In September, the Modi government passed three controversial bills through parliament: The Farmers’ Produce Trade And Commerce (Promotion And Facilitation) Bill, The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, and The Essential Commodities (Amendment) Bill.
These bills allow farmers to sell directly to private players, enter into contract farming and make it difficult for governments to impose limits on businesses stocking agricultural produce – a practice earlier discouraged for fears of hoarding.
1991 moment?
The Modi government argued that it was liberalising Indian agriculture with these new laws, allowing farmers to better access markets and hence benefit from better prices. Some backers of the changes even called it Indian agriculture’s “1991 moment” – referring to market reforms initiated by the Narasimha Rao government to drop an entire host of government curbs on industry and capital.
However, just a day before these bills were passed, the Modi government banned the export of onions. A month later on Saturday, it also imposed stock limits on onions. Retailers could only stock two tonnes of onions while the wholesalers were capped at 25 tonnes.
Now there is a scramble to control potato prices, with the Uttar Pradesh government ordering cold storages to offload their stock – in the teeth of farmer opposition, given they are, at the moment, benefitting from robust price realisation.
This points to the vast gulf between the Modi government’s claims that it is allowing Indian farmers to freely access the market – and actually allowing them to do so. Farmers suffer losses when prices fall. But when prices go up, the government scrambles to tamp down farmers’ profits in order to benefit consumers.
Sacrificing the farmer
This is hardly surprising. All governments are extremely sensitive to inflation, given its role in shaping electoral choices. In fact, controlling inflation has been a cornerstone of the Modi government’s policies till now. This has meant strict controls on Indian farmers. If, for example, prices of a food item start to rise, the government scrambles to either allow cheap imports or ban exports.
While many countries provide subsidies to farmers, in India these strict controls impose a steep cost on the farmer almost in the form of a tax. Research has shown that this “tax” far outweighs any subsidies that farmers get (say in the form of the minimum support price at which the government buys selected crops). In effect, India is unique in imposing this sort of steep tax on its own farmers in order to, in effect, subsidise its consumers.
As a result, some farm leaders have long argued that subsidies to Indian farmers are an eye wash and farmers would benefit if all subsidies were removed along with government controls on the sector.
With the recent farm laws, the Modi government has claimed that it is removing government controls on the farmers. But it seems like it is hesitating to actually walk the talk given the severe political costs that would come with food inflation if prices were allowed to go up.
In the end, the Modi government should take care that talk of the free market does not end up only benefiting large corporations while leaving farmers in the same, highly regulated space they were before the farm laws were passed.
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