India's farm bills are an imperfect first step in the right direction
India's agriculture badly needs reform - but quashing debate is not just poor governance, it's also poor PR and politics
Note: This was written on 24th December 2020, and doesn’t talk about events since (including the government’s offer to put the bills on hold). I think the points about the original bills definitely still stand, and the government’s somewhat-capitulation further reinforces some of the points made as well.
The farm bills of 2020, and the protests over them, have been a truly fascinating episode of political theatre. Here’s a short version of this article:
Agricultural reforms are badly needed in India. These particular reforms may turn out to be flawed, possibly not going far enough setting up alternatives to the current systems they sidestep. However, in my view, this is an imperfect first step in the right direction, and I’m cautiously optimistic that the reforms will turn out to be a net positive in the long run.
This is a complex issue, and there are legitimate criticisms to be made here: it’s unclear that the government even has the power to put these acts in place (agriculture is a state subject, though inter-state trade is a Union subject), and its effects are definitely unclear too. They are also affected by what I (personally, very subjectively) see as this government’s tendency to declare huge sweeping reform with an eager Mission Accomplished banner while being bad at actual governance and seeing things through in the details. Reasonable people can disagree about this.
The handling of the protests, on the other hand, has been tone-deaf, heavy-handed and just unnecessarily, spectacularly terrible. It’s really kind of marvellous to think about how much: Did no one point out to the Home Minister that beating up[1], hosing down and tear gassing[2] farmers protesting peacefully isn’t just bad governance, but also horrible PR? Did no one think the visual of a state government digging fucking trenches[3] on the highway to stop farmers from walking to Delhi is a bad one? Did no one think asking for stadiums to jail farmers[4] would look bad? Did they really think accusing the protesters of being pro-Khalistan[5] was going to make the thing go away?
It is.. not great politics to deliberately antagonise farmers in India. The ruling party finds itself in that position entirely due to its own fault. And that’s probably the nicest way I can say that.
Okay, now let’s dive into the longer version.
The bills
The bills in question are three ordinances that passed both houses of India’s legislature back in September. Let’s walk through them.
Probably the least controversial of the three, The Essential Commodities (Amendment) Bill[6] is an amendment to a law passed in 1955. The original law, designed to prevent hoarding and price gouging, gave the central government broad powers to regulate the supply of anything it deemed “essential materials” (on the upswing of the pandemic this year, the government temporarily moved masks and sanitisers[7] to this list). The government could decide how much of that material could be stored by traders, what price it could be sold at, and even force the traders to sell their excess stock, with little to curtail that power.
The bill aims to make that more transparent. The government’s powers to control supply are now restricted only to “war, famine, extraordinary price rise and natural calamity of grave nature”, and the power to impose stock limits has a rule-based trigger of 100% price rise for horticultural products and 50% price rise for non-perishables.
This is designed to make investment a little more lucrative to entrepreneurship by removing storage restrictions - and hopefully improve India’s inadequate storage infrastructure[8]. Regardless of what the rule-based triggers shouldbe, the attempt to add transparency is definitely a good thing.
The Farmers Agreement Ordinance[9] sets up a framework for contract farming, and puts farming contracts beyond the limits of APMCs. It sets up a system for appeals for breach of these contracts outside the judiciary. In essence, it aims to allow for a market to be set up between the corporate players in this space and the farmers on the ground, where they can enter agreements to sell their produce at a guaranteed price conditional on quality, grade and extension services.
Farming contracts, if done right, can be a good thing[10]. In this particular case, taking conflict resolutions in contract farming outside of courts, while perhaps coming from a perspective of keeping them away from our clogged judiciary, can create a problem of inadequate scope of appeal. Moreover, as I’ve written about before[11], the bulk of Indian farm holdings (68%) are marginal (<1 ha), and another 18% are between 1 and 2 ha.
For one, contract farming being explicitly allowed is unlikely to change things a lot on the ground for these farmers, unless they are empowered and facilitated to participate in the process via organisation. Two, simply putting them on the other side of a contract from a company like PepsiCo - which can muster legal might they might not be able to dream of - cannot be an effective long-term solution. And here, not being able to properly appeal through the judiciary can make a proper mess. In my opinion, some kind of guardrails are necessary here - and a system to actually facilitate contract farming will go a long way.
The biggest, most ambitious, most controversial one of all, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill[12], allows farmers to sell their produce to anyone in India, not just in APMCs (Agricultural Produce Marketing Committees). Let’s break that down.
