Introduction
Three farm bills, initially issued as ordinances in June 2020, were passed by voice-vote in the Lok Sabha and the Rajya Sabha in September 2020; they received presidential assent on September 27, 2020 and became acts. However, due to the massive protests by farmers, especially of Punjab and Haryana, the Supreme Court on January 12, 2020 suspended the implementation of these laws. Now, the central government, for the time being, cannot take any executive action on the basis of the three laws. The move of the Supreme Court is aimed at convincing protestors to negotiate with the Centre.
The court has also constituted a four-member committee of experts in the field of agriculture. It consists of Bhupinder Singh Mann (President of Bhartiya Kisan Union), agriculture economist Ashok Gulati, Dr. Pramod Kumar Joshi (former director of National Academy of Agricultural Research Management), and Anil Ghanwat from Shetkari Sangathan. However, Bhupinder Singh Mann opted out of the committee one day after it was constituted. Now, it is a three member panel. The committee will address the fears and doubts raised by the farmers by negotiating between the farmers’ bodies and the central government and will report back to the court.
These three acts are—
- The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, which enables farmers to sell their agricultural produce outside the notified Agricultural Produce Market Committee (APMC) mandis and abolishes payment of any state cess or market fees by farmers.
- The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 that provides for contract farming and direct marketing.
- The Essential Commodities (Amendment) Act, 2020 that deregulates the production, storage, movement, and sale of some main agricultural commodities, including cereals, pulses, edible oils, onion, etc. Only under extraordinary conditions, may regulation be imposed on such commodities.
These laws aim to increase the number of buyers available for agriculture produce so that farmers may get better prices for their output due to increased competition among buyers. The laws also make provision of carrying on free trade without the requirement of any licence or stock limit. Thus, these laws will change the process related to marketing, selling, and storing of agricultural produce throughout the country. However, the implementation of the acts have led to farmers’ protest with political backing.
Need for Reforms
The regulation of agricultural markets in India falls within the ambit of state Agriculture Produce Marketing Committee (APMC) laws. The system of APMC was set up to ensure fair trade between buyers and sellers for achieving remunerative prices for farmers’ produce. But it has been found that the laws of APMCs were not implemented effectively.
In order to promote restriction-free trade of farmers’ produce, competition through multiple marketing channels, and farming under pre-agreed contracts, the government released the model APMC and contract farming acts during 2017–18. But the Standing Committee on Agriculture (2018–19) found that states had not implemented many of the reforms recommended in the model acts.
The Standing Committee on Agriculture (2018–19) viewed that APMC laws needed to be reformed urgently. The committee observed that most of the APMCs have a limited number of traders operating, resulting in lack of competition and manipulation of prices (cartelisation). It also found that there were undue deductions in the form of commission charges and market fees. The practice of cartelisation was prevalent with traders, commission agents, etc., organising themselves into associations to bar new persons from participating in the market.
Thereafter, a high-powered committee, comprising seven chief ministers, was formed in July 2019, to discuss the adoption and time-bound implementation of model acts by states and changes to the Essential Commodities Act 1955 to attract private investment in agricultural marketing and infrastructure.
Issues with the Acts
There have been wide-spread protests against the farm laws. Opponents of the new framework have raised concerns regarding the potential of the acts to corporatise agriculture, destroy the system of mandi network, and lower state revenues. It is also feared that the laws could weaken the system of government procurement at guaranteed prices because minimum support price (MSP) has not been guaranteed in the new farm laws; this is a major issue of concern among the protesting farmers. Many opponents of the farm laws say that MSP and APMC go hand in hand. They are apprehensive that without MSP, the mandi system would also come to an end. Another point is that contract farming would result in the farmers’ land being taken away by corporate houses.
The main issues are considered below:
(i) Minimum Support Price (MSP) Minimum Support Prices (MSPs) are the pre-set rates at which the government buys farmers’ produce in order to safeguard them against any major slump in prices during bumper production years. The MSP is not linked to market prices; it is decided irrespective of prevailing market rates. At the start of every sowing season, MSP is declared for 23 crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). However, the central government only purchases (or procures) paddy, wheat, and certain pulses. The 2015 report of the Shanta Kumar Committee, basing its observations on National Sample Survey data, pointed out that only 6 per cent of agricultural households, belonging to big and elite farmers in India, sell their output at MSP. According to The Hindu newspaper, even in states where limited procurement takes place, farmers want the MSP programme to continue.
