a market price directly to private buyers, including multinational businesses, supermarket chains and online grocers.
Eroding decades-old rules
But those laws also erode some of the rules that have protected Indian farmers for decades; selling the majority of their produce at government-controlled wholesale markets – or mandis – at assured floor prices called the minimum support price (MSP).
“Indian farming consists of small farmers holding very small farms that produce in very small quantities, so they don’t command strong bargaining power,” Samir Shah, executive vice chair of Dvara, a Chennai-headquartered organisation that ensures financial inclusion for farmers tells Asia Times Financial.
“They get comfort from going to a marketplace – like the mandis- however broken it is,” he added. “The farmers feel that the new laws create a risk of extinction of the marketplaces.”
The MSP, a government-guaranteed procurement system introduced in 1965, has been a safety net insulating a large section of farmers from price fluctuations and providing guaranteed markets.
By brokering sales, organising storage and transport, and even providing bridge financing, these mandis also provide a forum for price discovery, negotiations, and a platform for grievance redressal.
The new laws that allow the entry of corporate interests in Indian farming has alarmed a huge section of farmers, who fear that it will eventually lead to the end of the mandis and guaranteed prices.
Modi said that the three laws are aimed at modernising farming. The laws will also “add impetus to the efforts to double income of farmers,” more than 85% of whom are small farmland holders owning less than 2ha of land.
“(The laws will) ensure a complete transformation of the agriculture sector as well as empower [tens of millions[ of farmers,” Modi wrote on Twitter after the bills were passed in September.
He added that the bills are intended to benefit the entire farm sector that accounts for a 15% share of India’s $2.6 trillion gross domestic product.
The government also argues the new laws have given farmers greater control over prices while the both mandis and the MSP will remain, with the government continuing to procure from the government-controlled marketplaces.
Lack of consultation
The reforms are necessary to increase the efficiency of India’s huge farming sector that supports two-thirds of India’s 1.4 billion people, the government adds. But critics add that one theme of the laws is Modi’s authoritarian rule with little consultation.
“While the government says that these were bold reforms that were long pending, I do not think anyone expected that reforms as far reaching and consequential as these would be introduced via an ordinance and pushed through the parliament during a pandemic, with no consultation or a process of consensus building with states or key stakeholders like farmers, states and policy experts,” Mekhala Krishnamurthy, senior fellow at the Centre for Policy Research, a Delhi think tank, tells ATF.
She added that the protests reflect a failure of communication, while the lack of consultation and deliberation has created a huge trust deficit and the laws suffer from serious design problems.
For instance, the laws have created two regulatory regimes: one controlled by the federal government, and another controlled by the farm marketing acts of individual Indian states.
A complex challenge
Still, experts also say that given persistent problems like low productivity, fragmented landholdings, lack of storage infrastructure, and high indebtedness of poor farmers, India’s farming is in desperate need of reforms.
According to P. Chengal Reddy, chief adviser to the Consortium of Indian Farmers Associations (CIFA), 90% of India’s farm produce is sold through the private sector already. “While the MSP is applicable to six farm products, only cereals like wheat and rice are procured through the [MSP] system, and 90% of that is procured from just Punjab and Haryana,” he tells ATF.
This is why, Reddy adds, that farmers from two states – Punjab and Haryana, where they are “pampered by the MSP system” – are protesting, while states like Maharashtra, Gujarat and southern states like Telangana and Andhra Pradesh are not.
Farmers in these states grow crops – including maize, mustard, millet, bamboo and cotton – that are sold mostly to private-sector businesses, and so they are used to dealing with procurement by private buyers.
Terming the protests as “politically motivated”, Reddy says: “The laws are in the right direction and CIFA welcomes the new bills as farm products including fruits and vegetables, dairy and poultry products, and forestry and fisheries, that account for over 80% of total farm produce will benefit.”
What India’s farming sector needs, he adds, is a range of support including high-quality seeds, fertilisers, credit, machinery, marketing, and investments in warehousing and cold storage “that only reforms can usher in”.
“Opening up farming to private buyers is a great idea, but the government also has to put in formal mechanisms to provide farmers confidence that they will not lose out to private trade,” adds Shah at Dvara.
As a former managing director and chief executive of the National Commodity and Derivatives Exchange (NCDEX), an online commodity exchange, Shah chaired the NCDEX e-Markets, which is also a privately-owned online marketplace for farm products.
“Private trade markets, if structured right, that provide a system for transparent price recovery, dispute resolution and grievance redressal, as well as collective bargaining powers to farmers, may turn out to be a very good alternative for the mandis,” Shah says.