The Economic Aspects Related To Farm Laws

My previous post deliberated upon the aspects of polity and the constitutional validity of the Ordinance to pass the Farm Bills. In this post, I will discuss the economic aspects related to the bills and what measures are possible for the government to initiate amendments wherever needed to quell the logjam and thereby clear the doubts and worries of the farmers. I personally feel that Bills may stand out well with certain necessary amendments to augment the much needed agriculture reform.

It is necessary to understand the open vistas of agriculture activities. Farm activity does not only include agriculture (crop production). It also includes seed development, plantation, animal farming and animal husbandry (milk, meat, egg etc), forestry, logging, fishing, veterinary facilities including sectors involving all other agriculture related support entities like fertilizer, farm equipments, agro-processing industries, wholesale and retail trading, storage, communication, transportation, logistics etc.

Keeping in view the full gamut of farming activities in mind let us understand the issues worrying the farmer. 

The Farm Acts have kept the courts away to resolve civil disputes of farmers. It would be better if at the initial level there should be a patwari level or a tehsildar and then an SDM level system for conciliation of farmers' grievances. The farmers should also have the option for availing the facilities of tribunals if the conciliation fails at the initial levels. After tribunal there should also be a scope open for farmers to file appeal in District and High Courts. It is in fact a matter of genuine worry of the farmers and calls for amendment in the Act.

Another worry disturbing the farmers is of market rate. Once the rate is fixed a farmer may not be able to draw the benefit of the market looking up. The percentage of increased rate can be offered above the fixed rate as amendment in the Act. The concern of the farmers is justified.

The farmers are also worried due to the legal teams of corporate juggernauts, which may trap the farmers into a contract favouring corporate interest only to the extent farmers may lose their land holding. The provision of model contract format can be provided as amendment or addendum to the Act by the government wherein farmers may require only to fill in the blanks for date, names of parties in the contract, name of the crop, rate, validity date, etc without changing the text of the model format. There should be a provision for registration of private market players along with bank guarantee as security deposits with the government, which could be encashed in the event of any fraud with the farmer. These are legitimate apprehensions of the farmer.

The regulation as regards to the contract which can only be signed between parties having their respective PAN cards is vague. The farmers are justified in their objection. There are other ways for verification of parties involved in the contract. Such verification should also ensure to put on record the volume and number of contracts to the benefit of the government and the parties involved in the contract. The absence of a well defined regulatory system may attract many players with vested interest only to upset and harass the farmers. An amendment to this regard is necessary.

The most opposed by the farmers is the issue of minimum support price (MSP) needs to be addressed and understood with an open mind and in detail. MSP needs to be analysed threadbare. 

We all must have seen that governments do try to have some control on the economy of the country. The economy is not fully let loose for the benefit of one section and problem for the other. Hence whenever the government indulges in market intervention it is due to the purpose to maintain a balance in the economy of a country for the benefit of all. This objective of market intervention is achieved by the government through various schemes, say, one of most practiced ways is by granting subsidies for free education, free health care, food security, housing, transport facilities, railways, bus, water, electricity etc. There are many other platforms wherein the government intervenes into the market to bear the major cost inspite of losses because it is the responsibility of the government to provide us with the facilities at easy affordable cost.

Therefore it is also the responsibility of the government to ensure a decent return in farming so that farmers could afford a respectable livelihood. That is why the MSP is assured as floor price to farmers so that farmers must get appropriate price of their produce. The government has fixed Rs 1860/- per quintal for rice and Rs 1975/- per quintal for wheat as MSP. The MSPs thus fixed, ensure trading (purchase and sale) not less than MSP in any APMC mandi. The bidder will start bidding from or upwards to MSP, and not below the floor price. In the event if rice and wheat left unsold are bought or procured by the government irrespective of the quantity. Hence the MSP and government's procurement price are the same. 

The MSP is determined before sowing of the crop by the central government body Commission for Agricultural Costs & Prices (CACP), Ministry of Agriculture and Farmers Welfare and sent for recommendation to the parliament's Cabinet Committee for Economic Affairs (CCEA). Thereby the MSP is fixed by CCEA as per the recommendation of CACP. 