Government’s Stand on MSP and Farmers’ View The government says that the new laws will strengthen the remaining farmers, i.e., about 86 per cent, who are outside the mandi system and will enable them to sell their produce outside the mandi at better prices.
The union agriculture minister, Narendra Singh Tomar, said that the new legislation has “nothing to do with MSP”. Its aim is to give farmers and traders the freedom to sell and buy agricultural produce outside the mechanism of APMC mandis. MSP and procurement are totally different issues. According to him, MSP was neither a part of any law before, nor is it part of the present law.
Farmers, however, fear that promotion of tax-free private trade outside the APMC mandis will result in rendering the notified market unviable, leading to a decrease in government procurement. In Punjab, Haryana, and some other states, most of the government procurement centres are located within the notified APMC mandis. According to data of the agriculture ministry, more than 85 per cent of wheat and paddy cultivated in Punjab and 75 per cent grown in Haryana is bought by the government at MSP rates. Farmers want MSPs to be implemented both within and outside mandis so that they are assured of getting a minimum price (floor price below which no purchase can take place) from buyers—government or private.
There is apprehension among farmers that without MSP and government procurement, they will become vulnerable to market fluctuations, and market prices will also fall.
Reasons for not Guaranteeing MSP If the new farm laws do not affect MSP, then why is the government not willing to include MSP in the legislation, despite so much resentment among farmers? Actually, MSP has always been an administrative mechanism, not a legislative one. So, farmers cannot demand MSP as a matter of right as it does not have a legal backing. The government increases it whenever the need arises. If it were to become a law, and subject to the litigious process, it would affect the very essence of MSP. Making MSP legally binding would make its practical implementation and changes at regular intervals quite complex.
As per economist Arvind Panagariya, the government must resist guaranteeing the MSP on all purchases. Implementation of MSP with a legal guarantee may cause excess supply of grain. The government would be required to pick it all up and the burden of surplus unsold stock of grains will ultimately affect the taxpayer.
Another reason cited for government being unwilling to agree to MSP in writing is that it will make India’s agri-export non-competitive as the government’s assured price will be much higher than both domestic and international market prices.
Effects of MSP The states of Punjab and Haryana were not only pioneers but also the earliest beneficiaries of the Green Revolution. MSP assured them a decent price year after year and the APMC system worked well; and up to 70 per cent of the central food grain procurement continued from these two states. The assurance of a guaranteed price led to a situation where there was no local innovation and therefore, Punjab’s agriculture became relatively uncompetitive. Punjab’s overdependence on public procurement of wheat and paddy actually acted as a hindrance to its agricultural development.
Moreover, wheat and paddy cultivation in Punjab has been at the expense of pulses (after 1960–61), maize, bajra, and oilseeds (after 1970–71), and cotton (after 1990–91). Wheat began to be grown in place of chana, masur, mustard, and sunflower, while paddy replaced cotton, maize, groundnut, and sugarcane. The problem of mono culture leads to depletion of soil nutrients, vulnerability to pest and disease attack. There is also the issue of the declining water table in Punjab due to paddy cultivation, which requires a lot of irrigation; it is more suitable to be grown in parts of India receiving abundant rainfall. Wheat is not an issue in this context being naturally adapted to the state’s soil and agro-climatic conditions besides being desirable for national food security.
In the absence of diversification, the agriculture in the state has become stuck in a ‘middle-income trap’ resulting in stagnant incomes of farmers even as the farmers hesitate to shift to other crops due to fears of not having an assured income that MSP on paddy and wheat brings.
(ii) AMPC Under the APMC Act, the entire area of each state is divided into several market areas with each area managed by an APMC. The state government appoints the APMC, commission agents or middlemen (arhtiyas) and wholesalers, who are responsible for selling and buying the produce. APMC has a monopoly over wholesale trade in the entire area as it manages market yards and sub-yards (mandis) where wholesale trade in the produce of the entire market area takes place.
