PM’s retreat on farm laws conceals what is actually going on
In the end, the new farm laws were in place for less than a year. In his address on Gurpurab, Prime Minister Narendra Modi said he apologised for failing to convince a section of farmers that the amended farm laws would be in their interest, that the government would begin the process of withdrawing the amendments, and that a committee would be set up to examine changing crop patterns and making the minimum support price system “more effective”.
There is little doubt that withdrawing the new laws is a mistake. They were hardly shock therapy; the most that the new legislation did was end government monopolies in the wholesale trade and reduce the scope of intrusive and archaic regulations like the Essential Commodities Act. Many state governments have already done as much. Yet the Union government’s action created a backlash centred on the wheat- and rice-producing areas of India’s northwest.
The reason is obvious: because it is the Union government that finances the inefficient system of farm subsidies that benefits these areas. It is pointless to try and discuss differentiated state policy in this context, when the actual battle being fought is over where and how the Union directs its subsidies.
To be clear, the amendments themselves did not alter the mechanism by which that system operates, the minimum support price for staples. Yet it is clear from the protesters’ reaction to the prime minister’s speech that their concern is precisely that: the MSP. Most of the farmers camped outside Delhi have reiterated that they do not intend to leave until the current MSP system is enshrined in law.
Unfortunately for this demand, the current MSP system is unjust and unsustainable. A quick look at the most recent FCI (Food Corporation of India) numbers for the procurement of wheat and paddy in the kharif marketing season of 2021-22 will underline the injustice involved. Punjab and Haryana together have barely a fraction of India’s agricultural households, and they have the second- and third-highest agricultural income levels in the country (after Meghalaya). Yet 89 per cent of the households benefited by FCI procurement in 2021-22 so far live in these two states, as is 95 per cent of paddy procured under the MSP (including by state agencies, but paid for by the Union). As for unsustainability, the simple fact is that it is water-rich delta states like West Bengal that should be the focus of efforts to support paddy cultivation, and the semi-desert of the northwest where scarce groundwater is being pumped out at incredible rates to simulate the right climatic conditions.
It is natural that the protesting farmers are unwilling to discuss this basic fact, since it throws a somewhat less flattering light on their demands. Media coverage, domestic and international, will be far more complimentary if it appears that they are objecting to the government “abandoning” them to the private sector than if they make it transparently clear that they are seeking to protect the lion’s share of subsidies they currently receive.
Indeed, the entire discussion about private sector action in the agricultural wholesale trade seems to miss the point. The farm law amendments were enabling provisions that permitted some farmers to enter into contracts with the private sector, or to conduct wholesale trade outside government-controlled mandis. They also allowed private sector actors to build up stocks without fearing the Essential Commodities Act. This last measure would have helped catalyse much-needed investment into the supply chain; the ECA is justly feared by investors, since in past periods of price spikes for items such as pulses, random private equity investors who had put money into cold chain infrastructure found themselves behind bars. And the enabling provisions do not remove the government from the wholesale trade; they allow farmers to make their own decisions about where they sell and with whom they contract.
Increasing the options available to farmers is not “abandonment”; nor does it mean that either state-run procurement mechanisms are shut down or that other forms of intermediation, such as farmer producer companies, cannot be built. Indeed, the need is to ensure that more capital flows into intermediation to build up facilities, ensure the availability of credit, and to send the right price signals to farmers. Yes, of course, the possibility of new investment also creates the danger that sections of the agricultural supply chain will come to be dominated by a cartel of actors. Yet, if so, that domination will be transparent and can be addressed by regulation. It is hard to claim that this would be worse than the current system, where for example the trade in onions in all of the National Capital Region is opaquely controlled by less than half a dozen traders.
Thus the basic facts are these: that enabling private investment in the agricultural sector is not a danger, but a necessity, and it does not close off other forms of intermediation; that state agricultural policy is not the issue of concern, which is instead the targeting of Union government subsidy cash; and that the current system fails the tests of justice and sustainability.
It is in this context that we should perhaps look again at the quotes from the prime minister’s speech that begin this column. Notably, Mr Modi did not say the laws were flawed, but that he had failed to convince “a section of farmers”. He also introduced the MSPs directly into the discussion for the first time, and said the committee would examine their “transparency” and their “efficiency”.
Seen in this light, it is necessary to question the mainstream and simplistic telling of what has happened over the past few days. Mr Modi has certainly pulled back, and his political capital — dependent as it is on an image that he knows best and never retreats — may have taken a bit of a beating. But, equally, it is hard to say that the protesters have “won”. The government’s future path in the sector has been signalled by Mr Modi: it will be political rather than legal — as it should have been in the first place. The protesting farmers, Mr Modi seems to imply, will be revealed through broad-based consultation in this committee as merely a “section” of those impacted by the new laws. And the conversation will shift to what the MSP is, and how efficiently it benefits the vast mass of Indian agricultural households. These are not grounds on which the protesting farmers can easily win the argument. Any “victory” in this withdrawal might speedily prove to be Pyrrhic.The writer is head of the Economy and Growth Programme at the Observer Research Foundation, New Delhi