Farm and Banking Reform

Context: There is some risk necessary to reform Banking and Agriculture sectors.

What are the recently announced reforms in Farming and Banking sector?

• The three farm bills legislated by the government recently, which are in the early stages of implementation.
• The second is a proposal by RBI to let corporates/industry own banks.

Can MSP ensure farm income and Agri-growth?

• No guarantee of income: Farmers don’t get a remunerative price for their products, with the exception of a minority whose produce, mostly wheat and rice, is covered by the Minimum Support Price policy.
• Prevalence of middlemen: Most farmers toil on tiny, suboptimal acreage and have no bargaining power vis-vis the APMC middlemen. Choice in buyers gives them some leeway to bargain for a better price.
• MSP is not a guarantee: even those who get MSP are suffering from a fast depletion of the water table.
• Excessive use of pesticides/fertilisers due to faulty policy: the high prevalence of cancer in rural parts of Punjab and a higher cost of other foods like vegetables and fruits which are in short supply since everyone who can is planting MSP crops.
• Post-harvest loss: every year a lot of wheat and rice rots in the Food Corporation of India’s limited warehouses.

What do the laws propose to do?

• End the monopoly of APMC mandis where farmers had to compulsorily sell their produce.
• End limits on stock-keeping and allow contract farming by the private sector.

What is immediate response of common people?

• The new farm laws have brought the farmers of Punjab and other parts of north India to the streets of Delhi.
• The volume of protest tells us that some of us are afraid of change and unable to see what may be good for all of us a decade from now.
• Farmers will no longer get a remunerative price for their produce

How future will be different for Agriculture?

• Growth in demand for non-cereal foods, like vegetables, fruits and proteins will outstrip demand for cereals.
• Remunerative price for farmers cannot be at the expense of rampant food inflation for the consumer.

What can be the possible consequences if industries house own banks?

• It will channel lending from that bank to its own business at the expense of better, more efficient fund allocation.
• It will be much easier for regulators to track any lending to connected entities than it is for them to track the unofficial connectedness, which has led to the NPA problem.

What is the way ahead?

• Balance the interests of farmers and consumers.
• Bring policy change as the farm reforms are already 10 years late.
• Industry houses are the most obvious source of domestic capital to build such banks.