Village commission agents, sent by commission agents, collect produce from farmers in villages and take it to the market yard, where commission agents sell it to wholesalers. It is sold by the wholesalers to sub-wholesalers, who sell it to retailers. Finally, retailers sell the produce to the consumers.
Drawbacks of APMC The process followed in APMCs is not transparent. Proper mechanism requires that the price at which market commission agents sell the produce to wholesalers is determined by auction, but in practice, it is not so.
The presence of multiple intermediaries; the nexus among APMC members, commission agents, and wholesalers; poor storage facilities at APMC yards; taxes by the state government; fees of commission agents; and a variety of taxes are all factors that contribute towards consumers paying a high price even as the farmer gets a low price.
APMC in Punjab The states of Punjab and Haryana, where the protests are most vocal, support the APMC system, as the states have the presence of a strong mandi network with a flourishing system of commission agents or arhtiyas assisting procurement. A well-connected road transport infrastructure also links most villages to notified markets in both the states.
In Punjab and Haryana, commission agents charge 2.5 per cent commission whereas in states like Andhra Pradesh commission agents charge only 2 per cent, moreover, unlike in Punjab and Haryana, they collect it from the farmer, not from the buyer. But since the levy of comission is on a percentage basis, they tend to secure the best possible price for the farmer. In Punjab, there is no such incentive and as the MSP is fixed, the focus of the arhtiya is only on maximising the quantity of sales. In fact, to exploit the system of MSP, grain procured at low prices from other states has also been sold in the mandis of Punjab: this is evident from the data that shows that government agencies have procured 202.78 lakh tonnes of non-basmati paddy from Punjab during Kharif 2020–21 as against the state’s estimated 145 lakh tonnes output.
Comparative Study of Guntur (Andhra Pradesh) and Punjab’s APMC
It is to be noted that unlike in Punjab, APMCs in many other states, especially the southern states, are not facing any existential threat from the new farm laws that do away with the monopoly of APMCs in farm produce trading. There are reasons related to the difference in functioning and system followed in various APMCs.
The Guntur APMC in Andhra Pradesh levies only 1 per cent fee on buyers, whereas in Punjab this is at 3 per cent for wheat and paddy, and there is a separate 3 per cent cess for rural development. In Haryana, these rates are at 2 per cent each. The fee of 1 per cent imposed in Guntur which generates ` 75 crore annually on a high-value crop, is not so much that it would divert trade away from the mandi. Secondly, there are 400-odd commission agents and 250 registered exporters/buyers in the Guntur yard, which ensures sufficient liquidity. There is a large number of buyers and sellers as farmers from other districts of the state, Telangana, and even Hubli in Karnataka come to sell there. This results in many alternatives and better price discovery, so the need for an alternative market does not arise. Thirdly, big firms, like ITC, Synthiete, NK Agro Exports, Venkatraman International, and A.P. Vanniarajan & Co., would not pay in cash, while commission agents can.
Farmers’ Concerns over APMC The two APMC laws seek to liberate farmers from the stranglehold of the APMC so that they can sell their produce at the best price offered. It is bound to affect commission agents, who have a guaranteed income from APMC transactions, and state governments, which collect taxes on the sales in the yard, especially on procurement of grains paid by the central government. But there is no cause here for farmers to worry about on account of new legislations. So, it is rather baffling why farmers are protesting to protect the interests of traders.
(iii) Loss of Revenue to the States In Punjab and Haryana, the market fee (3 per cent), rural development fee (3 per cent), and agent’s commission (2.5 per cent) contribute to the state’s revenue. When the states are not allowed to levy market fee/cess outside APMC areas under the new acts, a big source of their revenue will erode; the estimated loss is placed at ` 3,500 crore and ` 1,600 crore for Punjab and Haryana, respectively. There is, thus, concern about the loss of revenue to the states.
(iv) Constitutional Validity Apart from MSP and APMC, some regional political parties and non-BJP governments have also raised the issue of the constitutional validity of the farm laws.
Agriculture comes under the State List, so it is argued that the Centre should not legislate on it. The passage of laws on a state subject by the central government is seen as a contravention of Article 246 of the Constitution.
