Farmers have traditionally been the most favored vote bank for any political party. Notwithstanding the continuously abysmal growth rate of agriculture of 1-2% since Independence, the majority of election issues revolve around farmers. Not that this political attention has benefited the Indian farmer in any manner so far.
For a change, the recent days have seen some action along with the usual lip service paid to the sector. The Modi Government, in its usual big bang style, has passed bills in parliament seeking to change the age-old system of procurement through the government-sponsored Mandis despite steep opposition from even their own allies. Heralding it as a path-breaking reform, just as most actions of the current government end up these days, window-dressed in catchy social media hashtags, the government says it has allowed farmers to sell directly to corporates along with the opportunity of land consolidation through contract farming. The PM tweeted offering increased procurement options and cutting out middlemen, thereby professing to benefit the farmer via better realized prices and increased private investments.
The state actively purchases paddy and wheat through government-sponsored Mandis. In a country where over 60% of farmers are small and marginal with low access to finance, technology and markets, farmers are now completely dependent on the Administered Price Mechanism offered in Mandis. This is intended to assure the farmers of a Minimum Support Price for their produce and deflect any distressed selling. The annually increasing MSP is invariably higher than market prices, since the high cost of farming doesn’t allow for profits otherwise. However, the reality is quite different – farmers are often dependent on middlemen to access these Mandis due to bureaucratic obstacles and fall victim to money lenders.
The Food Corporation of India (FCI) incurs an annual subsidy bill of over one lakh crore, buying at higher prices and selling at subsidized rates attributed to the Public Distribution System or PDS. Apart from Punjab and Haryana, where the FCI purchases directly, most other states do so through their civil supply corporations on behalf of FCI. The governments of Punjab and Haryana generate substantial revenue through their Mandis. They tend to have an organized middlemen aggregator system which has probably resulted in these massive protests.
Other states haven’t really escaped such a fate in entirety. Even now, farmers are often forced to sell directly to millers at a discount of over 25% on the MSP. Those who manage to get access to Mandis normally get 5%-10% price cuts on one pretext or the other. Low procurement targets set by FCI to reduce the subsidy bill results in farmers undertaking distress sales in the shadow market, a practice now legalized by these bills.
There is no doubt that the current system has many inefficiencies and much red tape, resulting in a corrupt alliance between middlemen and rent-seeking establishments. Certainly, the current system needed reform and overhaul, but not just one limited to catchy phrases. On the face of it, increased competition should result in a more efficient market and certainly, it is a bold to attempt to shake off the appendages of a massively entrenched system with many vested interests.
But, no doubt driven by the desire of reducing the massive subsidy burden, the state takes the first step towards dismantling the APM system. The final goal remains the removal of MSP and equating it with market prices. So will increased competitiveness between such unequal partners lead to better price realization – this is the key question. My own experience in bringing a large retailer to attempt to buy non-APM agro commodities directly from farmers was an eye-opener. The farmers complained that they were offered lower prices than that offered by the traditional middlemen. The negotiating might of large corporates stacks up unfairly against disparate small and marginal farmers. Without state intervention, it is likely that the latter will be exploited and worse off.
Theoretically on the correct path, the Modi Government has faltered in implementation on many fronts. The currently stressed GST, demonetization and economic disarray stands testimony to this. The affinity to pander to headline-management rather than deal with the realities of COVID crisis has resulted in India being one of the worst affected, with the fastest infection growth rate in the world. This was despite an intensely severe and economically crippling lockdown, resulting in massive distress to migrant labor. States moved to open new COVID hospitals in stadiums and schools without adequate ICUs, Oxygen Support and ventilators, turning them into mere isolation centers. Today, the country runs short of ICU beds.
Indian agriculture continues to be plagued with structural defects and remains noncompetitive in international markets. My fear is that this move in isolation will further enhance rural distress. With the majority of rural India still dependent on inefficient methods of agriculture, it is imperative that the government ensures financial access to marginal farmers to increase productivity by using technology and other resources. Mere market access cannot replace investment in irrigation, something sorely lacking for the last few decades. Bihar’s experiment with doing away APM hasn’t resulted in any increase in private sector investment in warehousing or last mile irrigation connectivity, with farmers struggling to get support price.
Unfortunately, the promise of the PM to double farmers’ incomes requires more wholesome and long-term thinking on reforms for the agrarian sector, which continues to evade the election-oriented polity and status quoits bureaucracy in India.