Farmer Protests: Is India's Green Revolution 2.0 At Stake?

There has been lots of drama surrounding the farmer protests from Khalistani activists openly brandishing separatism to left interlopers slipping in other issues of dissent. An attempt has been made to almost spin the protests in the direction of anarchy and an anti-state movement which has been thankfully blocked by some deft handling by the Central government. While the talks between the Centre and farmer unions might yield a compromise sooner or later, we need to understand certain issues threadbare.

Experts have called the Modi government’s three farm laws and associated acts like the Electricity Amendment Bill, amounting to heralding Green Revolution 2.0. At the time of India's first green revolution in the mid-1960s, agriculture contributed roughly 50 per cent to the GDP, employing about 75 % of its workforce. By 2020, while agriculture’s contribution to India's GDP stands at 14-16% now which is at par with some developed world economies. The size of the population dependent on agriculture does not reflect this new reality. Up to 60% of India's population still directly or indirectly surviving on agriculture. This dichotomy is at the root of the ongoing crisis. Simply put too many mouths to feed from the agriculture pie.

How things stood before the omnibus reforms came into force? Farmers were tied to the nearest APMC market yard. They could not even go to a neighbouring district and had to pay transportation costs. Middlemen and wholesalers took commissions giving the mandi a monopoly and thus making a small cartel control the destiny of the farmers in their neighbourhood. To top it, the state governments levied taxes that became an important source of revenue.

Now, what do the three laws do? One, they let the farmers choose where they want to sell their produce, not necessarily the nearest mandi. Theoretically, a restaurant can now directly go to the fields and pick-up farm-fresh vegetables and take them straight to the kitchen. Two, they can get into a contract with ultimate sellers even before their produce is ready giving them little surety of income. Three, they take away the state's role in taxing agri-produce outside the APMC yards. Four, the laws dilute the stocking restrictions under the British era Essential Commodities Act. 

Taken together, these measures cut down on the chain of middlemen, reduce ancillary costs of transportation/storage to farmers. The contract route gives farmers an extra arbitrage income and incentivizes private sector investment in storage and processing by breaking the Food Corporation of India monopoly. One would say it's a win-win situation for the farmer. Unfortunately, things never move in a straight line. Particularly when politics get involved. So, let's look at what the protesting farmers and their unions want. 

The crux of the demands is one, statutory support for minimum support price (MSP). Two, they want some sort of guarantee against corporatisation of agriculture Three, they want a rollback of the clauses that eliminate states’ powers to tax farm produce. Four, they want a rollback of Electricity (Amendment) Bill, 2020 which proposes to transfer subsidy component on account of power consumed by farmers directly to their accounts instead of free power which is fully subsidised by the government. The rest of the demands have been as outlandish as the release of urban Naxals and the right to burn stubble overturning the Supreme Court and National Green Tribunal orders. 

So, let's take the main ones one by one. Why farmers want the MSP? MSP is a relic of the food shortage era of the 1960s when it was introduced as an administrative measure to boost domestic production. Through its entire existence, it has never had any statutory backing. More importantly, with India being a food surplus nation now, there have been regular demands to provide a parallel scope for market forces to get in. 

Roughly one-third of the 100 plus million metric ton wheat is procured by the government through Food Corporation of India (FCI) mechanism. The cross-subsidy of FCI alone stands at about Rs.2 lakh crores by way of debt. This is apart from the budget food subsidy of over Rs.2.5 lakh crores that goes into government programs like the Food Security Act and the PDS. FCI godowns are full to at least three years of total national production/consumption. Entirely financed by taxpayers of course, the inefficiency of which we can revisit subsequently. 

