Protesting farmers – tens of thousands of whom have encamped on the borders of the nation’s capital – against the three farm bills passed in Parliament ought to dampen perceptions that these laws represent a ‘1991 moment’ for Indian agriculture. Although the economy is a USD 2.6 trillion entity, it remains agrarian as half of its workforce
depends on it. 

Farmers can now sell to anyone and anywhere. Traders and processors can buy, stock and move produce. Farmers can enter into contracts with aggregators to supply produce at pre-determined prices. If these bills captured the spirit of  the 1991 economic reforms in unshackling the farmer, why are the vanguard agrarian regions of Punjab, Haryana and western Uttar Pradesh opposed to them?

Their opposition stems from pervasive fears that these reforms negate the regime that nurtured the Green Revolution of the sixties. The country became self-sufficient in wheat and rice as the government provided high-yielding seeds, fertilizers and assured irrigation facilities to farmers. Minimum support prices (MSPs) - guaranteed minimum pricing - were announced and the state-owned Food Corporation of India bought whatever farmers produced from the 'mandis' or wholesale markets regulated by state governments under the Agricultural Produce Marketing Committee Act. This year, the government thus has procured a record 20.3 million tonnes of paddy from Punjab valued at INR 383 billion.

Why farmers are against free market?

Farmers from Punjab, Haryana and western UP saw red when the reforms enabled them to sell to anyone and anywhere, even outside the mandis. Transactions in private collection centres were also exempted from market fees, cess or levies imposed by state governments. As government-regulated mandis in Punjab attract a 3 percent market fee and 3 percent rural development cess, the apprehension was that trade would be diverted away from these mandis, entailing a loss of INR 35 billion for the state. The commission agents too would lose out. Corporates may offer a higher price than the MSP but after a year or so they would purchase at a lower rate. To underline concerns that corporates would hold greater sway, farmers made comparisons to the situation in the telecom sector where companies initially offered free data and later hiked tariffs.

The anger of these agitating farmers is yet another manifestation of the narrative of farmer distress that stalks the India growth story. To be sure, farmers in Punjab, Haryana and western UP are much richer than their counterparts in the rest of the country. They operate relatively larger farm sizes of 3.62 hectares when compared to 1.08 hectares at a national level. 

Small and marginal farmers constitute the bulk of the 120- odd million farmers in India. For instance, the average monthly income for crop production per agricultural household in Punjab is INR 16, 349 or (USD 300) that is five times the national average of INR 3,350 (USD 62) according to the 70th round of the National Sample Survey Organisation. Farmers from even these prosperous regions are protesting as the farm reform bills portend future losses in incomes. 

Crisis of farming 

Perhaps this explains the tenacity of their demands that the MSP regime be guaranteed in writing. The farmers seek price support guarantees that will shore up their incomes in an era of bumper harvests. However, extending MSPs to more and more crops would be distortionary as they introduce a cost-plus determination to prices that is bound to be inflationary over the short-term. Their impact is also notional if it is not backed by open-ended procurement. For such reasons, although the government keeps reiterating its commitment to the MSP regime it is wary of providing such assurances in writing as it would dilute freeing up the market.

Although the government believes that the new farm laws provide better opportunities for farmers, the intensity of the agitation should be a rude waking-up call. Unshackling the farmer is not the same thing as delicensing and decontrol of 1991 as they are signaling throughout the length and breadth of the country that agriculture is not a viable proposition. They produce more milk, fruits and vegetables than foodgrains. But their incomes take a huge hit with the across-the-board crash in prices in the wake of bountiful kharif (summer) and rabi (winter) harvests in recent years.

The big question is what the State can do to shore up their livelihoods that remains mostly at subsistence level. 

Despite crisis

conditions, most farmers continue cultivation on holdings that are diminishing as there are limited possibilities to move to towns and cities due to the absence of opportunities in industry. This is the classic road to modern economic development. In this milieu, the government must step up its existing scale of transfers of INR 6,000 (USD 81) to small and marginal farmers. This quasi-universal basic rural income scheme can be extended to all farmers. Regardless of how the government persuades agitating farmers to go back to their fields, income support is perhaps more efficacious than price support.

(The writer is an economics and business commentator based in New Delhi. His views are personal. He can be contacted at nchandramohan@rediffmail.com)