Interview: Economist Sudha Narayanan on why states are key to agricultural reform in India

On Monday, Parliament cleared a bill to repeal the three farm laws that had gripped Indian politics for much of the past year. Passed in September 2020, the laws were meant to allow much greater play of corporate capital in Indian agriculture. However, the laws also sparked fears that this would mean a concomitant retreat of the state – most prominently the buying of produce by the government under a minimum support price.

These fears led to farmers – mostly from the Green Revolution heartland of Punjab, Haryana and western Uttar Pradesh – to converge on Delhi, setting up a remarkable year-long permanent protest, and forcing the Modi government to retreat.

Scroll.in spoke to Sudha Naryanan, an agricultural economist at the International Food Policy Research Institute, New Delhi, to understand what drives the demand for reforms, why the government failed to pass the farm laws and why India needs to focus the farmer every time it talks about changing Indian agriculture.

Almost everyone agrees that Indian agriculture is in need of drastic reform. Why? What is so wrong with Indian agriculture?
To start with, it would be useful to understand what we mean by reform. It is common to think of reform as a discrete event. Often, it is very narrowly defined as something that limits or does away with the state in a particular sector.

It might, however, be useful to think of reform as a process – something that we need to do constantly to respond to new challenges and circumstances that emerge and to revisit old policies that might have lost their relevance. From that perspective, we can begin by outlining some of the key challenges that face Indian agriculture today.

First off, we have the ominous shadow of environmental challenges – climate change, poor soils and depleting groundwater. Some of these are the consequences of the agricultural policies from another era. Others are in part due to global phenomena. A second challenge is around social concerns – how can agriculture continue to support a large population and workforce. Third, increasingly it has become important to see how agriculture can better address nutritional security and food safety.

The problems with agriculture today stem from these challenges – how well prepared are we to increase yields sustainability in ways that nourish the population, while ensuring that those that grow food also have remunerative livelihoods. Getting all three right is a trilemma.

We must remember that there is no such thing as “Indian agriculture”, given the huge diversity of contexts and agro-climatic conditions. We have different segments and regions performing differently in each of these three domains. We have not managed to work our way through a set of policies that will help us get these right. Different interest groups also differ in their vision of what should be done and governments have their own priorities and compulsions.

Rather than declare that things are wrong with Indian agriculture, I would prefer to think of it as an ongoing effort to get things right. I don’t share this blanket view of bleakness, because even alongside deep agrarian distress in some pockets we see some encouraging examples of sustainable and prosperous agriculture.

But on something basic like yields, India has fallen way behind compared to even other developing countries. What is the cause of such levels of backwardness?
If you look at production systems within India, these are fairly diverse. But a majority of Indian agriculture is rainfed. Without control over water, not just the lack of water resources, it is hard to consistently achieve high yields. The other key resource is soil – we have vast swathes that still rely on low input use but in several others, especially the Green Revolution areas and clusters of highly commercial agriculture, we have not adopted practices that focus on the sustainability of the soil.

We also have huge challenges in access to quality inputs in a timely manner and the adoption of context-appropriate production practices and timely actionable advice. Many would, of course, say [better quality] seeds are the solution or something else is, but that is a narrow vision of the range of formidable challenges in improving yields. We need all of these to come together. We have managed to make substantial progress in many of these areas but we have a long road ahead.

A big charge against the farm bills is that they want to remove agricultural produce marketing committees or mandis. But these were themselves introduced by the government to reform agriculture. What went wrong?
There are many types of mandis in India – both regulated and unregulated. Mandies/shandies, etc., were always there and many today continue to remain unregulated. The regulatory framework for mandis introduced post-independence embodied in the Agricultural Produce Marketing Committee (or APMC) and its related regulations were intended to ensure that farmers had a place to sell where many buyers would gather and bid in a transparent manner.

By bringing these transactions under a regulatory ambit, the intent was to ensure that the farmer was not left at the mercy of mercenary traders, where bilateral bargaining would leave the farmer powerless. The problem with the mandis, we soon learnt, is manifold.

