Our so-called reforms bypassed our farmers entirely. We can only save Agriculture by setting it free.
Since 1991, the discourse on economic liberalisation focused on the non-agriculture sectors of the economy. Irrespective of droughts or floods, price rise or crash, debt burden or farmers’ suicide, the growth of government control over agriculture has been incessant. Prime Minister Narendra Modi has continued the same tradition, announcing a plethora of new and not-so-new schemes, promising subsidies and support, while characterising the farmers as “Annadata”. So, in the tradition of five-year plans of the now defunct socialist model, Mr Modi has grandly promised to double farmers’ income in 5 years, by 2022.
Indian agriculture is the largest private sector in the country! Farmers have dealt with the vagaries of nature, but they continue to struggle to survive the vagaries of agricultural policy making. These particularly include controls on various factors that go into farming.
Land is the prime asset of any farmer. But a farmer is not free to buy, sell, rent, or lease his land. Land records are in pathetic state, and there isn’t any functioning market for agricultural land. The farmer can only use his land for agriculture, and sell only to a farmer. There aren’t too many farmers who are able and willing to buy land. No other sector of Indian economy today faces this kind of draconian controls over their capital asset as agriculture.
When capitalisation of land is restricted, access to credit is naturally limited. Over 40% of farmers rely on informal sources of credit. In the past 30 years, the nature of agricultural loans have completely changed. The long-term land development loans have receded, with an increase in short-term crop loans. It is no surprise, therefore, that capital formation and agricultural productivity have been affected.
Almost every input that a farmer needs, water, seeds, fertilizer, energy, are either scarce or of poor quality due to price and regulatory controls. For instance, the Gujarat government recently announced that water from the Sardar Sarovar Dam will not be available for agriculture, and will instead be diverted to supply urban drinking, leaving many farmers high and dry as they prepare for the dry season. Fertiliser subsidy largely benefits the companies, rather than the farmers.
While the rest of the society eagerly waits for the latest gadget, farmers have to wait for years to reap the benefits of modern science, such as genetically modified crops. In 2002, farmers took on themselves to adopt Bt cotton. Today, 95% of cotton grown are from GM seeds. So successful has the GM technology been that the government decided to control the price of seeds, to make it more accessible! This has lead to rampant spread of spurious seeds, not only putting crops at risk, but also putting lives of farmers at risk.
The government sets the MSP for about 24 crops, but it is able to purchase only about 6 major crops, including rice and wheat, from farmers. Many farmers in Punjab and Haryana grow rice only because of the government procurement. In other cases, the MSP may be high, but the government is not in a position to procure, as has happened with some of the pulses this year, and the farmers have no option but to sell to traders at significantly lower prices.
If the farmers end up with a bumper harvest, rather than profit, they face ruin. The distress of the farmers in the 2017 and 2018 was a consequence of price crash.
Price control invariably disrupts and distorts the main function of the price signals in a market economy, providing information about the supply and demand situation, enabling investors and producers to adjust accordingly. The problem is about to get worse, if the government finds a way to implement its goal of assuring farmers a price 50% above the cost of production.
Farmers are either prohibited from taking their produce beyond their designated markets or have no capacity to transport produce without logistics and infrastructure support. The problem is reflected in the frequent price differential of 10-20 times between the farm gate price and the retail price just a few hundred kilometer away, for many produces, particularly vegetables like tomato, onion, potato, cauliflower, etc.
Laws like the Agriculture Produce Market Committee (APMC) have severely restricted farmers’ access to markets, while the Essential Commodities Act has exposed traders to government diktat affecting investment, storage and transport.
There is not a single country in the world which has been able to develop and prosper by tying farmers to poverty. China, today, is seen as the manufacturing base of the world, but she started on economic reforms by liberating her farmers. Today, China’s agriculture economy is over a $1 trillion, with the total food related economy estimated at another $ 2 tn. That is almost the size of India’s total economy.
It is a fallacy to deprive farmers of their dignity by denying them the freedom to farm, and access to markets. Chaining the farmers to poverty, and then offering them dole only adds insult to the injury. The ultimate hypocrisy lies in holding the farmers responsible for burdening the taxpayer for the cost of subsidies and support.
The aspirations of a new India will remain elusive so long as the farmers, the largest segment of Indian society, don’t enjoy the fruits of economic freedom. Without farmers experiencing the prospect of prosperity, the political capital needed to transform India will be lacking.