Farm laws needed to fill a void

There are 265 crops and the MSP guarantee will have to be given to farmers producing all these crops – this will be a disaster

Following Prime Minister Narendra Modi’s announcement of the repeal of the three contentious farm laws on November 19, protesting farmers lost no time in coming up with a new charter of demands. The most potent of these is a legal guarantee for the minimum support price (MSP). Even as Modi proposed to set up a committee to recommend how MSP can be made more effective, farmers made it clear that they want nothing less than a Central law guaranteeing MSP.

To reinforce their demand, the farmers’ leaders also cited a report of a committee of chief ministers - about a decade ago - under Modi (then CM of Gujarat) which recommended ‘legal backing for MSP’. The million-dollar question is: Is the demand justified?

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To assess it, we need to know the root cause behind an overarching concern of farmers, especially small farmers who constitute 86% of the total. The “Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India”, SAS in short, released by the National Statistical Office (NSO), covering the period July 2018 to June 2019, reveals widespread dissatisfaction among farmers with the price realised from the sale of their produce. Their highest dissatisfaction is with sales in the Agricultural Produce Market Committee mandi (marketplace notified under the state APMC Act) followed by sales in ‘private local market’. Nearly 83% of farmers sell their produce in these two outlets.

The low price from sale in APMC has to do with state laws under which farmers can sell their produce only in ‘designated’ mandis. In the mandi, arthiyas – local term for commission agents (they arrange for auction and delivery of the produce) – and the licensed trader/buyer rule the roost. The duo ensures that the farmer gets a low price besides face other adversities viz. rejections, weighing less, delayed payment, etc. Levies such as market fee, arthiyas’ commission, rural development cess (RDC) etc further add to their woes.

As for sales in private local markets, though legally barred, small farmers who normally don’t have access to the APMC, are forced to sell to the very traders who dominate the mandi, at throwaway prices. The latter have the blessings of corrupt bureaucrats and politicians and hence, won’t face any action for violating the law. In short, under the existing state APMC laws, farmers face a raw deal. There can be two ways to address it. First, make a law to ensure that any purchase from the farmers will be done only at MSP. Second, open up the market allowing farmers to sell in other outlets. In the past, states had made some moves on the second.

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Twenty states have allowed contract farming; 23 states ‘direct purchase’ from farmers; 22 states/UTs allowed private wholesale markets while 15 have excluded fruits and vegetables from the APMC Act. But these are piecemeal efforts and are far from giving unfettered access, especially to small farmers who account for 86% of the total.

The three central laws fill the existing void as these legitimise sales on all non-APMC platforms without disturbing APMC mandis. These opened up unlimited opportunities for farmers to sell their produce, thereby helping them get higher prices, which can even exceed MSP depending on the demand-supply scenario. But thanks to the Supreme Court staying their implementation in January 2021 (the laws were enacted in September 2020), hardly any time was given to see their impact. Now, these have been scrapped.

The first option is flawed. The government can’t force a private person to pay a certain price to the farmer. It won’t pass judicial scrutiny. Even so, given the risk of going to jail (inevitable if the price paid is less than MSP) which trader will dare buy? Yet, giving a legal guarantee means that the Government of India will have to buy all the quantities farmers offer to sell. At present, the Centre notifies MSP for 23 farm items. The Food Corporation of India (FCI) and other state agencies buy paddy and wheat (only 30% of production), besides a few other items such as coarse cereals and pulses where output bought is minuscule. These purchases are meant for feeding the beneficiaries/poor under the National Food Security Act (NFSA).

For these limited operations, the food subsidy bill is unsustainable (over Rs 5 lakh crore for 2020-21) even as storage facilities are overstretched leading to wastage. If the government were to buy (at MSP) all the output of 23 crops, this will increase subsidy payout manifold. The ball won’t stop here. There are 265 crops and the MSP guarantee will have to be given to farmers producing all these crops. This is the surest invitation to economic bankruptcy. Besides, India will turn into a blatant violator of its commitment under the WTO.

Modi should not even touch it with a pole. Instead, he should try to convince farmers that the only way they can get a higher price is to give them more options to sell. Resurrecting the three new farm laws is the way forward.

(The writer is a policy analyst)

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