Hence the MSP is operated by APMC and government procurement body of Food Corporation of India (FCI). FCI procures only rice and wheat out of total 23 crops. 22 crops (cereals, pulses, oil seeds, commercial crops etc) are in the MSP list plus one crop of sugarcane sold at MSP like Fair and Remunerative Price (FRP) guarantee. 

There is no price guarantee or MSP for fruits and vegetables, flowers, dairy and fishery products. Similarly, there is no guarantee for sale through APMC of all 23 items under MSP list except rice and wheat. Only the unsold quantities of rice and wheat is procured by the government through FCI at MSP. Thus the entire farming community does not get the MSP. Only 6% of the farmers avail the benefits of MSP in India. It is also a common grievance of the farmers that farmers do distress selling of their unsold produce at APMC at lower than MSP through surreptitious ways to local traders. The farmers are even unable to sell their rice and wheat at MSP to FCI due to massive corruption among the greedy FCI officers. Many of the corrupt officers take advantage of shortages of FCI warehousing facilities and the overwhelming crowd of farmers lined up to sell their produce of rice and wheat. Many farmers do not go to FCI and prefer to sell their produce at a price lower than MSP to local traders to save themselves from the harassment by the corrupt FCI officials. These local traders sell the same produce thus purchased from the distressed farmer to FCI after greasing the palms of the officials with prior settings. 

All produce procured by FCI since 1966-67 were distributed through ration shops under the public distribution system (PDS) and now these days under the targeted public distribution system (TPDS). 

We had no capability for food security till 1965-66. The US was trying to bully us for their favour of wheat supplied under the PL-480 agreement. The self dignity of our leaders like Lal Bahadur Shastri and Mrs Indira Gandhi prompted them to realize the need for food security, ie, we must have the abilities to produce enough to meet our food requirements. Thereby Mrs Gandhi encouraged the endeavors of agricultural scientist MS Swaminathan and agronomist  Norman Borlaug to contribute to the extensive increases in agricultural production through the Green Revolution concept in India.

Some select fertile arable lands gifted with better irrigation facilities in Punjab, Haryana and western UP to produce wheat, to begin with, were identified during implementation of the government's programme for Green Revolution. The farmers were assisted with high yielding variety (HYV) seeds imported from Mexico, irrigation facilities, fertilizers, pesticides to boost agriculture production after acute economic crisis situations the nation faced due to a couple of wars with Pakistan and  famine debacles in the 60s and US tantrums on PL-480.

The guaranteed MSP was introduced during this period 1966-67 to motivate the farmers to take agriculture seriously. The farmers were also assured of government procurement of wheat production at MSP. The success was remarkable. Gradually, over the period, 23 crops came in the ambit of MSP. As a result, by the 1980s, we became self dependent on food production. Flaws were there in the distribution system but the country was not production deficient. Today we are a net food exporter.

Now the question is why the guarantee for MSP is still continuing when India is self-sufficient in food production especially when there is no such guarantee for other farm products like fruits, vegetables, flowers, animals, dairy products and on the products of any other industry. 

The government still has the obligation to meet massive food requirements to secure food requirements of 80 to 90 crore population of India under a historic National Food Security Act (NFSA) 2013 passed by Manmohan Singh government. It is a unique and the biggest social welfare scheme in the world. Mid Day Meal for all children, maternity protection scheme and TPDS for the poor are part of NFSA. That is why, guarantee on MSP scheme is still continuing.

Foodgrains via ration shops are sold at a highly subsidised rate of Rs 3/kg for rice, Rs 2/kg for wheat and Rs 1/kg for coarse grains 5kg each per person via TPDS as per the NFSA, 2013. Even the WTO objected to such a massive subsidy but the Indian government is still managing with WTO.

