Since late November, tens of thousands of Indian farmers have marched into New Delhi and blocked the highways into the city to protest three bills passed in both houses of the Indian Parliament in September. The demonstrations have since spread to other parts of the country, with farmers blocking roads and railroad tracks and restricting the movement of people and goods, including agricultural products.
What are the bills in question? The listing may feel awkward, but in the interest of understanding its value – and the immense scale of the protests against it – they are: 1) the Farmers’ Agreement (Empowerment and Protection) on Price Hedge and Farm Services Act; 2) the Law on Commerce and Industry of Farmers (Promotion and Facilitation); and 3) the Essential Goods Act (Amendment).
The first two laws expand the marketing infrastructure of Indian governments and allow agricultural products to be marketed directly to processors, aggregators, wholesalers, large retailers and exporters. The third law aims to facilitate the production, transport and distribution of agricultural products by removing existing regulatory barriers.
While economists have long recognized the need for agricultural reforms in India, the ongoing protests likely have more to do with how the new laws were introduced: the bills were all passed by the parliamentary majority of the ruling Bharatiya Janata party and without proper consultation with the Keys passed interest groups like farmers unions. The passage of the laws also revealed all the hallmarks that characterized Prime Minister Narendra Modi’s key decisions, from a botched demonization policy in 2016, a hasty introduction of a tax on goods and services in 2017, to a four-hour nationwide lockdown in advance to contain the spread of the coronavirus.
India’s agricultural policy architecture is a holdover from the 1960s when the land was poor and food insecure. Guidelines have been put in place with food security as the primary objective. While these laws allowed India to make advances in food production in the 1980s, the agricultural sector suffered a decline in public investment, a lack of marketing alternatives, and stagnant rural incomes. Almost everyone, including farmers, agrees that India’s agricultural policy needs to change. However, there is little agreement on the details of these reforms. In the early 2000s, the then government encouraged Indian states to design and implement reforms, but predictably each state only adopted incremental political changes that did not harm key interests within the state. As a result, there are no uniform guidelines and laws nationwide.
Allegedly, the laws passed by the Indian Parliament in September were intended to reduce government regulatory interference and address this lack of uniformity and create national policy. The aim was to make it easier to bring private investment – both domestic and foreign – into the Indian agricultural sector. The laws promise to give farmers more freedom to trade outside of designated government markets and private traders to move, distribute and export agricultural products. However, farmers are concerned for several reasons. First, more than 85 percent of Indian farmers own farms that are smaller than three acres. These farmers mainly practice subsistence farming and sell their surpluses, if available, to private traders. Farmers’ average income has remained low at just over $ 1,000 a year, making them very sensitive to fears of market volatility. And while there are huge differences within this group of farmers, they are unlikely to benefit from the laws announced by the government. Past experience with marketing reforms from Indian states has shown that smallholder farmers are likely to benefit only from carefully considered reforms of existing infrastructure – not the full deregulation proposed by the new laws.
The government-appointed Dalwai Committee, which released its final report in 2018, recommended that the government radically change India’s agricultural ecosystem from a supply-side, one-on-one government-led conversation that would be demand-driven and market-driven. Such a withdrawal would further reduce public investment in the agricultural sector. These farmers also fear that this changing political environment and increasing corporate power could result in loss of land and livelihoods.
Another concern about the new laws comes from farmers who sell their produce to either the government or private traders but enjoy the security of government guaranteed minimum prices – officially known as the minimum support price. Despite the assurances built into the new laws, most farmers find them vague and not confident enough to rely on them.
Farmers fear that the new legislation will weaken the government-defined markets where most transactions have taken place over the past few decades. While many lament the stranglehold that the aggregators in these marketplaces had on farmers, the existence of these markets and the traders in them offered the advantage of a minimum support price – one farmer feared they might lose. They see the weakening of the markets as an expression of the increasing withdrawal of the government from the agricultural sector. While the agricultural sector provides a livelihood for more than half of India’s population, its contribution to Indian GDP has declined: over the past two decades, the agricultural sector’s share of the country’s GDP has fallen from 23 percent to 16 percent. Part of the problem lies in the fact that many of the farms are small and therefore cannot benefit from economies of scale. However, this is the livelihood of many farmers who fear that, without government intervention, they will soon be left to the mercy of the emerging agribusiness sector in India.
Most modern industrialized countries have gone through a period when the population is dependent on a declining agricultural sector, although the strength of the manufacturing sector is growing and labor is being absorbed. In India, however, manufacturing has not been able to create many jobs. Indeed, India seems to have skipped this particular phase of economic development almost entirely for a variety of complex reasons. Instead, the country focused on the service industry, and in particular the information technology sector, which by nature can only accommodate a tiny fraction of the country’s emerging population. Although technology accounts for up to 8 percent of the country’s GDP, it only employs 3.9 million people, or less than a third of 1 percent of the population.
As a result, farm employment – at least in terms of employment – is expected to remain a mainstay of the Indian economy for decades. In an economy that has become virtually consistently cratered since the coronavirus pandemic broke out, the agricultural sector has provided a much-needed buffer to those who have had to return to their villages. The maintenance of the agricultural sector, even if it does not generate high incomes, was a completely understandable rally in large parts of India and especially in its bread basket in the northwest of the country.
Even assuming that the government’s intention to push through agricultural reforms was benevolent, the abrupt passage of such sweeping laws without proper consultation has resulted in what appears to be a dead end for a number of agricultural organizations. Despite several rounds of talks, there is still a standstill. The government may believe that taking a firm stance on the farmers, along with some cosmetic gestures, will ensure the protests dissolve soon. However, those hopes could underestimate the continued importance of agriculture to the Indian labor market, especially given the turmoil of the pandemic.