Bridging the trust deficit: Need for gradual and consultative reforms

[ Tenzin Zimba ]

The current state of India’s agriculture sector is grim. It employs 60 percent of the population and contributes only 18 percent to the GDP. Within this large group, around 86 percent are small and marginal farmers. Most of them are landless with extremely low income. Problems like price volatility, disguised unemployment, intermediary commissions etc, contribute to their misery.

Also, we face crop loss of Rs 90,000 crore annually due to lack of storage infrastructure. The agriculture sector is in need of reforms. To answer this call, the union government has put forth three new legislations to bring about a structural change. Let us analyze the current laws briefly, based on its merits.

First, the Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill aims to open up the market for the farmers by ending the monopoly of APMCs. It gives impetus to intra-state or interstate trade in areas outside the APMC mandis, and bars the collection of any cess or fees. Moreover, it has no mention of closing down the APMCs or removal of MSP.

Secondly, different states had specific laws to deal with contract farming in their jurisdiction. The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020, simply gives legal sanctity and framework for contract farming on a national level. Contract farming will reduce price volatility for the farmers.

To enter into a contract is always a voluntary option. For instance, a farmer in Raigadh, Maharashtra, earns just Rs 30,000 per acre of paddy, while planting mangoes would earn him 10 times more. He has no capital or savings to invest on mango trees and wait for its yields. This is where contract farming steps in – the farmer plants mangoes and he is provided with an average of his “paddy income” every year by the private company. When the mangoes yield, the company buys it from the farmer at a discounted price. Even then the farmer earns 10 times of what he earns today.

Third, the Essential Commodities (Amendment) Bill, 2020, removes stock limits on agriculture produce under normal circumstances and imposes them only during extraordinary circumstances. This colonial era legislation did not differentiate between storage and hoarding. Also, the government can always put in stock limits in case of extraordinary price rise. The change will incentivize capital investment for legitimate storage infrastructure in the country, which will streamline supply and provide better prices to the farmers, irrespective of a bumper harvest or off-season demand.

The farmers fear that opening up of the market over the years will make the institution of APMC redundant. This will in turn stop government procurement and price guarantee under the MSP. With regard to contract farming, farmers fear that it will give the upper hand to the large corporate bodies in case of any dispute between them. Although it protects them from price volatility, it fails to address the concern of price determination between the parties. The bill says that quality of a product is to be decided mutually, but this may lead to large corporate bodies bringing in uniformity, thereby affecting the small players. In case of amendments to the Essential Commodities Act, people feel that it will give way to hoarding and artificial inflation in the market.

Above all, the bottom line here is that these new farm laws legitimize and incentivize entry of private players. These reforms are sudden and will definitely give rise to fears, a lot of which is also based on negative perception of private companies. We must accept that their entry will bring in much needed investment to the sector. A similar model in the dairy sector has seen success, where government cooperatives and private players like Nestle & Hatsun have been working side by side for years.

The way forward

The government has erred in two areas. Firstly, it brought these bills without proper discussion in Parliament. They were not referred to select committees for recommendations and scrutiny. Second, the biggest stakeholders, the farmers, were not consulted and their attempt to initially meet the government representatives was met with force. These mistakes resulted in widening the gap between farmer unions and the government.

The way forward is effective communication and compromise from both the sides. The government must address the fears of the protesting farmers and devise a mechanism that draws a middle path. One such method could be formation of a pan-India agriculture council along the lines of the GST council, which decides on agriculture issues. It must pay yearly compensation to states like Punjab which generate huge revenue (Rs 3,500 crore) under the APMC model. This revenue also explains why the protests are largely centred in Punjab and Haryana.

The arguments from both sides are valid but are based on different premises. The issue here is whether the farmers trust the government’s intent and how much the government is willing to reconcile with farmers. Rapid bulldozing of reforms without consultation has only widened the trust deficit. The government must strive to bridge it and remember its promise of ‘Sabka saath, sabka vikas, sabka vishwas’.