Farm bills, reforms whose time had come, but much needs to be done—economic times

Clipped from: https://economictimes.indiatimes.com/blogs/et-commentary/farm-bills-reforms-whose-time-had-come-but-much-needs-to-be-done/

By Satya Mohanty

Most agree that our agriculture is atrophied. But many don’t want any change in the existing arrangement. There is a lurking fear that the smallholders will lose out to the big corporates and the state will retrench itself from agriculture. It is also feared that the farm bills are to the small farmers what demonetization was to the informal sector.

What is the counterfactual to the farm bills? Continue business as usual with APMC Act, MSP and EC Act and leave the rest to providence. That is not a smart way of thinking of the future after having discerned the debilitating weaknesses. Another way of envisioning agriculture is to cover all crops under MSP and build up mountains of food regardless of demand. But what next then after underwriting production divorced from demand? No answer will be forthcoming then, particularly when the procurement price is above or around the international price. Then export as an option does not remain even on the table..

Government subsidizing farmers does happen in some countries like the US and Japan because the number of farmers is small there. In India with 15 crore farm holding that is well-nigh impossible, though some states have started giving a fixed amount per acre or per farmer as income support. It is arguable how long it can be done sustainably. Even if output subsidy is given in some mixed manner, where the incentive is stacked in favour of not farming (like KALIYA Scheme in Odisha where a farmer picks up Rs.10,000 to Rs.15000 per acre)it is bound to undergo some modification. The law of large number on one hand and the keenness to keep the urban food prices down on the other militated against the farmers to keep the prices down. What the govt. started doing in lieu was giving subsidy at the input end and targeted food subsidy for some rather than at the output end. It was like putting one foot on the accelerator while the other was on the brake as colourfully stated by some. The result was distortion in input usage, gaming and shadowy world of trading in input entitlement. When all these really go, there will be less distortion in production and distribution, but the end-use is unlikely to be subsidized like before. How much it will go up by depends on how well the market operates.

Apart from the fear of the unknown, there is also a fear that the small farmer will lose in their bargain with the corporate entities. This is precisely being bettered by the government being a witness to the leasing transaction. The farmer has the freedom to opt-in or opt-out. But more importantly, the small farmer who has been distress selling the land pieces from time to time under duress, have a chance to get a better price as dynamism sets into the agricultural universe. To top it all the emergence of farmers co-operative, FPOs, SHGs will swing into action to reap the benefit of economies of scale. Unless small farmers team up they are likely to miss efficiencies. A farmer understands incentives as much as anyone else and it is bound to happen. Of course, some contract farming is likely to take place led by the corporates who are in the business. Whether full corporatization takes place or not, some kind hybrid of co-operation and corporatization will take place, benefitting mostly small and medium farmers.

The demand for agriculture graduates, agri-business managers and some scientists will grow. Govts have substantially vacated space in agricultural exclusion already. These knowledge workers will be required to give impetus to diversified farming, looking for other channels for sale or to manage the semi-corporate farms. The farm sector can be transformed if pieces fall in place.

But it can go horribly wrong if GoI declares victory ahead of the event as they are doing now. As such, there is a trust deficit given the poor record of demonetization, GST rollout and lockdown for the wage labour. Governments, both central and state will have to do their work for things to pan out. There is no “open sesame” in reforms and must be accompanied by a lot of hard work and willingness to be flexible in course correction if things do not work.

Making credit available from the formal channel to the farm sector in multiples of what is being lent now will be important. Technology will come by seeing their demonstration effect or on-lent by the corporates but the need for credit will remain and that must be met. This must be addressed quickly if farmers are to be saved from dependence on intermediaries, including corporate who lend. Bankers should be able to distinguish between a juridical person and natural person as they do in corporate sector,. Otherwise, the same farmers will be denied loans as defaulters.

Simultaneously, an impetus can be given with the stewardship of the govt. for warehousing and cold storage, incentivising quality control and grading and sorting. GoI should eschew the temptation to step in to restrict export like they have done for onion crop recently to please their domestic constituency. When prices of everything went up by 50% post-lockdown, governments did very little. Then why should they ban exports when farmers stand to gain. This gives the garbled signal and raises questions about the real intention. When all these happen in tandem, the trust deficit will vanish and the bona fides behind reforms will be bolstered.

This is a reform whose time had come. But a lot needs to done to demonstrate its serious intent and that would require meaningful action rather than shouting in high decibel. After all, it does not matter what is said, but it matters what is done really as follow-ups to show what is really meant. We are in that inflection point where it can be a choice between a virtuous cycle and the road hurtling down if not handled well.

The writer is former secretary, GoI

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