First, the APMCs had the power to both operate and regulate the mandi. So rampant trader collusion, especially in small mandis, has been hard to break. Entry barriers prevent new players from participating in these mandis. Second, although the APMC acts provide for fair representation of diverse stakeholders in the committee, in practice there has been little accountability or fair elections. Third, it did not help that consequently APMCs allowed for an unholy nexus between traders and politicians that has been hard to break.

Fourth, these mandis never really had the sort of reach that Indian farmers needed, except in states such as Punjab. Fifth, recent opportunities to invest in infrastructure and modernise and digitise these markets have also been underutilised. So we do have a lot of problems with the APMC markets, even as they perform a key role in agrifood value chains.

Much of the conversation around farm laws almost assumes that farming in India is unreformed since the Green Revolution. Is that true especially at the state level? Is there anything we can learn from the states? Is there a need to bring in a national framework at all or can state reform do the trick?
I think agricultural policies have been evolving over the past decades – both at the state and central level, in both production, post-harvest and marketing. The discontent is that these have been too slow, somewhat piecemeal and taking place at varying paces. The other major problem has been, in the sphere of marketing, the trader-politician nexus in the mandi system has made change very challenging.

I see the states as holding the key to reform. States can learn much from each other not just in terms of how they negotiated complicated political factors to implement reform, but also from marketing innovations that have worked or failed. But to suggest that agricultural marketing should be the exclusive realm of the states would be foolhardy because ultimately one would want to reduce the barriers, regulatory or otherwise, between states. The Centre, therefore, has a key role to play in bringing the states together on a common platform.

The greater role for the Centre, as I see it, is in nurturing a national commodity exchange, working on a library of grades and standards, providing a nimble but strong regulatory framework for warehouse, digital finance and ag-tech. It can also lead by offering a transparent, stable, rule-driven policy for trade and futures markets, rather than an unpredictable regime that leaves market participants with a huge deal of uncertainty.

There is constant talk of bringing in the free market to agriculture with the assumption that the farmer receives state help. However, the Organisation for Economic Co-operation and Development’s producer support estimates, or PSEs, show that the Indian farmer is actually implicitly taxed by the Indian government, which puts in inflation controls to benefit the urban consumer. In such a situation how feasible are plans of, say, doubling farmer income. Will India’s political economy allow it? Consequently is this moment of agrarian agitation driven by this constant negative PSE?
The PSE is a useful catchall measure that gives us a broad sense of the direction and magnitude of bias in agricultural policy – whether it is in favour of farmers or not. Beyond that I don’t think we should treat the PSEs as a barometer of farmer wellbeing, since it has serious limitations and caveats.

I don’t believe that doubling farmers’ income was ever feasible within the timeline that was proposed, but do believe that the focus on incomes was welcome. To me, the underlying issue is the contradictions inherent in Indian agricultural policy; for example, even as we support farmers via fertiliser subsidies and so on, at the same time we deprive farmers of opportunities to take advantage of global markets by imposing arbitrary export bans.

Many economists working on agriculture believe that we should not control output markets to keep consumer prices low, but rather allow prices to rise and find the resources to subsidise food or provide affordable food to the consumers.

Keeping farm output prices low could also potentially keep farm wages low. Farmers are seeing this bias in a way – asking for example, why people are happy when share prices increase, but distressed when farm output prices increase?

One of the interesting things about this moment is that the farm bills seem to not be getting enough traction even with people who desire reforms. Is this just to do with the ham handed way the government passed the bills or is there something deeper?
A big problem with the farm bills has indeed been the way it has been passed. A related concern is the lack of trust in the government and wide-ranging skepticism over its motives. Farmers were connecting the dots. They were seeing well beyond the farm bills – close alignment of big corporates with the current dispensation, their forays into sectors that can exert considerable power over farmers, the Shanta Kumar report that called for food subsidy reform, etc.

