Much Awaited Farm Reforms

Consumption demand is going to come from agriculture and micro, small and medium incomes, that is, from the poor, and that should be the focus area.

Let us start by making a brief gist of the recent announcement by the Finance Minister in Relief Package to the Farmers.

  • One Nation One Market
  • One lakh crore boost to farm gate infrastructure
  • Essential Commodities Act to be amended
  • Farmers to have marketing choice
  • Barrier free interstate movement of farm produce
  • Reforms in Food Processing

Let us start with the foremost point made during the finance minister speech i.e. Diversification of Indian Agriculture.

Moreover till now the govt have focused more on cereals than any other agricultural produce. Now the much awaited time has already arrived to concentrate on diversifying the market which includes produce,free and open sale, marketing of products like tobacco,horticulture,floriculture,poultry farming, fishing, sericulture, dairy etc.

For ex- see the income elasticity of cereal. i.e. when your income grows up do we eat more cereals? Absolutely for poor and the marginalized the answer would be Yes. But most of the people want a diversification in their food basket So we don’t want the food basket of the country to be focused only on cereals.Its the time to move towards higher value agriculture produce.

Let us see the changes announced by the Indian Finance minister on 15-May-2020 in the light of three questions.

1 – Who is the most slaved businessman/businesswoman in India, the victim of License Permit Raj?

2 – How important is agriculture if it only contributes 15% to Indian GDP?

3 – Is it really possible to double the farmers income 5 years from now, as the Prime Minister stated in 2019?

Question No.1 Introspection

Farming is a tough profession anywhere and farmers are the victims of political system in India. All the waves of reforms that arrived in India has kept the farmers out. Why?

One because politicians don’t want to stir any trouble as so many people including lobysts like middlemen and are  involved. Second the political class at the centre and state has acquired vested interest in continuing farmers distress.

Farmer in India is bound to sell the produce in one market which is APMC under the Agriculture Produce Commodities Act (APCA). They don’t have the benefit of open and free market or futures market. Sale of Agricultural produce has become a cartelised monopoly of middlemen. The farmers can’t take it back because there is no cold storage. Farmers can not sell to corporations who want a particular variety. Farmer has been disintermediated from the market completely. They are completely at the mercy of inspectors, govt forces and traders. They cannot sell their produce to any other state. Doesn’t it seem going back from WTO to GATT (i.e. from a free market to a market with a plentiful of restrictions). Agricultural trade globally today is at least a hundred times free  then trade within India’s state. The obvious reason is farmer is used as a political commodity and not allowed to grow and think like an entrepreneur. No govt wants to bell the cat when it comes to agricultural reforms. But the Finance Minister’s announcement today has promised to bell the cat. Let’s see till what extent it reaps positive results in future. Indian farmer needs to be liberated who still continues to be a slave and has not be empowered by our greed and stupidity. They have not been allowed to join the market forces and take advantage of them.

Question No.2 Introspection

Does farming in India really matters? It currently employs 45% of the total workforce directly and 15% indirectly and its contribution in GDP is a mere 16%. The first obvious conclusion that we can draw from this fact is Agriculture in India is stressed with a 1:4 (GDP:Workforce) ratio. So any economic crisis first hits agriculture. History of the world tells us that modern economy in a sizeable country, there cannot be a sustained growth of more than 4% per year.

In terms of politics agriculture contributes to 60% of India’s Gross Political Product (GPP)! If rural India is happy, politicians win elections but if they are unhappy politicians loose elections. We can easily predict this with data of sustained agricultural growth of 3.6% over 2004-09 which is the reason UPA got re-elected to power in 2009.  It takes courage to reform this immensely political powerful domain. The recent three decisions

  1.  To amend APMC Act 1955 to limit the commodities under it 
  2. To pass a new contract farming law.
  3. To pass a new law freeing the movement of agriculture produce across states.

Many could deny these center’s decision stating that Agriculture is a concurrent subject and without state government support it can’t stand. NITI Aayog agriculture specialist Mr. Ram Chandra stated that India’s constitution has the provision of free and open trade and with that where is the hitch? So the center could use this law to force the various state governments to implement this act. This will certainly, if implemented strictly, limit the influence of middlemen who statutorily are entitled to buy from farmers.

India now could think of Futures trading in agriculture with current situation of surplus production, contrary to 70-80’s decades where agriculture quantitative produce was lower with black marketing and hoarding on peak. This can certainly turn into a milestone if introduced and implemented properly. Currently due to Essential Commodities Act-1955 (ECA) the trader does not want to keep anything because he/she would not know when can ECA comes into picture and he/she ends up in jail for storing a few quintal of extra sugar,wheat,onion,etc than he was supposed to have under the ECA. India was in an era of terrible shortages and today that shortage mindset should not be strangling the farmers directly and the consumers indirectly by lack of choice, variety and growth of rural market hits us.

Question No.3 Introspection

There is absolutely no way to double farmer’s income by 2022 by increasing the produce of food grains like wheat, rice. The govt. can double the Minimum Support Price (MSP) of certain food grains but inflation will also shoot up and then the govt. would end up subsidizing consumers and going bankrupt. The increase in income can only happen if our farmer usher into the era of modern and value added agriculture – like more dairy products, poultry products, bee farming, fisheries. The current trend in agriculture shows a steep increase in the demand for non-food grains than food grains. Farmers should be able to liberate themselves from boom and burst cycle to benefit when the prices rise and hedge when the prices fall. If this happens then only farmers income will rise over a course of time and then more blue collar and white collar jobs creation will be under scope. These combination of reforms with growth in industry, the service sector and manufacturing to support agriculture will substantial reduce unorganized sector jobs and will boost the economy over a course of time.

So we can sum up by stating that if recent announced reforms in agriculture are taken at face value it could be as big as 1991 economic reforms, certainly a game changer!

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