The current protests by Punjab’s farmers hold many lessons. One of them is that politics is a short game, a T20 cricket match, while economics is a long term, five-day Test match. Punjab’s farmers are playing the former while the government is playing the latter, which makes it frustrating for the two sides and for spectators in the stands.
Because of this mismatch, a second lesson is that it’s difficult to reform in a democracy. A populist who promises rice at Re 1 per kg will usually defeat the reformer at the polls. Hence, successful reformers spend more time selling reforms than doing them. India’s reformers have failed in this regard, which is why 29 years after 1991, India still reforms by stealth and Indians cannot distinguish between being pro-market and pro-business. They continue to believe that reforms make the rich richer and poor poorer, despite so much evidence to the contrary.
Prime Minister Narendra Modi, one of the world’s great communicators, forgot this lesson and didn’t win the nation’s support for the three farm bills before enacting them in June. His government resorted to stealth, pushed the farm bills through Parliament without talking to the opposition, states, or farmer organisations. This led to false rumours that the price subsidy (MSP) and government procurement would go away soon and corporate farming would replace peasant farming. He can still repair this damage.
A third lesson is that a small, organised, and well-funded group in a democracy can hijack the nation’s interest when the majority is silent and unorganised. Behind the protests are arthiyas, buying agents in APMC mandis, who stand to lose Rs 1500 crore a year in commissions, plus rich farmers of Punjab, who are part of the 6% of India’s farmers who benefit from the MSP regime, according to the 70th round of the NSS. Both are powerful. The arthiyas finance elections, are often politicians and leaders of farm unions.
The three farm laws offer three basic freedoms to the farmer. One, he can now sell anywhere to anyone, freeing him from having to sell to a monopoly cartel at the APMC mandi. Second is the freedom to store inventory which was constrained so far by stocking limits in the Essential Commodities Act. This gives incentive for cold storages to come up, to whom farmers can now sell directly. Third, it gives farmers freedom to make forward contracts, transferring their risk to businessmen, leading hopefully to a freedom to lease unviable lands for a job and a share in profits.
The Agricultural Produce Marketing Committee (APMC) is an obsolete institution from an age of scarcity, meant to protect the farmer but becoming his oppressor, a monopoly cartel fixing low prices for the farmers’ produce, forcing distress sales. The reforms have broken this monopoly and since June, out-of-mandi farmer sales have grown sharply while mandi transactions have plunged 40%. This reform needs to be followed up with a stable policy on exports, unlike the present ‘start-stop’ policy, under which onion exports were recently banned. This is why farmers hanker after MSP.
It’s good news that farmer unions and government have finally begun to talk. The main demand of Punjab’s farmers and activists supporting them, is to make the minimum support price a legal right. This is a bad idea because it makes Punjab’s farmers produce what people don’t want and discourages them from growing what people do want. It results in overproducing wheat and rice and underproducing protein rich daal.
Every year, the nation groans under a mountain of excess grain, some of which is eaten by rats. Because of MSP, the Punjab farmer grows water guzzling rice, harms his soil, lowers his water table and kills thousands of people through air pollution from burning stubble. The Punjab farmer is not to blame. He behaves rationally – growing what he’s incentivised to.
By giving farmers freedom from irrational controls, the reforms seek to raise farmers’ incomes through higher productivity. Indian farm yields are only half or a third of our competitors. China, with half the arable land of India, produces double the crop. The problem is that 80% of Indian farmers own less than two hectares. These can become more productive by use of scientific methods and by growing high value crops. But it requires infusion of capital and technology.
The farmer, however, doesn’t have the money to pay for it. Nor does the government. Hence, the next reform should give farmers freedom to lease their lands to agri-professionals with capital and technology, and become in turn shareholders and workers on the same land, setting the stage for the second green revolution.
The downside to this scenario is a fear of big business taking over agriculture. The answer is for farmers to organise themselves in the form of cooperatives, or farmer-producer organisations like Amul that the PM has spoken about. It’s not easy to make a success of a cooperative, but there are enough examples to emulate.
The other fear of farmers – of MSP going away soon – is unfounded. Government has to point out that it needs to procure rice and wheat to supply lakhs of ration shops under the Food Security Act. Covid-19 has dramatically underlined the importance of the food security system in a time of crisis. No government can handle the political challenge of doing away with food security. It’s too big a risk. So, farmers can relax. But it doesn’t mean that MSP should become a legal right. In the ideal world, it would be far better one day to replace the entire system of agriculture subsidies – water, power, fertilisers and MSP – with a minimum basic income to the farmer. But that’s not going to happen anytime soon.