When you add all of these up and believe the gates will now be opened for the consolidation of corporate interests, that leads farmers to believe that they will end up worse off. A government that passes acts in the name of the farmer and then follows these up with a ban on export is not really helping the cause. I have also said in the past that the states are often more accessible to farmers and a central law is bound to have made the farmers feel disempowered.

The farm agitation has now said that they will continue their movement till they can get a guaranteed minimum support price. What do you make of the MSP demand? The current Minimum Support Price-Public Distribution System model was made for a post-Green Revolution, food scarcity India. Can it be continued?
It is obvious why farmers would want an MSP – the MSP can serve many goals, in principle. It is price insurance since it is fixed. In principle it is meant to cover the costs of production so that farmers do not end up making a loss. In contexts where transaction costs are high, having a ready buyer is a boon. The MSP can also become a reference price that influences private market prices. The underlying motivation of the farmers for demanding an MSP is easy to understand.

While I appreciate that markets (and the state for most commodities other than rice and wheat) have not been able to serve farmers’ needs better, there are some fundamental challenges to having an MSP that can work.

First, a government that wants to procure something has to do so with a clear plan for distribution. For example, if a state government were to procure eggs or milk at a support price for distribution to food-based schemes, this is far more practicable than just accumulating rice and wheat stocks that have nowhere to go. Second, having an MSP without procurement (for example, a legal MSP mandated for all private trade) would be unenforceable in practical terms.

Third, my concern is, in the event that one does enforce these in some creative way – although I can’t see how – it might well drive the small traders out of business. Remember, many itinerant traders who aggregate output from small farmers work on a very small scale. When big traders have to shell out more, it might affect their margins, but they make their profits with scale so they have an advantage. The small traders, however, are more vulnerable. Given the important roles they play in reaching farmers who have limited market access, this sort of MSP might just defeat the purpose.

The MSP-PDS model was indeed created at a time when the priority was to augment production of food grains and make these available to people at affordable rates. The problem with it is that it was dominated by two cereals. So the MPS-PDS system today definitely needs changes. One might argue, for instance, that given that over 65% of the rural poor are today unable to afford nutritious diets, we might want a system that offers incentives for farmers to produce nutritious commodities that can be channeled into the market efficiently at low costs. There are also opportunities to rope in farmer producer organisations or self-help groups in such models.

However, I firmly believe that this cannot be a national level policy – it should ideally be done at a fairly local level. Such procurement for tempering prices (farmer or consumer) can also be effectively done via commodity exchanges, especially for commodities for which such exchanges need to grow large enough to offer a reference price for private trade. I would go so far to say that we can’t think of a model for the entire country.

Most countries that moved away from public procurement and in-kind transfers in the past have found reasons to bring these back in times of need, including Brazil, Bangladesh, China, to name a few. We can, of course, learn a lot from these models but also the political economy considerations of policy changes – whether in removing a system or putting it back.

Around a week back, what was interesting was K Chandrashekhar Rao, the Chief Minister of Telangana reached Delhi to demand greater MSP limits. From the point of view of the state, the MSP is a pretty big bonanza from the Centre. So firstly, why don’t more states demand this and copy what Rao is doing?
Yeah, actually what KCR is doing is not new. The MSP were very centralised operations early on. The Food Corporation of India used to procure. I’m talking mainly about rice and wheat. Now in 1997, they introduced something called the decentralised procurement scheme. Procurement would now devolve to the states, with the Centre reimbursing pre-approved costs.

One of the aims was to diversify procurement geographically. Because FCI traditional areas were Punjab, Haryana, and the idea was that if you decentralise procurement, states in eastern India could start procuring, for a more diverse procurement area.

However, states started declaring bonuses over and above the MSP, making the option extremely attractive to farmers. Some states such as Chhattisgarh did this so successfully that they were left with large stocks, over and beyond what the FCI the state civil supplies corporations would need for the PDS.

