A Path of Truth for Balanced Liberalization

Liberalization is a double-edged sword. While improvement inflow of capital, possible rise in the rate of growth and control of price, increase in performance of stock markets, motivation for market-players to improve efficiency in their working, reduction of political risks to investors and greater opportunities for diversification in investors’ portfolio are some positives from liberalization, protection of interests of local players in the market-space, protection of rights of stakeholders (particularly workers), severe pressures on small-scale ventures to evolve quickly to compete with larger entities, possible increase in unemployment and unbalanced development of sectors in the economy are some negatives that may arise from liberalization. In 1991, Dr Manmohan Singh liberalized the Indian economy, when faced with an extremely serious economic crisis (with a twin deficit constituted by a deficit in India’s trade balance along with a significant fiscal deficit). In 2020, India’s agricultural sector was extensively liberalized with the introduction of the new Farm Bills 2020, which was posited the elimination of middlemen, attraction of investment into the agricultural sector and enhancement of technology used in the sector. The agricultural sector, which employs 58% of India’s population and adds Rs. 19.48 lakh crore of Gross Value Added (GVA), grew by 4% in 2020.

Agriculture marketing in most states of India is regulated by the Agriculture Produce Marketing Committees (APMCs) that are established by the state governments. The Standing Committee on Agriculture (Ministry of Agriculture and Farmers Welfare) chaired by Shri Hukumdev Narayan Yadav submitted a report in January 2019 titled Agriculture Marketing and Role of Weekly Gramin Haats, which highlighted the major problems faced by farmers especially small and marginal farmers, with regards to the existing framework around the APMCs in the states, which include issues such as long distances to nearest APMC markets, inadequate marketable surplus and lack of transportation. The Committee highlighted that the provisions of the APMC Acts were not being implemented truly since there were limited number of traders in APMC markets thereby reducing competition and undue deductions in the form of market fees and commission charges. There was cartelization of traders observed by the Committee, which also spoke on the observed lack of access of farmers to government procurement facilities including APMC markets. It not only recommended the government to prioritize the establishment of alternative marketing platforms such as GrAMs, but also suggested widespread stakeholder consultations for reforms and implementation of reforms in the area of agricultural marketing. The Committee noted that the state governments have had a lukewarm response to calls by the Centre to pursue reforms in their APMC Acts, and there are glaring problems such as the collection of market fees and commission charges not from the traders but the farmers, sometimes even when not applicable! The average area served by an APMC market was found to be around six times higher than the recommended area by the National Commission on Farmers chaired by Dr. M. S. Swaminathan in 2006, and therefore there was low availability of such markets for farmers. To make matters worse, the infrastructure and civic facilities in the available APMC markets are very poor. The Committee also recommended that the central government should increase the coverage of the Electronic National Agriculture Market (e-NAM) to states which do not have APMCs.

A glaring problem under the status quo, as it was in recent decades, is the manner in which lack of competition has led to consumers paying a lot and yet farmers not quite obtaining the benefits of this money, oft remaining underpaid for their produce and hardwork. For instance, urban consumers are sold vegetables at around ten times the amount at which they are purchased from farmers! Moreover, price rise did not benefit the farmers but rather the middlemen. Also, thousands of farmers cannot travel to major townships and markets, which they are forced to do due to lack of access to APMC Mandis in many parts of a state, due to high costs of transportation. The current NDA government introduced the Farm Bills 2020 with the intent of addressing and resolving these glaring problems in the system. In this essay, I would like to study the nuances of the Bills, the arguments of those opposing it, and more broadly discuss the key point of balanced liberalization.

Farm Bills 2020

The Government of India proposed the Indian Agriculture Acts of 2020 in September 2020. These bills aimed to provide farmers with multiple marketing channels and provide a legal framework for farmers to enter pre-arranged contracts, among other things. The bills were passed by the Lok Sabha, Rajya Sabha and President Shri Ram Nath Kovind on 17 September 2020, 20 September 2020 and 27 September 2020 respectively. There were three acts introduced as part of these bills:

Since the passage of these Acts, the response to the Bills have been polarized between immense praise and intense opposition from different sections of society. Protests against the Bills in Delhi, Haryana and Punjab came to the fore in September-October 2020, and this eventually led to the decision by the honorable Supreme Court of India to stay the implementation of the Bills on 12 January 2021.

The primary concern raised by the protesters is that of possible tampering with the Minimum Support Price (MSP) system in the country by the government, as raised by Rakesh Tikait – national spokesperson of the Bharatiya Kisan Union. The Minimum Support Price is the price of agricultural products set by the Union Government to purchase directly from the farmer, as a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. To expand on the questions raised around this with regards to the Farm Bills, the question is that if selling in APMC Mandis becomes optional, will these mandis even exist and whether procurement at Minimum Support Price (MSP) will stop? The concern arises due to the recognition that the MSP system works well in states where the state government has made efforts to support it by levying taxes on the procurement that may provide for infrastructure and that if there are two markets, as will happen with the recent Bill, and one of them selectively has no barrier on traders (as under the Farmers’ Produce Trade and Commerce Promotion and Facilitation Act 2020), trade will invariably move to the market that has no taxes levied. In such a scenario, there is fear that states that do not have enough tax revenue and/or resources may discontinue the MSP system. Even though farmers themselves recognize that the skewed regional procurement patterns in state under the MSP system can cause environmental imbalances (such as with farmers in Haryana and Punjab who continue to grow rice even with water and soil depletion) which may be lessened under a more open market, the possibility of having the MSP system removed altogether is causing unease in certain sections of the agricultural sector.

