09/02/2021
The President of India gave his ascent to the three farm bills, namely, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020 (FPTC), the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020 (FAPAFS), and the Essential Commodities (Amendment) Bill, 2020. The opposition and farmers’ organisations continue to protest against these laws. While politics will take its own course, it is useful to examine the economic rationale of the arguments being given to justify these bills. The arguments, broadly speaking, are twofold.
One, the bills give greater freedom to farmers to sell their produce. They will abolish intermediaries, or at least some levels of intermediaries between farmers and buyers. This will ensure that the farmer gets a bigger share of the price paid by the consumer and will, therefore, improve agricultural incomes.
Two, the clamour for incorporating Minimum Support Prices (MSPs) into the law is a pursuit of vested interests as only a handful of farmers enjoy the benefits of MSP-based procurement in the country today. The agricultural practices in Green Revolution regions of Punjab, Haryana and Western Uttar Pradesh, where MSP was the cornerstone, have prevented reforms and these changes will lead to a creative destruction in agriculture.
Unfair exchange is not the basic reason for predicament of Indian farmers
The argument that these bills will remove intermediaries, and therefore make farmers well-off, assumes that an unfair exchange is the biggest problem facing India’s farmers. But Inflation data shows that retail and wholesale prices for important food items, cereals, pulses, vegetables and fruits, move in tandem. This means farmgate prices are not completely divorced from the prices prevailing in retail markets, and intermediaries do pass on profits or losses in food markets to farmers.
What could be a bigger problem for farmers is the large volatility in prices of crops such as pulses and vegetables. Cereals, where the MSP regime is in place for rice and wheat (over one-third of the total rice and wheat production is procured by the government), face the lowest price volatility. This is exactly why farmers keep demanding MSP-based procurement for all crops.
The main reason for the agrarian crisis is that agriculture employs far too many people to be remunerative. At least 40% of India’s workforce is employed in agriculture, even though it generates less than 15% of the country’s GDP. The current set of reforms does nothing to address this basic income-employment asymmetry in agriculture.
-HT
