December 21, 2020: India’s agricultural marketing reforms have proved to be more problematic than many, including myself, initially realised. Clearly, some kind of rationalisation of agricultural trade, internally and for export, is needed—there are too many inefficiencies in the current system. Indeed, some states had already been liberalising or reforming on their own. Unfortunately, the states were not consulted on the new laws, and neither were farmers. The lack of transparency and consultation by itself is undesirable, but it also contributed to a suboptimal reform, and to unnecessary anxiety and societal disruption. It certainly did not fit with professions of favouring cooperative federalism. Why this approach is characteristic of this government is a separate question, but one can try to look for a way forward from the current mess.
Farmers from Punjab and Haryana seem to be among the most prominent in being disturbed by the new laws. These two states are the most locked-in to the national system of food grain procurement, which includes minimum support prices (MSPs). In fact, while once the two states were almost economic twins, Punjab is now much more dependent on this narrow system. Since many of Punjab’s farmers are Sikhs, this has led to rather vicious sectarian attacks, but religion and territory are not the issue here at all. Others have dismissed the protesting farmers as a pampered minority among farmers nationwide, because they benefit from selling wheat and paddy for the national stockpiles, with a considerable income guarantee built in through the MSPs and levels of purchase. But the reality is quite different.
It has been clear for decades that Punjab agriculture has been on a self-destructive path. The wheat-paddy rotation has depleted the soil. Paddy cultivation has sucked down the groundwater table. Both these, and diminishing returns overall, have reduced returns for farmers, and squeezed their incomes, especially those of smaller or marginal farmers. One can see this in the general disequilibrium in Punjab’s society, including symptoms such as drug use and desperate attempts at illegal migration. The farmers are protesting, not because they are protecting privilege, but because they are on the edge of a cliff, with nowhere to go. While the reforms do not touch the current procurement system, the farmers fear that the new laws are the first step towards other changes that will be set in motion inevitably, pushing them off that cliff.
The Punjab government has realised some of the problems of agriculture for decades. It has tried to diversify agriculture and to expand industry and services. These efforts have not made much headway, because of poor governance, corruption, poor design and implementation, lack of sustained focus, and lack of fiscal space. None of these are uncommon in developing country contexts, and Punjab may not be much worse than other Indian states, but the vice-like grip of the current public procurement system, along with Punjab’s fraught history in the years when economic reforms were taking off in India, have made significant progress unattainable. Meanwhile, Punjab has plummeted in per capita state income rankings.
What can be done on the agricultural front? Most importantly, the national government needs to redesign the public procurement and distribution system to broaden the range of crops, including more high-value-added and less water-intensive crops, and do it in a way that does not reduce farmers’ incomes. Second there need to be programmes that directly pay farmers to switch to other crops, such as basmati rather than ordinary rice. Haryana is already implementing such programmes, but Punjab faces a much more severe fiscal constraint. Since Punjab is on the brink, and a collapse of its agricultural economy will harm the entire country, it makes sense to target the state for earmarked support to incentivise crop-switching, with matching state funds to reduce moral hazard.
A third step must be to support and reorient agricultural research and extension. In Punjab, it may be that its premier agricultural university, PAU in Ludhiana, is focusing too much on scientific research that is meant to prolong the current system by developing new genetic varieties that resist new pests. This research also leads to scholarly publications and prestige. But the messy and inexact fieldwork of traditional agricultural extension for a very large variety of possible alternative crops gets neglected. Knowledge is a classic public good, and the national government can play an obvious role in setting priorities for agricultural research and extension, and funding them.
Finally, the national government can be more active in modernising the agricultural supply chain, through public-private partnerships. Some of the rationale for the current reforms seems to have been that liberalisation has to be a precursor to attracting private investment. But, and this is the case for the entire country and not just Punjab, making things easier for large corporations when many farmers are on the brink represents either an incorrect sequencing, or an incomplete package, of reform measures—or perhaps some combination of both.
Many of the steps that the national government can take will not have high net fiscal costs. Many of these ideas are already being implemented or piloted in specific areas. Other ideas have been detailed in multiple research and policy papers. Putting together a package that helps farmers move themselves away from the cliff’s edge should be quickly feasible. It would be more constructive than confrontation and vilification.
(The author is Professor of economics, University of California Santa Cruz)