The cost to the government goes double of MSP after FCI procurement, storing and warehousing, transportation, distribution etc. That means the grain costs the government between Rs 30 and Rs 40 a kg and distributed through TPDS at highly subsidised price between Re 1 and Rs 3 per kg to a massive population of 80 to 90 crore - mostly 80% of them are poor. Hence keeping in view of secured availability of food and nutrition to the poor, the children and the pregnant mothers the NFSA, 2013 is an excellent scheme. The food grain thus procured at MSP by the government than sourcing it through the open market eases a bit the already extra load on government's exchequer. Hence MSP is for the benefit of both, the farmer and the government.

The debate is still on as to what should be the amount of MSP. Farmers are still unsatisfied with the MSP fixed by the government. For this we will have to understand the structure of MSP as devised and suggested by MS Swaminathan of National Farmers Commission. The commission recommended the following ways to determine the cost for fixing MSP….by adding up A2, A2 + FL and C2 costs. 

1. A2 Cost = consisted of cost of seeds, fertilizer, pesticides and other produce related cost.

2. A2 + FL Cost = consisted of A2 cost plus cost of family labour (FL) of members of the family.

3. C2 Cost = is the opportunity cost of land used by a farmer to produce the yield. The land  could also have been rented out for better returns instead of using it for farming. This cost also includes interest on capital invested in farming.

Therefore C2 cost include A2 + FL cost + rent of land used for growing the produce + interest on capital invested for growing the produce.

Hence the Swaminathan Commission recommended to the government for the C2 cost × 1.5 for fixing the MSP. 

On the contrary the government considered A2 + FL cost × 1.5 for fixing the MSP and was announced by the then FM Late Arun Jaitley in Budget 2019, just a few months before the election.

The government feels as there is already a huge load on the economy for granting massive  subsidy on food, agreeing on MSP based on C2 × 1.5 will defeat the agenda of the government earmarked for spending on and investment in R&D, fertilizers, seeds, science and technology related to modern farming.

The farmers are demanding for MSP based on C2 × 1.5 as recommended by Swaminathan Commission with legislative guarantee and sanction. What is most upsetting the farmers is that there is no mention of MSP in the entire bill. Why the government is not willing to pen down in the bill with a clarification that any purchase below the MSP will be punishable by law to which the government can best answer as why the government is so adamant. 

The nation must know that the benefits of Green Revolution have been reaped at its best in Punjab, Haryana and western UP is conspicuously visible in the prosperous and resourceful agitating farmers.

Main crops of Punjab and Haryana are wheat and rice. 88% of total rice produce and 70% of total wheat produce are sold at MSP to FCI. 

44% of the total rice produced in AP, Telangana, Orissa and UP are sold to FCI at MSP. Whereas 23% of the total wheat produced in UP and MP are sold to FCI at MSP.

Of the total FCI procurement from all India 35% of rice, 62% of wheat and 50% of coarse grain are procured from Punjab and Haryana at MSP.

Therefore the entire agricultural economy of Punjab and Haryana is not only dependent on huge procurement of rice and wheat at MSP but also for their major successful contributions to the food security programme of the nation. That is why the agitating farmers of these states are disturbed and under pressure because there is no mention of MSP in the Bills. The farmers are apprehensive of the government's surreptitious strategy to put the farmers at the mercy of the open market through contract farming. The verbal assurance by the government is of no solace to the farmers.

It is no denying that farmers of Punjab and Haryana have played an important role in building the country's economy. Initiation of abrupt and surreptitious transformation in agriculture reform may not allow the government to rally the successful farmers behind to achieve the objective of farm reform. The government did not take the other political parties into confidence is understandable to the extent of avoiding confrontation and debate. But not discussing the reform vision of the Bills with the stakeholders before passing them as laws is enough to sow the seed of doubt in the minds of farmers. It is utmost imperative for the government to keep her ego aside to thrash out the genuine apprehensions of the farmers for logical solutions and agree for amendments in laws to quell the doubts worrying the farmers. Farmers have come prepared for the agitation after sowing their next crop. So they are available for having their doubts clarified face to face in writing with proper amendment appended to the Farm Act. Often the attempts at major reform programmes initiated by the government are met with opposition. But the holy intention of the government can be established in writing to quell the doubts than the oral assurances and clarifications. After all the Farm Acts are legal documents. What is the problem for the government to append amendment with legal sanction?