PM Modi hits the right notes, but will he push farm reforms?

Not surprisingly, given his oratorial skills, prime minister Narendra Modi made a masterly presentation – in the Rajya Sabha – on why the farm laws enacted by his government were critical if the small farmer was to be lifted from today’s penury. Not only did he speak of how every political party had supported some form or the other of these laws – he read out a quote from former prime minister Manmohan Singh for good measure – he even spoke of how, during the days of the green revolution, the left parties heaped abuse on then prime minister Lal Bahadur Shastri; it was Shastri then, he argued, and him now, but it didn’t matter as long as the lot of the farmer benefitted.

Though he did not call out the Punjab farmer’s (read https://bit.ly/3p2WDI9) pampered status – the state accounts for 14% of India’s wheat and rice production but more than 26% of whatever FCI procures from across the country – the prime minister delicately alluded to this when he pointed out that, while dairy farming output is greater than both cereals and pulsed put together – dairy accounts for 22.5% of farm output by value – there is no MSP for dairy; ditto for horticulture which accounts for 21% of the value of farm output versus 16.4% for cereals and 3.2% for sugarcane which also has an MSP of sorts, though that is compulsorily imposed on sugar mills.

Interestingly, while cereals output grew by just 1.6% per year between 2000-01 and 2018-19, horticulture grew 4.4% and dairy by 4.5%. Why shouldn’t those growing cereals, the prime minister asked, get the same freedom that either dairy farmers or those growing fruits and vegetables have? There are no restrictions at all on where dairy farmers can sell their milk or meat and, under the UPA, fruits and vegetables were removed from the monopoly ambit of the APMC mandis; this is what Modi’s farm laws tried to do for other crops.

Modi also pointed out that while, in the dairy sector, all buying is done by either the private or cooperative sector, there was no case of anyone’s land being seized, debunking the myth that the new farm laws would give untrammelled power to big corporate houses – like Ambani and Adani – who would use this to grab the farmers’ land.

After quoting farm leader and former prime minister Chaudhary Charan Singh on how the small farmer couldn’t even eke out a living, prime minister Modi said that things were even worse today with 60% of farmers holding less than one hectare of land; 86% had less than two hectares. So while politicians are quick to announce loan waivers, he said, they didn’t bother to mention that none of this helps the small farmers; indeed, he said, most of the power subsidy – and hence the availability of water – also goes to relatively better off farmers.

Some of this, of course, was self-serving. After all, in the run-up to the Uttar Pradesh elections in 2017, Modi himself announced a Rs 36,000 crore farm loan waiver and, in the same year, the  BJP-ruled Maharashtra also announced a Rs 34,000 crore farm loan waiver. But more worrying, after starting off well, Modi didn’t really indicate how he planned to move the process of farm reforms forward.

Given the way the agitation is gathering strength, and the intransigence of the farmer unions even after the violence at the Red Fort on Republic Day, this is clearly not the best time to expect fresh reform, but the prime minister’s speech virtually ruled out any major change anytime soon.

Assuming, correctly, that creating new job opportunities in manufacturing to pull farmers out of agriculture is not going to be easy, there are just two or three ways to improve the lot of those in the farm sector, apart from giving them more marketing freedom, including the right to sell directly to buyers. One is to give them direct income support and the second is to invest more in capital formation like that on irrigation or rural roads. The problem here is that while the government spends around Rs 80,000 crore a year on just the fertilizer subsidy – that is mainly used up by rich farmers – it spends just around Rs 4,000-5,000 crore on irrigation and around Rs 14,000 crore on rural roads. So, a big turnaround in expenditure is called for, but there was little in the prime minister’s speech to indicate that this was on the horizon.

Another Rs 200,000 crore or thereabouts is spent on procuring cereals from states like Punjab every year and while this is not considered to be a farm subsidy as the grain is meant to feed the ration shops, there is a big subsidy element to this as well. For one, the MSP-based procurement is open-ended and, thanks to this, FCI’s excess stock – beyond the buffer stock norm – is worth Rs 150,000-180,000 crore. Just think of what this dead capital – a fourth of which can be attributed to Punjab – could do for farmers if invested in irrigation or rural roads. The prime minister’s speech on Monday held out little promise of reform since, as he put it, MSP was here in the past, MSP is here today, and MSP will be remain tomorrow as well. It is true, politicians rarely stick to what they promise, but this was an unambiguous assertion of MSP being here to stay.

And whatever hopes there were of reducing the food subsidy – only then can the MSP-based procurement be tempered – were dashed to the ground when the prime minister said there would be no cut in the subsidy for 80 crore persons via the ration shops either; how can a country afford to give a 90% subsidy to two thirds of the population – under the National Food Security Act – more so when that subsidy is better directed to the poor including the farmers?

In short, the prime minister did a great job of explaining the need for urgent agriculture reform, but did little to inspire confidence that he would be able to actually carry it out even in the unlikely event of the combined Opposition agreeing to go along with the farm laws he has passed or the striking unions making peace with them and going home.