Now over one week old, the protests led by farmers from the Indian state of Punjab have become international news. The farmers are protesting for the repeal of three farm reform laws passed by the Modi government in September. Farmers in other states where the opposition Indian National Congress (INC) rules have also joined the protests in recent days. The Canadian Prime Minister issued a statement expressing concern about the protests but his remarks were quickly slammed by the Modi government as ‘’uninformed and unwarranted.’’
What are the new farm laws that the farmers want repealed?
The three new pieces of farm legislation are: the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act; the Farmers (Empowerment and Protection) Agreement of Price Assurance Act; and the Farm Services and the Essential Commodities (Amendment) Act. Under the new Produce Act, farmers do not have to sell their produce to local government-controlled markets (known as mandis), but can sell the produce on the open market or even online. It will help the farmers command higher price than the minimum support price (MSP) which is fixed by the government that mandis offer. The option of selling the produce at mandis is of course still open. Selling the produce in open market was prohibited before these reforms were introduced. Interestingly, the INC itself promised in its election manifesto that, if voted into power, it would bring in these reforms; yet the party is opposing it now. Both farmers and consumers are expected to benefit as price discovery will now take place in the one national market – free from all restrictions.
The Farmers Empowerment Act enables farmers to directly enter into contracts with larger buyers, exporters, and retailers. For example, ginger is currently selling in Australia at 49 Australian dollars per kilogram, while the price in India about a month ago was about two Australian dollars per kilogram. An exporter in India could buy ginger from Indian farmers and sell it in the Australian market, benefiting both Australian consumers and Indian small farmers. The exporter can also enter into forward contracts with small farmers and thereby greatly relieve the farmer of the price risk that ensues following the post-harvest glut in the market. The exporter could also provide high quality seed to the farmer and enable linkage to the international market.
The Essential Commodities Act removes certain items that were hitherto classified as essential commodities and were under governmental control. The items that are removed from the essential commodities list are cereals, pulses, onions, potatoes, oilseeds, and edible oil. It will encourage farmers to produce these commodities, as there will now be an open market on which they can sell them for higher prices.
Many of the protesting farmers are from Punjab, where the INC is currently in power. Another state government to oppose the new laws is West Bengal, where the opposition Trinamool Congress party rules. Interestingly, other states where the INC is in power, like Maharashtra, Rajasthan, and Jharkhand, are not opposed to the new farm laws. The mandis in Punjab are controlled by the INC and are political hotbeds. Losing control over the mandis would not be in the political interest of the INC. If the produce can be sold in the open market, then the commissioning agents would lose their commission of about 2 to 2.25 percent of the price of the produce. There are many mandis in a state, and these are typically controlled by political parties. The Shiromani Akali Dal, a political party from Punjab, left Modi’s alliance because the changes affected their political base: namely, the mandis that they control.
The farmers are ostensibly protesting to demand the explicit introduction of the “minimum support price” (MSP) in the Act. However, the MSP option is already available in the new law as farmers can sell produce at MSP to the mandis. But protestors demand that the MSP system should also be extended to open markets as well, which is rather strange given that it militates against how free markets work.
Some opposition parties are claiming that the new laws will allow big private corporations to take over farming. But this is wholly unfounded since the laws are only about the sale of agricultural produce. They enable farmers to act together and join hands with the private sector. The fragmentation of landholdings makes farming uneconomical at present.
The present system has led to growing farm debt and farmers suicides, among other problems. The new farm laws would boost farmer income and help rural smallholders extricate themselves from precisely the traps that bind them at present.
Milind Sathye is a professor in the Faculty of Business, Government, and Law at the University of Canberra. He is regularly consulted by both Australian and foreign media and has recently appeared on Bloomberg Television, New York. India’s political economy is the topic of his interest.