The first thing, remember, is that Agriculture is a state subject in India[13]. Starting in the 1960s and 70s, state governments started passing acts to establish APMCs (for example, here’s Maharashtra[14] and Tamil Nadu[15]), to prevent farmers being exploited by local middlemen due to bad infrastructure or forced to sell in distress by creditors. In essence, these were designed to be local committees that controlled all the wholesale agricultural transactions in what was designated their “market area”. These have representatives of the government, traders as well as farmers. If you are a farmer in that area, then, you can only sell your produce to a licensed trader who is a part of that APMC, and you have to pay a set of fees to that APMC on your transaction. This bill allows farmers to sell to anyone in any state directly without relying on APMCs. To be sure, APMCs are not being disbanded (the central government doesn’t have the power to do that), but they aren’t mandated to be the only mechanism by which someone can sell their produce, ending their monopoly.
There are several problems with the APMC system. It was recommended that every farmer have an APMC available within 5 kms[16], or an APMC should serve roughly every 80 sq. km. As the report of the standing committee on agriculture[17] notes, it is nearly twice that in most states, and widely uneven (even discounting North-eastern states with lower population density). Infrastructure varies widely as well. From the same report, cold storage facilities are available in only 15% of APMC markets, and even weighing facilities are available in fewer than half of them. Institutional problems are widespread as well. In the words of the committee:
Market Committees are reportedly democratic institution (sic) but in fact in most of the States, Chairperson and members are nominated or appointed and Committee is dominated by politicians and traders not by farmers as required;
[…] In some of the States APMC Acts, market fee is levied even after trade-transaction taking place outside the market yard. Market fee is collected in some States even without actual trade-transaction has taken place and simply on landing the commodity at processing units. While in other States trade-transaction outside the market yard is illegal;
[…] APMC Acts are highly restricted in promotion of multiple channels of marketing and competition in the system.”
APMCs are generally acknowledged to be a flawed system[18], even by those who don’t agree with the reforms and think the APMCs should be reformed instead of dismantled[19]. The debate, then, is what to do of the flawed system - and the government’s solution isn’t entirely a bad one. APMCs will now serve mostly as a sort of public option, which simply denies licensed traders the monopoly they enjoyed, and that’s not necessarily a bad thing.
The problem however is that, once again, the government hasn’t thought this through. The hope is that a private system will rush in to take the place of the APMCs and provide a good alternative to the farmers. However, once again, with the transactions outside APMCs not being regulated at all, and the level of fragmentation of land holdings, it’s likely that a patchy system will emerge, such that only bigger farmers in a few states with good connectivity are able to transact freely with some bargaining power. Especially if companies choose to trade through middlemen - they’re unlikely to want to transact directly with thousands of individual small farmers - the choice facing the small farmer becomes an official middleman or an unofficial one, and that’s no real choice at all.
On the whole, the bills represent a step in the right direction. In their current form, they will likely lead to some consolidation of farm holdings, especially given that larger farmers will likely do a lot better with improvements such as contract farming and direct trading outside APMCs, and this will have second-order effects.
But the way there is likely to create significant distress in the short term to a whole lot of farmers. The government’s shock-and-awe approach has pushed every other stakeholder away from them. And their reception has been... not entirely enthusiastic.
The protests
Though smaller protests had been organised since the bills were tabled in the Union Cabinet in June, large-scale protests against the acts had started soon after the acts passed[20]. On the 24th of September farmer organisations announced a “Rail Roko” that has been ongoing[21]. On the 26th of November farmers in the north launched “Dilli Chalo”, a protest march to Delhi to increase pressure on the government. It’s estimated that around 200k to 300k protesters joined the march. [22]Amidst clashes with the police in the BJP-run state of Haryana, they reached the borders of Delhi in a couple of days. Multiple rounds of unsuccessful talks have been held between the government and the protestors.
The protestors’ main demands have been the repeal of these three laws and a law enshrining MSP - Minimum Support Price - as law. Their chief concern is that these reforms are a precursor to a feared repeal of the MSP regime. The government has agreed to provide written assurance that the MSP regime will continue[23], but it hasn’t been enough to assuage the farmers. Let’s get a little deeper into this main demand, the MSP being written into law.
This is a complex issue. the Minimum Support Price is set by the government for 23 crops every year[24] - at which it will buy them for distribution through India’s Public Distribution System[25] (PDS) to low-income families.
MSP is a system born of scarcity that now faces a sickness of abundance. It was put in place in the 1960s - at a time when India’s doddering agriculture wasn’t enough to feed itself, and its foreign currency reserves prohibited buying grain on the international market. As of 1st April this year, the total national stockpile was nearly 56.9 million tonnes[26], despite the recommended buffer values being much less than half that, slightly more than 21 million tonnes[27]. And yet last year (2019–20), the government bought 34.13 million tonnes of wheat and 51.01 million tonnes of rice at their MSPs.[28]
It is no wonder, really, that the protests fearing an MSP repeal have the most support in northern states like Punjab and Haryana - the government bought up about 92 and 89 per cent of rice produced in the two states, and about 70 and 61 per cent of their wheat production (same source as above - footnote 28).
