Can Modi pull off an Ajinkya?

Miracles happen. After the Indian team was bowled out for 36, its captain left the tour mid-way to for his child’s birth, and the team was near-crippled with all manner of injury, Ajinkya Rahane and his team pulled off something even their most ardent fans would never have thought was possible.

The question, in this context, is whether, Prime Minister Narendra Modi will be able to pull off an Ajinkya after his big setback with the agitating farmers; after seeming to be determined not to yield to the unreasonable demands of rich farmers from essentially one state, the government has offered to put the laws in abeyance for 18 months, during which talks can be held to find solutions to the demands/apprehensions of farmers.

It is not clear how events will unfold, but it is interesting that instead of accepting the offer with alacrity, the farmers said they would think it over – their demand is a complete repeal of the laws as also a legislative guarantee that the government will procure 23 crops for which it announces MSPs regularly – before getting back to the government. And with the government yielding to the pressure put by farmers, other protesting groups will – with the help of various political parties – also try their luck.

In which case, there is the very real possibility that, just like the government’s failure to amend the land acquisition Act in its first term set limits to the reforms it could undertake in the face of a combined Opposition, the Punjab farmers’ agitation could well do the same in Modi’s second term. If Modi had to rush through the farm Bills in the last session as he may not have had the numbers, the farmers are a big force multiplier for the Opposition as they offer the possibility of choking off the capital and putting further pressure on the government; imagine the violence if the government tries to stop the farmers’ tractor rally on the 26th.

While it is to be hoped that the coming Budget will unleash a fresh set of reforms, it does appear that for now at least there will be no reform in the agriculture sector. This is unfortunate since, though the agitating farmers of Punjab – and Opposition parties like the Congress – are giving the impression that very major steps have been taken, nothing of the sort has really happened. MSP-based procurement continues as before, and while farmers can continue to sell in the APMC mandis, the new laws have been given the option of also selling elsewhere, including in different states and even directly to buyers.

To understand why genuine reform is so important, it is vital to understand the reasons behind Punjab’s agricultural success and, over the past decade or more, its stagnation and decline. Punjab is India’s richest agricultural state, but the subsidies it enjoys are so high (https://bit.ly/3c0sIO6) that, at Rs 173,165 per farm household, they are much higher than the average income of Rs 107,192 for all farm households across India. This is not to say that the Punjab farmer is not industrious and doesn’t put in the effort, but that if the same facilities were available to farmers in other states, they could do even better.

Farmers face, at the end of the day, an output risk if the crop fails and a market risk if their crop is not sold and at the price they want. The second risk is almost negligible in Punjab since 70% of Punjab’s wheat output is procured by government agencies and about 85% for rice; in terms of the marketable surplus, almost all the crop is procured at MSP. In contrast, just around 10% of UP’s wheat is procured at MSP – UP produces double the wheat Punjab does – and this is around 24% for rice. So, while mandi prices are typically 20-50% below the MSP for most crops, the Punjab farmer is almost completely insulated from any market-risk (https://bit.ly/2M8gdVN). So, if FCI was to increase procurement from other states, their production would also rise. While FCI is too broke to extend MSP-based procurement to other parts of the country, keep in mind the excess 50 million tonnes of stock – a large part from states like Punjab – that open-ended procurement forces it to hold is worth around Rs 180,000 crore; this is taxpayer money and there is difficult to justify why Punjab is favoured over other states.

While output risk is a factor that all farmers face, what mitigates the risk for the Punjab farmer is that 99% of the state is irrigated versus around 20% for a state like Maharashtra and less than 50% in the case of India. While the state government and the Punjab farmer have certainly invested to create such facilities, the bulk of the irrigation facilities have been created by the central government.

Punjab has the best road network in the country and it gets a disproportionate share of fertilizer subsidies – another way to mitigate the output risk – with its per capita consumption at 212 kg per hectare versus 135 kg for the country as a whole. The state has amongst the highest consumption of electricity in the country, at for virtually free, but this is something the state government pays for. But, if the state was to charge farmers for the water they use – and the tremendous damage to the water table – it is safe to say Punjab’s farmers would be producing a lot less than they do today; in a sense, then, today’s farmers are essentially robbing future generations of farmers of their livelihood.

How dependent Punjab’s success story is on central largesse, ironically, is best illustrated by the farm laws that Congress-ruled states like Punjab and Rajasthan passed in response to the central laws. Punjab, for instance, said that no purchase of wheat or paddy would be allowed if the price was lower than the MSP – but almost all is bought by FCI at MSP anyway! – but no such stipulation was made for any other crop as this would require the state to do the procuring! In Rajasthan, similarly, the Bill for non-contract farming had no minimum-MSP-based purchase as most produce in the state sells at below MSP; at the time the Bill was passed, in the case of jowar, prices – on the last trading day of October – were 51% below the MSP, 35% in the case of bajra, 22% for maize, 10% for groundnut; it was only for urad and soyabean that mandi prices were higher than the MSP (14% and 8% respectively).

Whether Modi is able to do meaningful reform in agriculture or other sectors after being bowled out for 36 – in a sense – depends on his Ajinkya-like qualities, but what is worrying is that many are basking in his humbling instead of worrying about its implications. One of the UPA’s chief economic advisors, Kaushik Basu tweeted “it is so good to see Punjab farmers not just standing up for the cause of all farmers but providing leadership for democratic and human rights”. Never mind that, with Punjab’s farmers preventing larger reforms in order to preserve their fortunes, it is actually Punjab’s farmers versus the rest of India’s; indeed, as it happens, even Punjab’s farmers (https://bit.ly/2NoQkSa) are seeing a rapid decline in their relative fortunes thanks to excessive reliance on MSP as the prices of these crops has risen much slower than other crops.