National Council of Applied Economic Research
The farm sector will attract private investment only if traders are assured that the govt will not put a constraint in their selling and purchasing price.
Opinion: Dr Sanjib Pohit
The outset the three farm Bills brought in by the Narendra Modi government seem to create a level-playing field in the farm sector. They empower the farmer to sell their produce anywhere and to anyone who offers them the best price. There is no need for the farmer to pay mandi tax if the mandis are not providing any additional services.
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance 2020 lays down the nomenclature to usher in contract farming in India. Companies engaging farmers in contract farming and providing crop advisory input and assured buyback may turn out to be a boon for the farmers. Of course the government can always have a strong oversight on the way the companies engage with farmers and can anytime blacklist those that violate the prescribed norms.
The Essential Commodities (Amendment) Ordinance 2020 is progressive too because it seeks to end adhocism in the form of stock controls which act as a disincentive for the companies wanting to invest in agricultural infrastructure. Until now the manufacturing sector was governed by rules similar to those enshrined in the new agricultural ordinance. With similar rules now set to be applied to agriculture the ecosystem for investment will become uniform for the two sectors.
On top of it the Modi government has announced that the Minimum Support Price (MSP) will continue to be extended to farmers. So it looks like a win-win solution for the farmers. Why then is a section of farmers up in arms against these Bills and are on the streets?
Right reforms wrong timing
These reforms are needed to usher in corporatisation of Indian agriculture and to draw in private investment and the logistics thereof. Companies will invest in infrastructure and food processing only if they are given the freedom to procure and store whatever input is required for their business. But what explains the timing of these reforms?
The economy is in the doldrums due to Covid-19 and private investment at low ebb. From where does the Modi government expect the investment to flow in? One may argue that far-reaching reforms usually take place when the economy is in the downturn just like it happened in 1991 when India was on the verge of a debt default. However if one recollects correctly Manmohan Singh pushed for a gradual reform and not a shock therapy that was prescribed by American economist Jeffrey D. Sachs for Russia in the early 1990s. The Indian approach yielded quick dividends whereas it was a lost decade for Russia. So the timing and path to reforms do matter.
Agriculture is a state subject. Consequently some of the states will definitely take the Union government to court to stop the implementation of the Bills. The Ashok Gehlot-led Congress government in Rajasthan has issued an order that states: “All the warehouses under the Food Corporation of India (FCI) Central Warehousing Corporation (CWC) and Rajasthan State Warehousing Corporation (RSWC) meant for procurement on minimum support price (MSP) are notified as procurement centres under the state APMC Act.” “At these centres mandi fee will be charged as per the Section 2(m) (ii) of the Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020” adds the order issued by the director of the state agricultural marketing directorate Tara Chand Meena on 7 August. The Rajasthan government’s order ensured that despite the central ordinance stating otherwise farmers will not be exempted from paying the mandi fee to the state government while procuring agricultural commodities. There will be legal logjam in the coming months/years given the slow space of India’s judicial system. Thus it is unlikely that private investment will flow in in near future.
What will attract private investment?
The farm sector will attract private investment only if traders/corporates are assured that the government will not put a binding constraint in their selling and purchasing price. Recent restrictions on the export of onions due to a surge in domestic price does not give the right signal. Such bans give the message that there will be government intervention if the domestic price of a particular commodity rises. The interest of the urban voters often supersedes that of agricultural farmers in the government’s bargaining frame.
The Modi government has also hiked the MSP for wheat and five other rabi crops. It is common knowledge that farmers are able to sell their produce at MSP only in a few states. Although the government announces procurement prices for 23 crops effectively procurement by Food Corporation of India/others at MSP takes place only for a few crops. So MSP to some extent remains an illusion for farmers in many states.
APMC and crop pricing
In agricultural discourse it is said that repeal of the APMCs (Agriculture Produce Market Committees) is a must if farmers have to get a good price and bypass the middle-man which has been effectively done with these reforms. However one needs more than that for private investment to flow in for production and development of agro-logistics and marketing if one goes by the example of Bihar. The state abolished the APMC Act in 2006 but did not usher in private investment for the creation of a new market or strengthen facilities in the existing one as NCAER (2019)’s study on “Agricultural Diagnostics for the State of Bihar in India” indicates . On the contrary over 90 per cent of the output of crops including paddy wheat maize lentil gram mustard and banana is sold within the village to traders and commission agents at prices much lower than the MSP.
As such the bargaining power of a farmer is minuscule vis–a-vis traders. To increase their bargaining power the government always talks of promoting and strengthening farmer producer organisations (FPOs). Group marketing not only reduces the length of marketing channels and marketing costs but also increases farmers’ voice. However this has not happened till now in Bihar even 14 years after the APMC act was repealed.
The same story is repeated in the case of crop insurance. The corporates invariably take them for a ride at the time of claim adjustment for crop damages.
In hindsight a regulatory body is a must to protect the farmers’ interest and to check that the corporates/traders follow the rules of competition and not resort to cartelisation and exploit the farmers.
Sanjib Pohit is a Professor at NCAER. Views are personal.