Farm bills may be repealed, but farmers will still need help

News: Recently, the Prime Minister announced the withdrawal of the farm bills.

In this context, the farm bills, whether they are passed or not, were unlikely to have made any sustained difference to the life of the farmer.

Because, the farm bill that stands withdrawn didn’t have any policy solution to address the issues faced by agriculture sector and lift the Indian farmers out of a low-income existence.

Solutions to improve the life of farmers lies in the development of non-farm sector (service and manufacturing).

Why farm bills were inadequate to address the key problems faced by the agriculture sector?

Indian agriculture is unproductive: This is the fundamental reason why the Indian farmer is poor. The land, despite many improvements in irrigation, seeds, fertilisers and mechanisation, just doesn’t have enough in it to sustain the sheer number of people dependent on it.

Agriculture today employs 45% of India’s workers, while only producing around 10% of its output.

In this backdrop of unproductive farms, farm laws that aimed towards better price realisation of agricultural products by bringing changes with agricultural marketing laws are inadequate to address the low productivity of Indian agriculture.

Why labor shifted from agriculture to non-farm sector in industrialised countries when they were at similar income levels a century ago?

Firstly, the difference between labour productivities in the non-agricultural and agricultural sectors was much smaller in the industrialised countries due to relatively few policy controls on prices and quantities. Hence, the initial misallocation of labour was smaller.

Secondly, deterioration in the agriculture in the currently industrialised countries generated a push factor that induced labour to shift out of agriculture.

Thirdly, expansion of large scale, low-tech industrial employment, provided the avenues to absorb the surplus agricultural labour.

Why the shift is not happening in India?

Welfarism approach towards agriculture: Measures such as, minimum support prices, subsidies to cultivators and interest rate subventions on crop loans hardly do anything for long-term changes in the agriculture. Instead, they trap farmers by giving them marginally stronger incentives to remain in agriculture though productivity and incomes are declining.

Failure of India’s large-scale, low-tech manufacturing sector: This is the sector that typically absorbs surplus agricultural labour in bulk while also providing them with significant improvements in incomes. This sector has completely failed to grow in India.

Less productive service sector: In India, the majority of the non-agricultural employment growth has happened in the service sector. Unfortunately, 80% of this service sector employment is in very low productivity.

What is the way forward?

The need of the hour is for the non-agricultural sectors to step up and provide a viable alternative to low productivity agriculture.

The government, thus, needs to focus on incentivising entrepreneurs to invest in large-scale manufacturing by legislating labour reforms.

Source: This post is based on the article “Farm bills may be repealed, but farmers will still need help” published in Indian Express on 25^th November 2021.