However, it is pointed out that the central government exercised its right under Entry 33 of the Seventh Schedule of the Constitution in the Concurrent List (List III) to legislate on the subject. Entry 33 of List III empowers a law-making body (i.e., either the Parliament or state legislatures) to inter alia legislate on matters with respect to the trade and commerce in, and the production, supply and distribution of’ foodstuffs, including oilcakes and concentrates; raw cotton, whether ginned or unginned, and cotton seed; and raw jute.
States’ Reaction
States like Punjab, Rajasthan, and Chhattisgarh are at the forefront in opposing the farm laws. The Punjab Assembly rejected the central farm laws by a unanimous resolution removing Punjab from the ambit of the central laws. The bills seek to address concerns related to MSPs and government procurement.
The Chhattisgarh State Assembly approved the Chhattisgarh Krishi Upaj Mandi (Amendment) Bill in October 2020 to nullify the Centre’s farm laws.
The Rajasthan State Assembly passed three bills to curb the implementation of the central farm laws in November 2020. The amendments brought by the bills make the central farm laws ineffective in some respects.
However, the farm bills of Punjab, Rajasthan, and Chhattisgarh, besides requiring the assent of the respective state governors, also require the president’s assent to become effective since they amend laws passed by the central government. Unless they become acts, the legislations will only have a symbolic value showing the states’ opposition against the Centre’s farms laws.
Central Government’s Proposals to Protesting Farmers
Despite several rounds of negotiations between the central government and the protesting farmers, there has not been a breakthrough on the matter with the farmers sticking to the demand of repeal of the new laws. The central government has ruled out repealing the laws, but it is open to make amendments to the law to address the genuine issues raised by the farmers.
The Centre in December 2020, proposed 7 amendments in two of the farm laws—the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, and the farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020—to resolve the concerns surrounding them. But the proposals of the government were rejected by the protesting farmers, who insisted on their original demand of total repeal of the farm laws.
Proposed Amendments The government proposed the following amendments:
(i) On farmers’ fear that the MSP will be gradually withdrawn and private corporations will control the agritrade, the government said that it was ready to give written assurance to farmers that the system of MSP will continue.
(ii) On the issue raised by farmers that the new laws would weaken the mandi system, the government proposed registration and taxation of private mandis and traders with state governments on similar terms as state-run APMCs.
(iii) The farmers also feared that they may be duped by anyone in possession of just a PAN card, as a person having a PAN card is allowed to trade outside APMC mandis. In this respect, the Centre proposed to rule out such anxiety by giving the state governments the power to register such traders and make rules considering the local situation of farmers.
(iv) A major concern raised by the farmers is regarding dispute resolution for contract farming and outside mandi transactions. On this issue, the central government suggested an amendment to provide for an appeal in civil courts in place of the earlier provision of sub-divisional magistrates’ courts.
(v) The central government sought to address the issues pertaining to fears that big corporates will take over the farmlands by stating that this is already forbidden clearly in the laws, but if more clarity is required, then it can be mentioned in writing that no buyer can take loans against farmland nor will any such offer be made to farmers. Similarly, on attaching farmland under contract farming, the government stated that existing provision makes it clear, but if needed, further clarification can be made.
(vi) The government offered to keep farmers out of the Electricity (Amendment) Bill, 2020. Farmers demanded that the proposed Electricity Amendment Bill, 2020 be scrapped and objected to one of its main provision which provides for a direct-cash-transfer mechanism for transferring power subsidy to eligible customers, including farmers, who are major beneficiaries of subsidised power.
(vii) Regarding scrapping the Air Quality Management of NCR Ordinance, 2020, which has provision of penalty for stubble burning, the government promised to come out with an appropriate solution to the problem.
Analysis of the Farm Laws
Several experts have expressed their views on the farm laws with most of them in agreement over the need for farm reforms to strengthen the agriculture and bring a substantial improvement in the condition of farmers.
Farm reforms can be transformative if implemented in their right spirit. According to Krishnamurthy Subramanian, Chief Economic Adviser, Government of India, the reforms were long overdue in view of the fact that existing laws remained detrimental to the interests of small farmers who had no option but to remain bound to mandi and middlemen. It is deplorable that like other producers in India, a small farmer did not enjoy the liberty to sell his/her produce at will. The agricultural reforms enable a small farmer to sell directly to a food-processing unit or a local mandi, wherever a better price is offered.
