Why Agricultural Ordinances announced by Modi Govt. on June this year can be like 1991 all over again ?

This is with regards to the ordinances passed by the Government , which gives a legal framework focusing on agriculture which were a series of packages announced by Nirmala Sitharaman in the “Atmanirbhar” program. This is historic, epic and encouraging with the Government actually walking the talk. Now lets revisit the Agricultural changes and reforms detailed in the Ordinances.

If we look at the politics of Agricultural reform, then three fundamental questions come to mind.We will look at these three questions on the light of announcements of reforms made, and then discuss on them in detail.

1. Who is the most unfree businessman/businesswomen in India?Who Lives in the most Controlled and unfree business environment?Who is the biggest victim of license quota raj, inspector raj in India? and why is it like that ?

2. If Agricultural output is 15% of India’s GDP, then why should we bother about it?Right now we are producing much more than we need and there is a surplus. Why to bother about it beyond the amount we need for Consumption?

3. Is it at all possible to double the farmer’s income? The prime Minister had said he would be doubling the farmer’s income in 5 years , the end of which would be two years from now on.But it seems unlikely to happen.But is it possible to double the farmer’s Income at constant rupee valuation five years from now?

Coming to point 1, Who is the fellow Indian who is still enslaved by the license quota , inspector raj ? The answer is, it is the poor farmer of India.It is really funny , how adjectives become a part of our life. When you say Indian farmer, by default we end up adding poor Indian farmer. Does Indian farmer have to be poor ?

The Indian farmer is a victim of Indian political system. It is because even the many waves of reform in any form that has come to Indian economy , they have left the farmer out. Why is that so?

Indian Farmers are victims of Indian Political System

1. The politician’s don’t want to stir any trouble.Nobody wants to change anything because there are so many people involved
2. The politicians by and large,mainly the political class at the center and at the state have acquired a vested Interest in continuing farm distress.
3. This is because as farmers are in more trouble , farmers are not allowed to trade , they are not allowed to choose what they want to produce.They don’t get the price that they can get, they don’t have the benefit of open market, free markets.
4. They don’t have the benefit of futures Derivative market or Contract Farming .That means they go through the cycle of gluts and shortages and suffer at the either end of both. When prices go up , they don’t benefit as Government Imports as everybody is worried about the Consumer. and when prices fall, they go broke

Farmers have to sell to the Local Mandi

1. Look at this as an example , the farmer in India cannot sell anywhere in India except in one market i.e at the Local mandi under the Agricultural Produce Marketing Committees Act.(APMC)
2. APMC act is world war 2 law and it is now reached its expiry.We are now 80 years since the world war 2.Countries like New Zealand,South Africa which had this law have already repealed them and have witnessed higher productivity in agricultural trade
3. If farmers want to sell outside, the APMC charges a certain fee from them.This discourages farmers from selling outside.
4. There in that market, he knows whose his buyers are. The farmers who bring their produce in their bellgadi,Tractor,trolley cannot take it back now .
5. Particularly, if it is not grain. Grain would still be acquired by the Government , by food Corporation of India. Not in all state Governments but in some Good state Governments .
6. But if it is fruits and vegetables then farmers have no choice. There are two reasons why farmer cannot take it back -:1. No cold storage 2. No other Buyer. If farmer has brought it, he has to sell it.
7. Finally, we have seen that one part of India does not have access to agricultural commodities from other part of India.There may be a commodity, which is available in plenty in India , but it is not given market but a similar commodity from New Zealand finds a way to reach our market.

Middleman have become a Cartelised Monopoly

1. While the Committees were set up , APMC act was set up in the past in the 50’s with the noble intention of helping the farmer, giving them the market.
2. These have now become a cartelize Monopolized operations.So middleman fix the rates , they decide at what price they will buy any vegetable or fruit and farmer has no choice in it.
3. Today the farmer cannot sell its produce in its own farm.Today the farmer cannot decide whom to sell to.
4. The middleman then takes advantage of it and sell it at 40% higher margin in non-perishable goods and at 70% higher margin for perishable goods.This has tremendous implications for producers and consumers.
5. if this monopoly is broken,the farmer and consumer will get their proper due.

Farmer cannot sell to Corporations who want a particular variety.

