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Issue 7

Farm Bills 2020 and The Future of The Indian Economy

Thousands of farmers, mostly from Punjab, Haryana, and western Uttar Pradesh, have been protesting at several Delhi border points since the 26th of November 2020. Their demands are centred around the repealment of three recently passed farm bills. The bills are namely, Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, and Essential Commodities (Amendment) Bill. Unable to reach a consensus with respect to the terms of these bills, the central government has decided to postpone the implementation of the bill.

The discontent of the farmers and the inability of the government to meet their demands raises several questions about their validity and the causes for grievance. While the protests have received major media attention, this article will endeavour to shed light on the larger impact the bills could potentially have on the Indian economy.

The Indian agricultural sector has been the least efficient sector of the Indian economy. While over  42% of the country’s manpower is employed in the primary sector, it contributes to about 17% of the GDP, making it the most populated and least efficient wing of the Indian economy. Several factors contribute to the inefficiency of the industry, most of which the new farm bills aim to address. 

The Indian agricultural industry has had a grave imbalance over the last couple of years, in terms of surplus production as well as issues with Minimum Support Price (MSP). This imbalance has continued to plague the market. Farmers fear that with the three new laws, the government is signaling its movement away from the current patterns of procurement at MSP. This uncertainty and lack of trust is one the primary causes of the recent protests. 

Surplus stocks of wheat and rice have hindered the agricultural economy in India and also the environment. The continuous wheat-rice crop pattern, especially in North India, has resulted in dead and excess stock lying at FCI warehouses. Most of the surplus is mainly a result of MSP laws that have given farmers a guarantee of purchase at a fixed price. This has allowed farmers from green revolution states such as Punjab and Haryana to grow MSP crops like wheat and rice irrespective of the market demand. As per certain reports, nearly 89% of the rice produced by the farmers in Punjab and 85% in Haryana is procured by the government. Hence, farmers in Punjab and Haryana face no price risk and are incentivised to grow paddy and wheat that are going to waste in FCI godowns. The surplus production at highly subsidised rates leads to increasing government expenditure and wastage of resources. While the government has assured farmers that MSP will continue to be provided, its continued implementation will surely hinder economic growth. 

The APMC Bypass law introduced permits for trade in agricultural produce outside the APMC regulated mandis. Private mandis can be set up across the country where anyone can buy produce from farmers. In addition to this, the bill also includes contract farming laws that facilitate an agreement between farmers and buyers before sowing under which farmers are contracted to sell produce to buyers at a predetermined price. Both the AMPC bypass law and contract farming laws are designed to allow farmers to deal directly with buyers and eliminate middlemen, giving them more choices on whom to sell their produce to. The laws will also allow firms to dictate the crops that the farmers can grow, thereby eliminating the surplus issue and meeting market demands. Crop diversification will allow farmers to contribute more efficiently to the economy and could provide them with greater financial security. In addition to the economic benefits, crop diversification will make farms more environmentally friendly. Planting a variety of crops makes the soil healthier thereby reducing the need to use excessive amounts of fertilizer. It also ensures that crops are more resistant to disease and therefore require fewer pesticides.

If we view these laws through a simple high-school economic lens, they look great as more buyers usually means a better price for the seller. However, that may cease to be the case in a realistic scenario. There is a possibility that these laws may lead to the rise of oligopolies that dictate prices and bulldoze their way with the farmers. This fear of oligopolies controlling the market is a major concern for farmers and a crucial debate made by protestors. The bill in itself doesn’t do much to prevent the rise of oligopolies. It is peremptory that the government regulate these markets to ensure that farmers have a choice in buyers and are not forced to deal in an unfair market.

It is not uncommon for governments to subsidise agriculture.The agricultural industry continues to have the highest subsidies around the world. The government must switch their subsidy allocation. There needs to be a shift from spending money in the MSP system to increasing capital expenditure on infrastructure in machinery and irrigation facilities to help Indian farmers be more competitive in local and global markets. The solution to the economic and environmental challenges facing agriculture in Indian states points towards a shift from the current system to a revised one. The farmer’s bill while representing the first step towards this economic shift requires a second look to ensure that farmers continue to remain protected. 

Karantaj Singh finished his undergraduate in History and International Relations. He is now pursuing a minor in Media Studies and Politics during his time at the Ashoka Scholars Program. He enjoys gaming and comics in his free time.

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