Why Modi’s Laws to Liberalize Farming Worry Farmers

(Bloomberg) -- New legislation in India aims to fundamentally overhaul the way farm goods are produced and sold in the country of 1.3 billion people, almost half of whom depend on agriculture for their livelihood. It would open up a decades-old system of state-run wholesale markets to more private sales, which Prime Minister Narendra Modi says would help them earn more cash and make India more self-reliant. Opposition parties say it would leave those working the land vulnerable to exploitation. Farmers, fearing the worst, have blockaded a major highway for months in protest. The country’s top court put the law on hold in January while it considers its constitutionality, adding to Modi’s woes.

1. What’s the root of the problem?

Farming has remained relatively untouched by the push to modernize India; its growth has consistently lagged behind the overall economy for years -- often significantly. (The poverty rate in rural India is about 25% compared to 14% in urban areas, according to World Bank data.) Many farmers rely on the most basic of technologies and own small landholdings that preclude economies of scale. And the wholesale markets they sell their produce into are often disorganized at best, dysfunctional at worst. In some, the federal government’s buying program doesn’t operate, leaving private players as the only option.

2. What has the government done?

Parliament passed new legislation in September that the government says will boost farm output and income by removing many restrictions on sales. Farmers and buyers will be free to trade outside the physical markets designated in each state -- at farm gates, private warehouses, processing plants or even on new electronic platforms. State governments are prohibited from charging any fees or levies on sales outside the old venue. Farmers can sign contracts to sell their products well in advance of planting for as many as five years out. The government says farmers may be more willing and able to invest in modern technologies and better seeds if they have an assured income or can get an advance from the buyer. It also argues that more competition for crops could lead to higher prices for farmers, as well as savings on transportation and packaging. India is already the world’s biggest cotton grower and ranks second in wheat and rice.

3. What are farmers afraid of?

Mainly, they fear the demise of the government’s guaranteed purchases of certain agricultural products at set prices. That could lead to wild fluctuations in a country prone to weather extremes. Although the government sets price floors for more than two dozen crops, it mainly buys wheat and rice for its welfare programs and some pulses and oilseeds to prevent distress sales by farmers. The guaranteed prices are used as benchmarks for various farm commodities, but private buyers don’t have to pay them. Farmers also say the laws could lead to higher costs and more farmers losing their land due to increased debts, adding to a problem of suicides among agricultural workers.

4. What have they done?

Beginning in November, tens of thousands have set up camp outside the capital, blocking a major roadway, and appear to be dug in for the long haul. The protesters are insisting that a special session of parliament be called to repeal the laws and make it mandatory for private companies to pay the minimum prices. They have refused to talk with a mediation panel set up by the top court, saying all four members “have actively advocated” for the laws.

5. How has the government responded?

Modi has stood his ground, saying that removing the sales restrictions aims to liberate farmers from bullying by middlemen. In his monthly radio address on Nov. 29 he argued that the laws gave farmers “new rights and new opportunities” -- including a provision that calls for payment disputes to be settled within a month. Minimum prices for winter crops were raised in an attempt to reassure farmers, but they appear unimpressed. Some opposition lawmakers want the law amended to force private buyers to pay the minimum prices, but haven’t made any headway.

6. Who else wins or loses?

Bulk buyers, traders, processors, corporations and exporters may benefit as they can save on market fees by buying direct from growers. That could boost their competitiveness in the global market. On the flip side, state governments may lose a good chunk of the taxes they collect on sales at wholesale markets.

7. What about Modi?

The Supreme Court’s intervention was a setback for Modi, who has been struggling to check the coronavirus pandemic, resolve a tense border standoff with China, revive a shrinking economy and generate jobs. One of the parties in his coalition quit over the issue. But with a solid majority in parliament and national elections not due until 2024, his immediate risk is limited. So far the protest is mainly contained to farmers in Punjab, which is controlled by the opposition Congress party, and Haryana, which is ruled by Modi’s Bharatiya Janata Party. But the opposition is looking to pounce by labeling the government as anti-poor.

The Reference Shelf

• Bloomberg Opinion’s Andy Mukherjee on what Modi needs to end the crisis, and India’s economic woes.
• PRS Legislative Research breaks down the bills in detail.
• More QuickTakes on Hindu nationalism, India-China tensions, the caste system and Indian banks’ bad debt.

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