1. Today lets take the Example of Haldiram. Today if it decides to buy moong ki dal of certain size, certain quality to make its products , it cannot go to 10 farmers and say look I want 5000 tonnes of this daal produce.
2. They simply cannot buy there. They have to go to APMC, where from some trader they will have to buy . Farmer is disinter-mediated completely.
3. Compare this with Amul, who can directly go to Milk Co-operatives and buy milk of a certain quality with a certain fat level(ensuring that milk quality is not diluted)and share the cess and taxes among producer,consumer.
4. Farmers also cannot sell their produce from one state to other.

Tamil Nadu farmers were prevented from selling to Kerala where the prices are better. The Govt used to forcibly buy Rice from Tanjore farmers at prices that they fix. The farmers in the Coimbatore region generally earned more because of smuggling across to Kerala.

There is free trade in most other sectors in India

This is the situation even when India is a signatory to multilateral Institutions like the WTO, GATT which are proponents of free trade around the world. India is a part of so much free global trade now, Trade globally today is at least 100 times free than trade within Indian states especially trade of Agricultural goods. Why it is this way? The answer to that is the farmer is treated as a political commodity unfortunately. The farmer is not allowed to grow as an entrepreneur.

No Government wants to Reform Agriculture

Many reports have come out on this ,many wise people have spoken against it, especially Ashok Gulati. These people have been writing about it. over many years now .There have been many experts group on this .But so far no one has really reformed agriculture.Everybody talks about it,Every Government says the same thing .We can go back and look at the budget speeches of finance ministers over the past 15-20 years, the speeches of prime ministers who promised the same things but nobody bells the cat.These ordinances have managed to bell the Cat.

Indian farmers have not been allowed to go and join the market forces.

Indian farmer needs to be liberated.Indian farmer still continues to be slave , Indian farmers have not been empowered by our Avarice. By our greed and stupidity, Indian farmers have not been allowed to go and join the market forces and take advantage of that.This is some effort to change that.

Coming to point 2, does farming really mater as it covers only 15% of GDP. We can improve manufacturing , we can up services, we can improve our exports. If we look at data manufacturing,services are growing faster than farming and will continue to grow faster.History tells us that in Modern economy, modern country in a sizable economy, Agriculture cannot grow more than 4% per year over a sustained period of time. In UPA rule of 10 years it grew at 3.6% which is quite remarkable. Today the growth rate is half of that. even before Covid Era. So why should we bother because its share of economy in GDP will continue to decline?

60% of Population survives on agricultural and related activities.

Agriculture is 15% of India’s GDP, but agriculture is 60% of India’s Political GDP .To put it simply 15% of India’s Economic GDP is worth 60% of India’s GPP (Gross Political Product).How does it work?15% of India’s GDP is produced by 45% of Indian workers .So 45% of India’s workers are involved in agriculture. In simpler terms, 3 times the people live of its GDP as its original size.If the Agricultural economy does not grow, that means the 45% of Indian population are that much poorer.They have families, have their own environment and this leads to a total rural economy of 60-70%.The activities that people are engaged in rural economies are like Repairing tractors, building tractors,selling hookahs,selling pumps,selling tobacco for hookahs.

Farmers decide the fate of elections

From the fact that 45 % of working class depends on agriculture and 60% of population on Rural economy, we can deduce that they are under stress.As they are stressed they any inequality in the economy hurts them first, or benefits them first.People generally give MNREGA as the reason for UPA-2 being re-elected , but one of the major reason was the fact that there was a Consistently high overall economic growth and in particular a consistently high Rural Economic growth for 5 years. Sharad power was a very good Agricultural Minister.To make things Short, when farmers are happy Politicians win elections, when farmers are unhappy politicians loose election.Taking it further When Rural India is happy, politicians win elections, when rural India is unhappy politicians loose elections.

Politicians have been afraid to reform Agriculture

Rural India is linked to Agriculture.This counts so much again politically as 60 % people depend on agriculture linked Rural Economy .Agriculture is politically very powerful and it punches 4 times more than its Economic weight politically.Politicians have been afraid to reform it.We can Understand this by an example.Suppose, we are growing too much apple, mangoes, coconut in the mountains and we don’t want to upset the Mango cart,Coconut Cut, apple cut as it is too much and it will fall on our heads.There is a lot of votes involved and it takes a lot of courage politically to reform this. Modi Government has been talking about this since 5 and half years but they had done precious nothing till now.As said earlier , nobody wants to take a risk.