Coming back to the farmers' protests, why is it that farmers of Tamil Nadu or Odisha are not rushing to Delhi to sit at Jantar Mantar? Because MSP is an issue largely impacting wheat and rice states. One would ask why not wheat states like Uttar Pradesh and Madhya Pradesh then and only Punjab, and Haryana? The reason is that market mechanisms have made sure that in UP and MP, government procurement constitutes anything between 10 to 30 per cent of the total production only. But in the case of Punjab and Haryana, it is as high as 70-80 per cent thus raising the stakes for the farmers from these states. More specifically, the government and middlemen due to the proportionate levies and commissions.

Going by last year’s procurement figures, at about 10 million metric tons and state levies and commissions of up to 17-20%, at current MSP, Punjab government looks at a revenue of about Rs.6,000-7,000 crores. Plus, an additional Rs.1000-1500 crores for the middlemen. That's a lot of money to lose if the Modi government’s farm laws kick in. And hence the protests. Now let's look at the argument of the corporatization of agriculture. While unbridled corporatisation must not be allowed, the fact is that free markets bring in efficiencies of costs and capital. Contract farming has found its way into the system for decades now. MNCs like PepsiCo and SABMiller have been contract farming since the 1980s in Punjab, Maharashtra, and Bengal for potatoes, oranges, and tomatoes getting entry mostly during the Congress regimes in these states.

More importantly, the private capital has been acknowledged as an enabler of better market linkages, access to new technology, protection from price volatility, and better supply chain management. Congress itself has batted for such liberalization while in power during UPA years. The Planning Commission in 2011 brought out a report on agriculture reforms which underscored the need for both private investment and alternative marketing channel by way of contract farming and setting up markets in the private sector. 

Speaking at the 57th national development council meeting in 2012, then PM Manmohan Singh said that it was an imperative that large surplus of farmers is moved to non-agriculture jobs as sustaining roughly half the country’s population on agri-related activities when it contributed only 15% to the GDP was not sustainable. All through the UPA years, Congress made half-baked attempts at the much-needed market reforms in agriculture beginning with the model APMC Act in 2007 that sought to liberalize APMC regime to the 2013 inter-ministerial committee that recommended inter-state trade and commerce of agricultural goods. In pursuance of this, the Congress-led UPA even wrote a draft law called the “Agricultural Produce Interstate Trade and Commerce (Development and Regulation) Bill, 2012, but did not have the stomach to table it in parliament. It was more or less similar to the Modi government’s first of the three farm laws now being opposed by the Congress.

In 2014, as a build-up to the General Election, Congress-ruled states delisted fruits and vegetables from the clutches of the APMC Act, thus taking trade and commerce in this segment of agriculture out of the designated mandis. On the Essential Commodities Act amendment, Congress' position becomes even more untenable because diluting the law was part of its manifesto in 2019. The opposition of Akali Dal and its relationship with the Modi government has also evolved in response to the Congress-led Punjab government pushing the envelope with latest protests. From silently accepting the ordinances in June to opposing the passing of bills in Parliament to Harsimrat Kaur Badal resigning to the patriarch Parkash Singh Badal returning his Padma Vibhushan, nation’s second-highest gallantry award, it is a jousting for the farmers vote bank in Punjab more than any appreciation of reforms.

More proof was needed that it’s political? Mamata Banerjee is as vocal on farm protests as Punjab, despite her state Bengal being a blip on the MSP radar. This is what Niti Aayog study of 2016 had to say on Bengal's implementation of MSP regime: “In West Bengal, the MSP system has a long way to go. None of the farmers sold their produce at MSP. Intermediaries are quite common owing to the non-existence of mandis/market places for paddy. Rice millers have are not in direct contact with the farmers (except the camps organized recently by the mills on the instructions from the government). It is very difficult for mills to make small purchases from the farmers while it is convenient to deal with the middlemen for the bulk purchase.” 

Like with the GST, Narendra Modi has taken the battle head-on with the opposition. Calling the passing of reform bills a watershed moment, PM has clarified two things. One, the old system remains. Farmers only get new options in so far as selling their produce is concerned. Two, the MSP which always remained an administrative measure remains. But the politics over who would own the farmer vote bank is set to continue for some time.