This, obviously, became a problem between the state and the Centre since there was no cap on how much states procure and because eventually the Centre has to lift the grain. So the Centre, in a bid to restrict unlimited procurement, mandated that any stocks procured by the state government over and above its allocation for distribution, would not be treated as Central stocks and the Centre would not be obliged to pick it up.

So this is the same problem KCR is facing now. But using measures like banning bonuses and ending unlimited procurement the Centre is trying to manage these state demands.

Indian agriculture is terribly inefficient. Is one of the reasons for that is that plots are very small? What reform can tackle this problem? Is corporate ownership a solution? Are there any worldwide models where smallholder plots have led to high productivity that India can follow?
There is a long tradition of debate on this aspect. There is a lot of evidence to suggest that small farms are in fact more efficient and such debates are in fact on-going. I would not venture to treat efficiency as an end in itself. We need to be clear that the goal of efficiency itself is instrumental – we want more efficient use of scarce natural resources, including water and land.

Efficiency in a way that would rake in more profits for the producers, and so on. So we need to care about efficiency without being evangelical about it – at the end, my own view is that agriculture should factor in environmental, social and nutritional concerns.

Many South-East Asian countries and China itself have small holdings, in fact sometimes, much smaller than India’s with significantly better yields and higher profitability. I don’t think India should follow one or another, but we need to learn more about the ingredients that enable this – is it institutional forms, specific technologies, marketing arrangements, destination markets, etc. Ultimately, as I mentioned, different models may suit different contexts – so that we need to be able to admit a plurality of models.

Corporate ownership of land can, of course, bring in a completely different way of farming. Many Indian commentators are, of course, starry eyed by the potential – of huge-automated warehouses, cold storages and factories. The issue is it might solve the efficiency problem of Indian agriculture without solving the problem of the Indian farmer. One view is that farmers need to exit agriculture to other sectors, but a pragmatic view is that this is not going to happen any time soon.

Global evidence suggests that as countries get richer, the share of the consumer’s expenditure on food that accrues to the farmer actually reduces (to about 27% according to a recent study). Even in contract farming, where farmers retain control over their productive resources, the developed country experience suggests that farmer’s autonomy is only notional. Leah Garces’ book Grilled on the predicament of poultry contract growers portrays in vivid detail the disastrous logical conclusion of a once celebrated poultry contracting model in the United States.

This is not to say that we should work to erect barriers for corporate entry into agriculture – but we need to think about what sort of regulatory capacity and accountability systems are required to enable responsible investments and operations. This is a challenging exercise. I sometimes think something like the farm laws is actually the lazy thing to do, leaving aside the more demanding problems that need desperate attention.

On exiting agriculture: agriculture accounts only for around 15% of the country’s economy but 42% of total employment. Given this massive difference, how effective can agriculture reforms be by themselves? Is the development of industry critical to solving the agriculture crisis?
The pattern of structural transformation in India has been somewhat different from what can be called a textbook case. In the latter, an expansion in manufacturing absorbs workers from farms and is accompanied by consolidation and mechanisation of farms and increase in productivity in agriculture. In India, most economists agree that we have had “jobless growth” – with predominance in the growth of the service sector.

So many advocate that to solve the agriculture problem we need to focus on job creation in the non-farm sector. This is certainly an area that deserves attention. At the same time, we need to be cognizant of important changes in the non-farm labour markets – the growing gig economy, increasing use of robotics and automation and in the context of India, global competition with extremely fickle capital, might well limit the extent to which this can happen. These patterns are likely to allow workers to maintain ties to land without fully disengaging from the agricultural sector. Some therefore anticipate that this class of “landed labour” will continue to engage in plural activities that straddle agriculture and off-farm sectors.

To my mind, it is both necessary to invest in agriculture to support these households since just like agriculture alone cannot support livelihoods, there is going to be a large pool of workers for whom off-farm work alone might not afford secure and remunerative livelihoods. In fact, we need to see the agriculture sector, not as a problem but as part of the solution for a livelihood crisis.

The views expressed are personal.