The Laws and Amendments announced

This Pandemic has given us the opportunity to bring reforms. We saw the first steering of change from the State Government of Uttar Pradesh, Madhya Pradesh,Karnataka changing their APMC Acts,Rajasthan which already had brought reform,Maharastra which already has a model law sitting there for agricultural reforms.Centre has combined all this and announced three major laws or amendments besides many other things which it latter passed in ordinance.The tree things are :

1. Essential Commodities Act will be amended , so that it can be used only in Emergency and to limit the commodities under it.
2. A new Contract farming law.
3. Law freeing up the Interstate movement of agricultural commodities

Many people think that Agriculture is a state subject but it is a concurrent subject.As per Ramesh Chandra, who is the member Agriculture in the Niti Ayog, Article 301 of constitution states that Trade and commerce are free in India.This also means that Indian Government and politicians who have kept the farmers away from free trade for so long were very characteristically unfair and unconstitutional.The Indian Constitution grants the power to Centre as per the Seventh Schedule of the Constitution to bring about some changes on free trade in India.

Once we allow movements, farmers can take their stuff from one state to another, farmers can trade with each other , which until today was not possible.Because middleman statutorily was the only one entitled to buy from farmer..The farmer had no choice of Consumer.

Essential Commodities Act and its restriction on Agricultural Trade

The Essential Commodities act came up in the 60’s and 70’s when India was facing acute shortages,When people used to stand in queue for hours waiting for delivery of even most basic commodities like sugar, atta, wheat,kerosene. Mind you, this are not the horror stories of ancient India but of India in the 50’s and 60’s , when we use to face terrible shortages.There were often stories floating up of hoarders,Black marketeers who used to hoard essential commodities and sell at a high price in black market. Today India not only has plenty of these commodities but a surplus of these commodities.So, instead of black market, India should focus on futures Derivatives trading which can help farmers to anticipate the prices and keep stocks accordingly.But because of ECA act, nobody wanted to keep anything .Even the traders did not wanted to keep anything, because no one knew when the ECA will be invoked and he/she will be locked up in jail for having a few Quintilian of extra sugar than he was supposed to have Under ECA. This was a restriction of scale in agriculture trades.

There are North Indian jokes of 60’s and 70’s where a Sardar Ji ordered for a cannon.When the Commissioner asks the reason behind such an absurd request, he tells that when he ordered a truckload of Wheat for his daughters marriage he only got 50 kg of them.He wants a pistol now for self defense, so He feels if I order a cannon I will get a pistol at least .

India’s Shortage Mindset is strangling Itself

India has lived through an era of terrible shortages.But that is past and now we have abundant supply and surplus. The agricultural policies existing today is not strangling us directly , but strangling the Indian farmers. We are getting strangled indirectly.Because ultimately lack of choice, lack of variety everything hits us .Also the lack of rural markets , lack of rural riches hits us.When Rural demand grows up, all the economy will grow up.Farming Really matters.

Why this act has the potential to become like the Milk revolution

Like in the case of milk revolution,where Amul was reaching out to Milk Co-operatives to collect milk on the basis of milk quality like fat content etc., Corp-orates can actually reach out to congregation of farmers co-operatives and make a deal with them for purchasing commodities for their products like Ketchups,potato chips.This will Led to the corp-orates having their own supply chain and sharing the taxes, cess with the producers and consumers.Currently the Corporates have to reach out to APMC and buy the produce from a licensed trader, where the farmer is completely dis-intermediated.

Secondly, the amendment in the ECA will result in the Private sector investing more in Agriculture inventory,Warehouse and Cold storage as now they can get the freedom to store the agricultural produce throughout the year .Currently, the private sector is scared to invest in Inventory,Storage,warehouse as the ECA act states that the center can at any time can put anybody behind bars if the hoarding of essential commodities takes place beyond a certain limit.With the amendment of this act, it will lead to price stabilization.For Example Amul, when it has excess capacity , it makes milk powder out of the excess milk and when there is deficit, the milk powder is again converted back to milk to make up for the deficit.This will solve the problem of excess production.

