India’s economic policy has always had an urban bias. Whether it was to support early industrialization by keeping food prices low, or to mop up rural savings for funding industrial growth, the rural and hence agricultural sector has been at the receiving end of a bad bargain. Even the switch to an inflation-targeting mandate given to the central bank in 2016 has been deflationary for agriculture, as food items constitute more than half its reference index for retail inflation (by weightage). That the terms of trade were stacked against agriculture was known. It was also formally documented in the calculation of India’s aggregate measure of support (AMS) that was a prerequisite to joining the World Trade Organization in 1995. For most countries, especially in the West, AMS was positive, whereas for India it was and is still negative. Over the years, this imbalance was sought to be corrected by input subsidies for fertilizers, electricity, water and farm credit. Output price support was provided through government procurement and its mechanism of minimum support prices (MSPs). This is the paternalistic yet heavy hand of the state trying to help farmers. Not to forget other intrusive measures, like frequent bans on the import and export of various agricultural products, stock limits masquerading as “anti-hoarding" laws, and carving up geographic areas for exclusive input sourcing, as in the case of cane for sugar mills. Basically, the farmer’s life is defined by state intrusion. That is why the rallying cry of Shetkari Sanghatana, one of the first prominent nationwide farmer organizations, was “give us freedom". Its founder, Sharad Joshi (1935-2015) coined the slogan, “Bheek nako, ghamache daam hawe" (we don’t want alms, we want the fair price of our sweat and toil). For more, see ‘Remembering Sharad Joshi, the jeans-clad farmer’, Mint, 14 June 2017.
Joshi also realized that it was not enough to demand higher output prices through the MSP regime. Any state intervention in the market invariably leads to another counter-intervention to undo its unintended side-effects, and the cycle continues. The whole statist system had to be dismantled. This meant removing the shackles of the Essential Commodities Act, doing away with compulsory procurement, allowing tenancy farming and land leasing, improving credit flow, legitimizing moneylenders with proper regulation, enabling direct contact among buyers and sellers (including for contract farming), removing export controls and allowing forward markets, derivatives and speculation. He was one of the first to advocate liberalization of the agriculture sector.
One wonders how Joshi, who was once a Rajya Sabha member, would have reacted to the farm bills India has just passed. He would have been disappointed with the process, and the fact that important reforms were pushed through first as ordinances and then just by a voice vote in Parliament. There was no debate, no reference to a select committee, nor consultation with states, even though agriculture is a state subject. But he would also have welcomed the spirit of reforms; i.e., of diluting the middleman’s power exercised through agriculture produce marketing committees (APMCs), of axeing arbitrary stock limits on private traders, and of enabling business deals between firms and farmers.
It is instructive to recall an agitation led by Joshi for the tobacco growers of Nipani in 1981. Many had small land holdings and suffered at the hands of an oligopolistic cartel of traders who not only squeezed prices, but also indulged in illegal practices like arbitrary deductions in weight or amounts paid. Payments were usually late. Joshi described it as almost feudal exploitation, a version of what prevails even today in many APMCs for a variety of crops. So the Joshi-led Shetkari Sanghatana demanded a fair price, about 30% higher, since input costs had escalated. They organized road blocks as part of a civil disobedience protest, though after issuing adequate notice and exhausting all other avenues to get farmers some relief. Unfortunately, despite the peaceful nature of that agitation, which lasted for about two weeks and drew over 40,000 farmers, they faced brutalities that left ten people dead. It was clear that the struggle of farmers to get economic freedom and a fair deal was inextricably linked to the political economy. Vested interests wanted the status quo. A diehard reformer, Joshi also saw the relevance of the state’s role in ensuring fair prices for farmers.
This is the crux of the angst over MSPs. The current agitation is not so much against APMCs turning irrelevant, but against MSPs vanishing. These provide price insurance, which is otherwise available only through efficient and liquid forward markets linked with global markets. But that is a bridge too far for India. Until then, the country needs a fiscally supported MSP regime operating under government-run APMCs (as MSPs can’t be forced on private buyers). While the bills passed are pro-market reform, the government has pre-emptively banned the export of onions in a knee-jerk fashion. This denies farmers lucrative prices, and is yet another example of urban bias. In the last three months, India’s import duty on masur dal has been cut from 30% to 10%, raised back to 30%, and then decreased again to 10%. With such volatile and intrusive policies, is it any surprise that farmers are anxious about whether the APMC dilution’s endgame is the complete elimination of MSPs? Nothing short of a written legal promise will assuage this anxiety. Joshi would concur.
Ajit Ranade is an economist and a senior fellow at The Takshashila Institution, an independent centre for research and education in public policy.
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