Winning Essay Entry: An Analysis of Farm Laws 2020

Asish Singh
Asish Singh

January 2021

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If agriculture goes wrong, nothing else will have a chance to go right in the country.

— M. S. Swaminathan

I was reading an informed conversation on the online platform ‘Ideas for India’ between two of my favourite economists, Mr Jean Drèze and Mr Ashok Kotwal. Replying to Kotwal’s endorsement of direct cash transfers over subsidized ration to the low-income groups, Mr. Drèze sought to differentiate between an economist who informs the policy-makers and an economist who informs the poor. 

The policy consultant must base his thinking on the possible benefits while assuming that their recommendations will be executed completely in letter and spirit. The consultee of the poor must concentrate on the likely consequences of a policy, the way it will be implemented in the field. Mr Drèze opines that, on paper, direct cash transfer could be the most economical and efficient way to prop up the poor, but provision of cheap ration is a more realistic choice. Let us apply this to the farm laws in question.

The pro-farm laws economists are, like in microeconomic theory, assuming a lot. It is being said (backed by research papers and years) that the farm laws will ensure greater choice and freedom to the farmer to sell his produce and to procurers to procure and store, hence encouraging competition in agricultural marketing.The thinking is ideal but assumptions are  not anchored in ground reality. And the prediction about the method of implementation of the concerned laws is more of a wish, divorced from the truth about how policies actually pan out.

If we forgo the nuances of microeconomics and take a macroeconomic view of these laws (informed by a farmer’s experience), we will have a practical impact assessment of these laws. 

Let us explore some of the assumptions that must stand for these laws to realise the narrative of freedom and prosperity that will accrue to farmers:

Firstly, the laws will check the exploitation of small farmers by commission agents (middlemen). Middlemen indeed trick the farmers. But large agribusiness conglomerates cannot do without agents — they cannot directly transact business with thousands of farmers. They will seek someone to pool in everyone. Experience from Bihar and other states which already have a system of private mandi in existence indicates that the same agent in APMC (sarkari mandi) will be involved in the private mandi. Thus, the farmer will have to endure two blankets of middlemen in the envisaged private mandis: The exploitative commission agent; and the new grand corporate agent.

Thus, the assumption is wanting in practicality.

Secondly, farmers are deprived of the freedom of choice while trading in the sarkari mandi. Only one-fourth of all agricultural trade is transacted in the APMCs. This means three-fourth of farmers anyway sell to private buyers. I spoke to a few farmers from Murshidabad, my grandparents’ place, and they told me that the requirement is a strong, transparent and better-regulated mandi system. Newspapers and independent media have found this to be the majority view. There is no farmer who is sulking over not being permitted to sell outside the mandi. But all of them are crying over the want of mandis and their prevalent corruption.

Thus, this assumption is simply flimsy.

Thirdly, under the new laws, prices will be settled fairly and farmers’ profit margins will increase  because of lower total costs in the new mechanism. This pertains to negotiating capacity of farmers, and with that being nil vis-à- vis middlemen, there is no logical explanation as to how farmers will negotiate as equals with the corporates. There is no experiential evidence to suggest that private traders will not cartelize the new system! Why would they not keep the additional slice of profit with themselves? There are plenty of examples to prove this point. Just analyse the operations of any corporate food chain outlet operating in your area since its opening. Ask the local suppliers and they will tell you that additional profits are retained by the outlet. 

The laws have and governmental oversight on the conglomerates, should they choose to machinate and fix the price. Neither do the laws include any incentive for the companies to not cartelize. The laws’ dispute resolution mechanism is unworkable. There will be influences on the DMs which are out of the purview of this essay. 

Thus, this is a textbook assumption.

Investments in agriculture by the government will continue, so this needs a non-economic  view, and we will find that it supports our argument. The farm laws are silent on the conspicuous gaps which we have highlighted above. Data suggests that governmental investment in real terms in agriculture is dwindling, while even the developed economies are investing way more in agriculture than India. Input costs are rising and subsidies to the Indian farmer are also declining. The contract farming law and amendments in the Essential Commodities Act are completely bent in the corporates’ favour —

  • No ceiling on stocking,
  • Cutback on governmental interference, and
  • Restricted and unreliable independent grievance redressal mechanism.

This will birth unregulated trade, with no provision for registration of traders. Farmers know that this will cause sales to switch to private mandis from regulated APMCs, with the government steadily pulling out and withdrawing its commitment to investment in agricultural mechanisation, infrastructure and control — under a legal pretext of not having the right to interfere in private business operations (Law Commission of India’s 145th Report). This is the essence of the farmers’ agitation in Delhi.

A ‘grand interpretation’ of the laws suggest the possibility of shifting trade to the private sector, weakening of APMCs in terms of revenue and sustainability and eventual silent ceasing of government procurement — a defacto substitution of APMCs with private mandis. This becomes a genuine apprehension when viewed in the context of the government complaining of increasing pressure on fiscal deficit due to the MSP regime. These are definitely anti-farmer laws, under which farmers will gain nothing in the short run, and lose in the long run.

Views and opinions expressed above are personal and do not necessarily reflect the position and values of IGenPlus and its members.

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