In this regard, views expressed by Sabyasachi Kar, RBI and Chair Professor, National Institute of Public Finance and Policy (NIPFP) are quite relevant. He states that commercialisation of agriculture is inevitable but it must be accompanied with building an alternative social safety net. Commercialised agricultural development will become a risky social project if there is no provision of a formal state-sponsored social safety net mechanism on a comparable scale. The importance of agriculture as an informal social safety net became evident during the reverse migration that took place due to the imposition of the lockdown. The need for such a formal safety net increases all the more as agriculture becomes more corporatised.
Though the government says that the system of MSP, government procurement, and mandi infrastructure will not collapse, the row over the reforms needs to be addressed by government taking into account grievances put forth by farmers’ organisations and state governments. The discontent stems from inadequate stakeholder consultation and public education before the introduction of the bills. Success of such reforms requires political statesmanship and consensus-building for genuine cooperative federalism.
In the opinion of Ram Kaundinya, Director General of the Federation of Seed Industry of India, it is the responsibility of the government and the stakeholders to take this reform to its logical conclusion. There will definitely be a lot of scope for improvement in the reforms, required to be inculcated along the way. The government should address genuine concerns to make way for effective changes which could be the start of a new era for the Indian agriculture and agriculturists.
The issue of MSP is somehow connected to the security or safety net provided by agriculture. It is also one of the main concerns of the farmers. As per the former vice-chancellor of Punjab Agricultural University, Manjit S. Kang, MSP has been working just fine since the mid 1960s, so there is no need to interfere with it. He adds that a clause should be added to the law which specifies that a farmer will be entitled to MSP irrespective of who buys the produce—government or a private player. Further, as per the recommendation of the National Farmers’ Commission, an MSP of 50 per cent over and above a farmer’s input expenses must be provided.
According to a study by the University of Pennsylvania, Institute for the Advanced Study of India (UPA-ASI), with local research institutes in Bihar, Odisha, and Pune, MSP is the only real risk protection for farmers as there is a lack of acceptance for crop insurance scheme. Moreover, farmers in Punjab got 30 per cent more price for their produce in 2018–19 than those in totally or partially unregulated markets in Bihar and Odisha.
But economist Arvind Panagariya is of the view that guaranteed MSP on all purchases must be especially resisted. He opines that richer farmers, especially from Punjab, see an opportunity in the protests to extract a legal guarantee for a lucrative MSP on all sales whether to the government or private agents. As per Aashish Anand Chandortkar, director Smahi Foundation, Punjab has been the main beneficiary of MSP and other states have hardly benefited from the MSP regimen, except where state governments procure directly from farmers. As such, the Punjab farmer protest has found little reverberation in the rest of the country. He is of the view that the reforms will benefit the political economy of farming.
Government on its part tried its best to resolve the issue by offering significant concessions. Now, it is up to farmers to not turn their back on a solution. As per an article published in the Indian Express on December 11, 2020, by agreeing to permit state governments to impose the cesses/fee charged in APMC mandis also on trade happening outside their boundaries, the government has shown its willingness to do away with a main provision (Section 6) of the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act. The provisions of the Act provided for sale and purchase of agri-commodities in private mandis, direct collection centres, electronic platforms, and other alternative markets, as well as exempted such transactions from any APMC imposts.
The government also offered various other concessions, including giving farmers the option to approach regular courts in case of disputes, arising from transactions and registration of traders in non-APMC markets by state governments (as per existing law, only a permanent account number (PAN) is required). The government also agreed to extend a not-legally binding ‘written assurance’ on continuance of the MSP-based procurement system.
In view of the offers made by government, it is unfortunate and unreasonable that farmers are demanding a total rollback of the three laws though nothing in the Acts can be termed anti-farmer.
It is understandable that government cannot rollback the laws. As per Arvind Panagariya, “Any rollback of the reform is bound to encourage vested interests to rise up against reforms.” As a last resort, government may allow the states to amend the central laws as per the local situation by passing amendments and seeking the Centre’s permission for them. But before offering this liberty, it should be ensured that protesting farmers genuinely represent the view of the majority of the farmers of their respective states.