The fairy tale outcome of these reforms would be better infrastructure and market access, which could take the rural economy to new heights
The Central government in June passed three Acts to reform the farm sector. One, to free the prices of cereals, pulses, oilseeds, edible oils, onion, and potatoes from stock limits (with some exceptions); two, allowing farmers to sell their crop to anyone, anywhere; and, three, allowing farmers to get into contract farming. The fairy tale outcome of these reforms would be better infrastructure and market access, which could take the rural economy to new heights. Under current laws, farmers can only sell (most products) to licensed traders in APMC (agricultural produce marketing committee) mandis near them, controlled by politicians, who gobble up the bulk of the profits from the chain. With prices being freed, farmers will benefit — this is the hope. Through contract farming, farmers will get capital and technology — this is the dream. Relentless propaganda has brainwashed millions into believing this rosy scenario.
But the “reforms” have provoked farmers to go on the warpath. Amid a welter of allegations, denials, and clarifications, all muddied by the ruling party demonising the protestors through social media, no one really knows which side is right or which arguments are sensible. I don’t know whether the Modi regime had anticipated the intensity of the farmers’ agitation. If it did, will it brazen it out, or pay lip service to farmers’ demands? After all, this government is the last one to give in to anyone’s pressure.
It’s the implementation
No matter how the protests are resolved, the regime will still have to handle implementation issues. Even if these Acts are forced down the throat of state governments (illegally, according them, because agriculture is a state subject), there is no escaping the huge effort needed to substitute the currently restrictive and exploitative APMC structure with a more reliable trading and price discovery mechanism to give farmers a fairer price. But price is only one part. Farmers then will have to deliver their produce and need an end-to-end physical distribution to fulfil orders. To support both price and delivery, we will need iron-clad contracts. Who will enforce such contracts — quickly, easily, and inexpensively? It is this part of the fairy tale that looks most utopian and can lead to enormous distress. A quick look at the situation in the financial sector will tell you how big a mess it can be.
At Moneylife we have been looking at the consumer financial sector (mutual funds, stocks, insurance, fixed income, loans) for 15 years now. Each of these segments is highly regulated. Every player has to be registered with the regulator. Everyone’s conduct is well-defined. Almost the entire business is technology-driven, which can ensure complete transparency and record trail. Competition is strong. Fines and penalties for misdemeanours are written into the regulations. Each regulator has set up a multi-layered grievance redress system, apart from forcing individual players to set up their own internal redress mechanism.
And yet, based on my knowledge as an insider, I can confidently say that the playing field is horribly tilted against the consumer. I have written about these innumerable times. In general, powerful players are openly selling harmful products, and incentivising distributors to dupe consumers into buying them. Or they overcharge consumers brazenly, sometimes legally (poor regulations). When caught, they get away with small fines or no fines. Justice is not about how many laws and regulations we make. It is about making people pay for abuse of power. The only way out is quick and exemplary punishment, which then becomes a lesson for others to remember and behave. But regulators, captured by the dominant players, can’t think of exemplary punishment or ways to give savers their money back, even when it is possible. This is the ultimate test of whether the system is delivering justice to the little guy. It isn’t.
Among those who have sought Moneylife Foundation’s help to get their money back after being cheated are a top singer and actress, the head of a large advertising agency, a large distributor of Reliance products, doctors, and even bankers. Now, in our fairy tale “free market”, imagine a transaction in rural India outside the APMC, with a small farmer on one side and big trader or a corporate contractor on the other. No effective safeguards, no checks, no way of even establishing wrongdoing of the larger and powerful party. Worse, there will be no access to courts, because the law does not allow it. There will be rampant, one-way exploitation, far away from the public eye. The solution, as I had mentioned in June, is to do a pilot project (in a BJP-ruled state), gather feedback, and use that data to improve the system. But for some strange reason, this government does not want to follow this method (virtuous feedback loops) even though many of its in-house intellectuals claim that making course corrections by using feedback is indeed a new method of governance.
In fact, I have often wondered if this regime follows any method on economic issues. Why is it that the same team that is so purposeful, methodical, and laser-focused on its political objectives is so bumbling with economic reforms? Why is a team that could change the rules of the political game overnight had to borrow the Congress’s economic ideas and serve them up as its own, delivered with shiny, new slogans? I haven’t seen any explanation for this strange phenomenon. I have only seen apologies for the regime by blaming failures on weak bureaucrats and finance ministers. In June, I wondered whether the three new farm Acts would lead to the biggest reform ever, or end up as a farce. Well, it is turning out to be a three-act tragedy for now.The writer is the editor of http://www.moneylife.in | Twitter: @Moneylifers