Farm reform: the Achilles’ heel of any Indian government

News:   The withdrawal of the farm laws has pushed back reforms that could have helped in commercializing this sector.

The farm reforms did not introduce anything that was not happening in the pockets of the country already. Yet, reforms have been rejected for vested interests. Reversal of these reforms will hamper the growth of the Agriculture sector, as has been discussed below:

Reversal of APMC reforms

First, selling outside the mandi is already possible where the Model APMC laws have been passed.  For instance, over a dozen states have passed these laws.

Second, the operation of eNAM (e-National Agricultural Market) is well in progress. Yet, a national law that overtly allows farmers to sell their produce outside the mandi has been opposed.

Consequence: The farmers will continue to struggle within the ambit of the mandi system, where oligopolistic structures prevail and impede fair play.

Reversal of contract farming

The concept of contract farming is not new. For example, most of the supermarket groups have backend relations with farmers, which ensures that standardized products are available.

The same can be seen with fast-food chains, which have tie-ups with farms to get standardized quality of vegetables.

There was actually little reason to oppose this idea, but it has led to exaggerated claims of India Inc buying up the entire agricultural sector that will lead to pauperising the agricultural sector.

Banning future trade in agri commodities

The decision taken to ban futures trading in certain commodities to curb inflation is clearly not backed by economic rationale. Because the latest CPI and WPI inflation data for pulses shows that there has been low inflation.

Similarly, inflation in oil is not related to domestic reasons. The cause is global, with edible oil prices increasing sharply by 40 percent, according to the World Bank. Since India imports around 60 percent of its requirements, the same gets translated here

Consequence: The present ban, virtually ends the futures trading in Agri commodities. The efforts made by major agri exchange, NCDEX, to successfully reach out to farmer producer organisations and get them on board will become useless.

Why the government wants to replace MSP?

The government has been trying to use direct benefit transfers to replace the PDS to ensure that there are no leakages. Further, there is a need to abandon buffer stocks as the carrying cost is high.

Impacts of MSP: Read here: https://forumias.com/blog/legalising-msp-challenges-and-way-forward-explained-pointwise/

How MSP can be effectively replaced?

Guaranteed prices for farmers can be ensured: if farmers are brought on the futures platform for selling their grains, the government could pay the option premium to ensure they get a good price.

Food security can be ensured: The PDS beneficiaries can be served by cash transfers, where households buy their food grains locally. This will also reduce the pressure on FCI.

Source: This post is based on the article “Farm reform: the Achilles’ heel of any Indian government” published in Livemint on 29^th Dec 2021.