Once again, this is a complex issue with many angles and several moving parts. MSP-based procurement is weighed largely towards medium and large farmers, as the government’s Rabi Price Policy for 2020–21[29] states:
As indicated by data received from some states, medium and large farmers occupy a major share in total procurement in the State and share of small and marginal farmers, though improved during last few years, remain low, which need to be addressed on priority.
This indicates that MSP-based procurement isn’t really helping a lot of the farmers it should be helping. Additionally, MSP-based procurement of crops like wheat and rice incentivises farmers to grow those crops to the exclusion of others. In these states, along with free electricity for farmers and other subsidies, it has led to environmental degradation and rapidly depleting stocks of groundwater[30](plug, but I have detailed sourcing there.) In short: Punjab grows a whole lot of paddy due to guaranteed money. Paddy is a water-guzzling crop, unsustainable to produce through anything other than groundwater irrigation - which happens to be incentivised due to free electricity for farmers. Crop diversification has been recommended in Punjab to solve this problem for a long time, like the SS Johl commission in 1985[31]. But of course - if the government is guaranteeing to buy up almost your entire stock of rice and wheat every year at above-market price[32], why would you really plant anything else? Signing MSP into law, especially in the way the farmers demand - by bringing in legislation that will make the purchase of crops below a “guaranteed remunerative MSP” (GRMSP) a cognisable, punishable offence[33] - would be problematic and coercive at best, and is definitely unsustainableas a long term solution.
Unworkable as their solution may be, it is hard to find sympathy for the government here, and that’s because they have made.. not great choices at several turns of this process.
It all started with the way these bills were passed: they were all passed in the space of about a week, passing in both houses of parliament via voice votes[34][35] instead of a proper division vote - in the upper house amidst shameful chaos where a voice vote simply could not be clear. The government first reached out to farmers on the 8th of October, claiming that they were ‘misunderstood’ and providing them meetings with lower-level stakeholders.[36]With the protests boiling over in late November, the Haryana government tried its best to stop farmers from marching to Delhi, using water cannons, tear gas, and even digging trenches on the national highway at one point (references at the beginning of the answer).
The ruling party has also tried to mischaracterise the protests. At the beginning of the march to Delhi, Haryana’s Chief Minister insinuated the presence of “unwanted elements” at the protests threatening the Prime Minister.[37]The party's national general secretary alleged that the protestors were chanting pro-Khalistan and pro-Pakistan slogans.[38]A Union minister claimed China and Pakistan were behind the protests.[39]
Once the protests gathered steam and stances hardened, the characterisation changed. An MP from the party claimed that the protests had been hijacked by anti-CAA protestors and the “tukde-tukde gang”[40], a moniker created for “anti-national” university students[41] back in 2016. The minister for railways, commerce and industry, consumer affairs, food & public distribution (one, albeit very busy, man) said that the protests were being hijacked by Leftist-Maoist organisations.[42] This has been repeated by other BJP officials, like Tripura’s Chief Minister[43], Uttar Pradesh’s Chief Minister[44], and Gujarat’s Deputy CM[45]. The Prime Minister’s line has consistently been that the farmers are being misled by the opposition parties trying to capitalise on the protests.[46][47]
Here’s the part out of that which is true. The opposition is being opportunistic. The Indian National Congress, the major opposition party, proposed in its 2019 manifesto something that looks conspicuously like the APMC bypass the government has passed [48](point 11). But other than that, the ruling party has, at every turn, tried hard to delegitimise the protests in the eyes of the public, using claims that are irresponsible at best, and dangerous (I’m really not sure accusations of widespread religious separatism are indicators of good republican health) at worst.
And yet, the government has been forced to the negotiating table, something it has been really loathe to do, or indeed has never done before with these ‘shock and awe’ schemes - not with demonetisation, not with the CAA and the NRC, not with repealing Article 370 in Kashmir. And that’s the part which makes this really interesting, because it provides a fascinating window into how this government operates.
The key difference is that the CAA was a largely symbolic act intent on virtue signalling to the base of the party (only 30k people were supposed to benefit directly according to the Minister of State[49]), and the protestors were students and Muslims - two groups the ruling party does not consider a part of its coalition.
Farmers, on the other hand, are a key part of that populist agenda, and the government considers the political cost significant enough that they’re willing to make significant concessions.
Political calculations notwithstanding, this has been absolutely fascinating to watch unfold. Thanks for reading!
I had to remove the sourcing to save the post getting clipped in your inbox. Please check out the original answer on Quora for the footnotes!
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