Prime Minister Narendra Modi allayed doubts on whether the Farm Bills will affect the MSP system, highlighting that the system will continue, and Union Minister of Agriculture and Farmers Welfare Narendra Singh Tomar stating the same in both – the Lok Sabha and the Rajya Sabha. Given this assurance, it now seems to be a crisis of trust that has caused the rift and the continuing deadlock over the Bills. While APMCs may have their fair share of problems, many farmers see the MSP system as a method of ensuring price guarantees on produce. To take an example of a state that has already abolished the APMC model, Bihar was the first state to abolish the APMC act over ten years back, thereby enabling the private players to procure directly from farmers. However, the results have not been entirely positive, with the erstwhile commission agents of the APMC model being replaced by the clout of private traders who now control the prices. This affected the poorer farmers with less landholding the most. With more than 86% of Indian farmers having less than 2 hectares of land as of 2018, the aforementioned possible adverse impact upon poorer farmers can become a major concern if the same trends are seen across the country. It is of prime importance, in this context, that the Union government must work towards alleviating the concerns of farmers on this front, possibly with more than verbal assurance, maybe in the form of a written assurance on the continuation of the MSP model. I would go one step further in seeking to encourage the policy-makers to reform the existing MSP system, whereby only around 6% of farmers can sell their produce at the MSP with a major number of farmers having to undertake distress sales, as per the Shanta Kumar Committee Report 2015. In my view, while corporate-owned infrastructure such as factories and warehouses may help farmers earn better prices, a complete disappearance of APMC mandis and regulated competition may lead to large companies obtaining complete monopoly over the market that may lead to price exploitation of farmers. Therefore, there has to be a balanced drive towards liberalizing the agricultural sector, in this specific direction, and I hope the government can reinforce and state more explicitly its commitment to doing the same.

Another major aspect that has been discussed extensively is that of contract farming. There is a concern that under contract farming, farmers may be dictated to, by corporate entities, and that the farmers will not be able to fix prices according to their free will. Having read The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020, I would like to highlight clauses 4-9 in Chapter II,

Clauses 4-9, Chapter II, The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020

In this section, the extensive checks and balances for such contracts are given, along with comprehensive quality assurance measures during the contractual period. This includes the grade and standards for pesticides, food safety standards, good farming practices, social development standards and details on delivery and the restriction of the usage of insurance or credit instrument under any government-initiated schemes for the purposes of such an agreement. Under the provisions of this Act, farmers will have full power to determine prices for their produce as much as the buyer would do, and the farmers will have to receive a payment within 3 days. On the question of how small farmers will be able to do contract farming when sponsors may not finance them, there are a number of Farmer Producer Organizations (FPOs) that have come into being and these will bring together small farmers and work to ensure a remunerative pricing mechanism for the agricultural produce. There has been quite a lot of work on FPOs under the aegis of the National Bank for Agriculture and Rural Development (NABARD), which is fully owned by Government of India. Currently, contract farming requires registration with APMCs in some states, with the contractual agreements being recorded with the APMCs, which can undertake conflict resolution between parties to an agreement. As per the Dalwai Committee report, only 14 states have issued rules to govern contract farming. I hope that the local dispute redressal system to be set up by the state government is effective since there has been a history of corporates steamrolling farmers when their corporate interests have been compromised, such as in the case of the PepsiCo lawsuit against farmers of Gujarat in 2019.

Balanced Liberalization: A Middle Path

The entire Farm Bills episode brings to the fore the importance of striking a balance when moving towards liberalization. In this context, the needs of the hour is balanced liberalization. I do not believe that either blindly pursuing socialism dogmatically or promoting crony capitalism works. Recently having written on a new framework of transcending – Turiyavaad, an ideology that is paradoxically about moving beyond rigid ideologies, which puts emphasis on truth and transcending dogma, I feel a Turiyavaadi element can be helpful here. Turiyavaad is a system of evidence-based policy-making and decision-making based on ground realities. While I understand the importance of liberalization and personally feel that the Farm Bills can bring in much-required capital inflow and infrastructure development, I stand for a hybrid approach. Not only should the MSP and APMC model be kept in place with an explicit assurance for the same, but there should also be specific systemic changes and reforms in the same, besides the private sector inflow as per the Farm Bills. To resolve how so, I think we must look at the manner in which farmers have been undertaking farming. Over the ages, farmers have planned season after season, deciding what crops to grow and in what area. These decisions are made as per their needs, labour and capital available, and their knowledge of land and the available technology. Ceteris paribus, the price received by the farmers in previous cycles has been one of the primary factors in their decision to allocate areas under specific crops, which are mainly produced to be sold. The complexity of this analysis and problem increases manifold with more land and number of people involved in the farming process, and what is required is rigorous methods to accumulate information, to analyze and to plan. Unwise land usage can be an encumbrance. This can include adoption of unsustainable systems of farming on poor soil. It also has to be adjusted based on market dynamics. If prices of radish are about to crash and radishes have been produced in excess of demand, the government stepping to buy this will only burden the taxpayers. With water and land resources, along with fertilisers, being limited and having been spent in surplus production, the case for area planning gets only stronger. As population increases and these resources become even more scarce, optimal usage of the land and resources is of prime importance.