Currently, the farmers don’t follow a proper method for sowing crops.They look at previous year prices of crops and they sow which one reaped the best harvest.They need to be forward looking instead of backward looking.And when there is a glut, excess production, the prices of the crops falls sharply and thy commit suicide.This is where contract farming wll help. Using Contract farming, the farmers can fix the price of the commodities before sowing it, which will effectively act as a hedge if the prices went down .

With the amendment and enactment of these acts , the Corporates can go and talk to group of farmers saying, that you get rs 10 for onions from APMC. If you sell to us, then we can give you rupees 15 ,5 rs more than APMC and sell it in Delhi for rs 25. The Corp-orates knows that this much amount is enough to make profit. In this case when consumers buy, around 60% of the price will go to the Producers unlike now where only 30% of the produce is reaching out to the farmer.

This will spur private investment which can take advantage of this reforms of free markets and sell commodities at a cheaper price than what APMC are doing.This will force APMC to gradually decrease its prices.We have also seen in other sectors like (Telecom,Automobile,Airline) that when private investments are allowed then it benefits the customers,Prices become competitive.quality of service becomes better.

Coming to point 3, Can we double the farmers Income by 2022? There is no way we can do that by 2022. There is no way we can do it by upping the production of food grains like wheat, rice.Nor is it possible by upping minimum support pricing .We can double them by following Swaminathan Committee plus 50% more.But this will have disastrous consequences. Inflation will double because of this, and Government will go bankrupt.Then the prices of the same agricultural commodity will increase for the consumer.Then Government has to again subsidize the consumer.This is really an absurdity and an impossible thing to aim.It is absurd because The Government will first increase the subsidy to farmer and then when the prices go high, to again protect the interest of consumer , subsidize again the commodity prices.This will burn the pockets of the Government.

The Income doubling of farmers can only happen if our farmers move to value added agriculture.More of higher value chain farming is required to achieve it , like more of bee keeping,more of diary, more of poultry. In fact now, farm value of Non-Food grain products,Non-food products has been rising higher than food grain.Farmer has to liberate himself from the boom and bust cycles to get a better uniform price throughout the year .in short the idea should be that farmers should try to benefit when the prices go up and to hedge when the prices fall down(using futures Derivatives Trading or Contact farming).With these revolutionary ideas, not only the farmers income will go up, other positive changes also will happen .All virtuous things are interlinked.As the Rural Industry grows, availability of more blue collar jobs, more white collar jobs will increase and more and more people will move from farming to these jobs.This can result in reduction of 45% labor force trapped in farming to 35%, then this by itself will greatly improve the farmer’s per ca pita Income.Doubling the farmer’s income will be a combination of all these reforms and other economic growth like growth of Industries, like manufacturing which will create a lot of organized jobs , so we have a very few members of our very hard-working class trapped in farming.

Shortcomings in the Ordinances

1. the Govt. should have completely repealed this ECA Act. or should have restricted to War/Emergency.But they had added a clause of Extraordinary rise in prices.Using these clause. The state Government can manipulate price of the Commodity if it is listed as essential by the Center.
2. Though the ECA act has lifted restrictions on stocking, but in situations when the prices rise high, the center invokes the Foreign Trade Regulation Act and bans export of essential commodities.This in turn disrupts the supply chain and leads to traders not being able to trade openly.This impacts the farmers.
3. The dispute resolution is going to the Government arm SDM (Sub-district magistrate) not to an independent judiciary.There can be a conflict of interest.

Ideas taken from following Links-:

ThePrintUninterrupted Watershed moment for agriculture, like 1991 all over again https://www.youtube.com/watch?v=aaYGqBKAUj8

#Ilanomics (APMC laws had shackled farmers, Modi govt’s ordinance makes them as free as other sectors) ,https://www.youtube.com/watch?v=C9PSkCM0-Bc

#CutTheClutter How politics keep Indian farmers enslaved & how it can change if Modi Govt keeps FM’s promises today https://www.youtube.com/watch?v=nxt6jt_D_Lg

#Ilanomics Why Modi govt’s contract farming ordinance is a win-win for farmers, buyers & even traders( https://www.youtube.com/watch?v=ZB62R7CUVhc )