No intellectual basis to the opposition to new farm laws

By: |
December 12, 2020 5:45 AM

That there is no defense for old farm laws is vividly illustrated by the hypocrisy, and intellectual dishonesty, of those defending the richest farmers in India

Fourth, forging market linkages may be quite challenging for the capacity of the FPOs. The markets in India are quite complex and entrenched.Fourth, forging market linkages may be quite challenging for the capacity of the FPOs. The markets in India are quite complex and entrenched.

There is an old saying—no one ever went broke underestimating the intelligence of the American public. If you think about it further, it probably works better with over-estimation. If you think about it more, it fits almost all democracies. And if you are patient enough, and think some more, it fits best if the word American is switched with the word Indian. Especially, now with all the “debate” around the long-awaited, long argued, and vastly overdue farm bills.

A little detail on these bills. The old farm produce laws (the creation of the Agricultural Produce Marketing Committee (APMC)) came into existence almost 150 years ago to feed the colonial masters raw cotton for their Manchester mills—the output of these mills was then sold to the “natives” for a hefty profit. The farmer was obligated, required, forced to sell to the masters in a regulated market whose regulation was set by, you guessed it, the colonial masters. It is very likely that the people blindly supporting the “poor” farmers (who were recently seen distributing expensive dry fruit freely to all those coming to their “protest”) are unaware of some simple facts. By supporting these very (relatively) rich farmers, the protesters are, in fact, arguing for the perpetuation of colonial rule.

Some steps further in this historical lesson. The corrosive monopoly power held by APMC’s has been recognised by almost all political parties and farmer unions (eg, the Bharat Kisan Union took out a protest in 2008 arguing for the right of farmers to sell produce to corporates). The Congress party had these very same laws in its 2019 election manifesto.

Let us further follow this chain of logic of farm protest supporters. In 1991, the government freed industry from its cage and the results are there for everybody to see, and applaud (except, of course, the willfully blind). GDP growth in India doubled to an average of 6% over the next 30 years, from the previous average of less than 3%.

For reasons best known to the “political” economists, agriculture was not freed in 1991, or thereafter—until now. Farmers are forced to sell their marketable produce only through a mandi regulated by the government. The new reformed law provides the farmer to sell to the APMC, and to sell outside the APMC. It is her choice. The government procures all of its food through APMCs—only about 6% of the farmers in India sell through the APMCs to the government—these 6 % are all large farmers, primarily residing in the two states of Punjab and Haryana. These two states typically account for close to 60% of wheat procurement and close to a third of rice procurement. The government procures from these farmers in order to re-distribute the food via ration shops to the bottom two-thirds of the population. But there are leakages. This leakage was first openly discussed by PM Rajiv Gandhi in 1985 when he stated that only 15% of the food procured by the government reached the poor.

There are no more than 2 million farmers—total—in Punjab and Haryana, and less than 5 % have holdings above 10 hectares. A rough back of the envelope calculation suggests that the protesting farmers from Punjab and Haryana total no more than 200,000. That is two hundred thousand, so there is no confusion with numbers. Number of all farmers in India, very small, small and large—100 million. So about 0.2 % of all farmers in India have “reason” to protest. And, what are they protesting for? Likely, the license to remain the richest farmers in India or the world because in addition to the exclusive APMC largesse the income of these farmers is not taxed. The non-taxation of agricultural incomes does not benefit the poor farmer because she does not have enough income to be taxed.

Be honest—how many of you know a law in any of the 195 out of 200 countries in the world that prohibits an individual from selling her wares in the market? Count the count-less street vendors in the world, in both developing and developed markets—are they prohibited from selling who they want to sell to? Then why the demand that the APMC be the sole buyer for all farmers?

All these facts are well known, except to large elements of ideologically motivated domestic and international media. “News” is making the rounds that the largest demonstration in the world has taken place in India and/or that 250 million workers had participated. Fake news can only be “influential” if there is some plausibility present in the fakeness. What we are being asked to believe is that the richest 200 thousand farmers are being supported by considerably poorer 100 million farmers and all those who earn considerably less than the rich untaxed farmers! Remember the opening paragraph?

The political economy of the protest is also illustrated by the following comment from former chief economic adviser to the government of India and former chief economist of the World Bank, Kaushik Basu. He recently tweeted: “I’ve now studied India’s new farm bills & realise they are flawed & will be detrimental to farmers. Our agriculture regulation needs change but the new laws will end up serving corporate interests more than farmers. Hats off to the sensibility & moral strength of India’s farmers”.

The sensibility part is understandable—the rich do not want to let their richness go, especially if such richness is undeserved. The moral part is not obvious, but maybe some digging will illustrate. Let us abstract from moral philosophy and examine what India’s unreformed markets have done to the farm economies of Punjab and Haryana. These two states were the pioneers of the green revolution. Electricity to these farmers is subsidised (so that they can destroy the water table), as is their extensive use of fertiliser (so that they have a license to over-use and destroy the environment). But maybe the rich Punjab-Haryana (PH) farmers have provided agricultural growth at a faster rate, and thereby, helped the state, the country, and the poor.

Comparison of output growth in states other than PH states indicates a much lower growth in Punjab-Haryana. Output growth for three important crops—rice, wheat and pulses—and two time-periods—the last fifteen years (2004 to 2018) and the last eight (2011 to 2018) are presented in the accompanying graphic. Neither APMC, nor subsidies, nor “favouritism” has resulted in higher output growth in Punjab-Haryana. No matter which crop, or which time-period, the results are a sad reflection on misguided policy. For both periods, output growth of wheat in other states was more than double the growth achieved in PH; ditto the case for pulses (between 2011-2018, pulses production growth in Punjab and Haryana was at a -0.4 % per annum rate, compared to 5.7% per annum in ten other states!) In rice, the other states do much better than PH, but the excess growth is not double that of PH; however, it is nearly double for 2004-18: 2% for PH, and nearly double (3.7%) for nine other states.

All the above facts have been known, and discussed, by learned people for decades. Which is precisely why the intellectual gymnastics played by many learned people defending the farmer protests is so shocking. The “demand” by intellectuals that the farm bill should have been discussed before being passed is well beyond the bounds of conventional dishonesty.

Executive Director IMF representing India, Sri Lanka, Bangladesh and Bhutan. The views expressed are those of the author and do not necessarily represent the views of the IMF, its Executive Board, or IMF management

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