Area planning is a massive challenge for a large democracy like India, particularly with the population and acreage in agriculture. At the national level, the total demand of agricultural commodities will have to be made before the sowing season for effective planning. Upon assessing this demand, the demand will have to be divided among states based on proportion of land under cultivation of the specific crop as well as conditions such as soil that are appropriate for the same. This can further trickle down to more division between regions within a state. But to bring this into action, what is most important is consensus among farmers and political will. While land reform and efficient allocation should be a broad aim we should move towards, even optimum usage and planning would go some way in helping the small landholders and farmers, and possibly in alleviating poverty. For developing consensus among farmers, good estimates about the programme required must be made followed by local discussions through grassroot consultations and workshops. It is encouraging to see that farmers in Haryana and Punjab have themselves suggested the controlling of production under varied crops. Now, does it mean we completely move towards a state-controlled-and-planned model or the license model we have followed till now for all crops? No. We liberalize but for the protection given from the government’s side to those who do not feel either able or secure to avail this, we have a revitalized and improved MSP and APMC model. With regards to the extensive task of mapping resources, obtaining and analysing information on crop patterns and market dynamics, and planning, we can avail the power of the private sector again, albeit with government regulation (preferably through Public-Private Partnerships).

There are some aspects that must be developed for both these channels. Agricultural terms of trade, supply response and commodity prices can be be improved only with greater public expenditure on technology development and distribution, rural infrastructure, human resource development and other support systems. Small holder farmers depend more on public services, and even in a liberalized economic scenario, public expenditure for these varied elements can only stimulate agricultural development. The capacity of producer organizations must be strengthened and enhanced to facilitate them to help with representation and risk management on behalf of their member-farmers. For risk management, there must be extensive studies to assess the price risk bearing capacity of smallholder farmers and the role that farmer organizations, producer organizations and financial markets can play on this front. Farmers’ lobby groups and effective information systems that are run by the government (again possibly with a PPP model) are of prime importance to increase the control of farmers in a marketing chain and to address the information asymmetries that may be present in a completely liberalized system. We must also put in place discretionary policy measures to improve the access of smallholder farmers to consumption and production credit to boost farming efficiency and productivity. Given the aforementioned dearth of APMC markets in various regions of India, there is a need to increase access to rural markets and APMC Mandis. Along with liberalization, all of these policy elements, particularly area-planning and resource optimization, focus on establishing institutional frameworks that are required to increase opportunities, improve access, reducing production and transaction costs and bringing farmers, particularly smallholder farmers, to resources and markets.

This model of balanced liberalization can be used for other sectors and areas of life as well, particularly in developing countries. While markets are opened up in this framework, there is a parallel robust and efficient public-sector regulated and planned system, which relies strongly on information-gathering, rigorous analysis and planning for resource optimization. In this manner everyone is given equality of opportunities and a path for gradual movement up the economic ladder. When a government makes a policy for liberalization, they cannot just expect the entire populace to recalibrate and orient themselves to extreme market changes and expectations, particularly in a country like India where people live in highly precarious situations, economically. I feel that would be highly unfair and even inhumane to an extent. An unchecked market and wanton capitalism has only helped materialistic tendencies to prevail and exploit the weak. The ideal of everyone ‘catching up’ never quite happens in that way. If tomorrow only private players remain in agricultural marketing in the country, what it is to stop them from changing prices dramatically to help fill their coffers? What makes them any better them neo-colonialists who, like the British did with Indigo farmers back in the Raj, monopolize agriculture and harass farmers to do their bidding? These are all glaring questions that remain to be addressed. The current Union Government’s drive to liberalize the agricultural sector is commendable, in seeking to bring in much-needed capital, energy and vigour into this sector. What may be required as well may be a parallel channel that is either public-sector driven or PPP-model driven that puts in place regulation and planning (particularly area planning), with strict checks against inefficiency, redundancy, wastage and corruption, and is based on the Turiyavaadi tenet of looking at what the truth of the matter, the actual ground-reality is. Truth is important as much if not more than liberty and equality – two ideals that are kept on a pedestal by the Right and the Left respectively.

It is in balance, and in this case balanced liberalization, based on the triad of truth, efficiency and compassion, that may find a better tomorrow!