India’s agriculture sector needs much more than these new laws to help farmers

Date:01-01-2021

The three farm Bills and the subsequent protests have grabbed headlines over the past few weeks. Experts, analysts and commentators have spilt much ink and devoted much screen prime time to discussion around the Bills—whether they should stay or should be repealed? This article will not pick a side. Many are touting the Bills to be the 1991 moment for the agricultural sector—liberalisation. Powers of agricultural produce market committee (APMCs) have been reduced, amendments to the Essential Commodities Act have been made to ease stock limits, and corporate farming and direct procurement have been made easy.

However, why are reforms/amendments needed, and what is the ultimate objective? Time and again governments have had a mandate to increase the income of farmers and modernise the Indian agricultural scene.

The Narendra Modi government has set a target to double farmers’ income by 2022, using 2015-16 as the base year. The PM-KISAN scheme too has been a stride in the same direction. The NITI Aayog paper on Doubling Farmers’ Income clarifies on the ways farm income can be increased. A reduction in per unit cost of production could lead to increased earnings. Higher increase in prices of farm output relative to other commodities is another source. Diversification of crops and movement of labour to non-farm occupations too could add to the income. In essence, increase in farmers’ income goes beyond just increasing farm output.

In the past, the minimum support price (MSP) of crops has helped provide some security to farmers for their produce and, at the same time, ensured food security for the country. It also served to incentivise a desired cropping pattern.

However, India is no longer short on its staples—rice and wheat—and the Food Corporation of India (FCI) holds stocks way beyond the recommended levels rotting away in its yards. Despite MSP being in place, instances of farmers having to sell their produce below MSP are not unheard of. Besides, every crop and every farmer doesn’t get MSP.

According to a recent article in The Wire, farmers on average were denied at least Rs 1,881 crore by having to sell their produce below MSP in October and November. In all major paddy producing states—Chhattisgarh, Uttar Pradesh and Telangana—the average prices were 15% below MSP. According to the PRS, 43% of wheat, 36% of rice, 12% of cereals and 1% of coarse grains produced are procured at MSP. Also, Punjab, Madhya Pradesh and Haryana make up 85% of the wheat procured under MSP. Therefore, MSP remains focused on a few crops and a few states.

MSP has had limited success in terms of serving as a signal. According to the findings of a 2016 NITI Aayog report, only 10% of farmers came to know about MSP for the different crops before their sowing season, whereas 62% of farmers knew about the prices of their produce after the sowing. Also, 28% of farmers could not recollect the information. Essentially, increased MSP cannot alone help in increasing farmers’ income.

The NABARD All India Rural Financial Inclusion Survey 2016-17 shows that 48% of rural households are agricultural households. And 87% of agricultural households possess two or less hectares of land, and only 5.2% own tractors. Nearly 43% of income of agricultural households comes from cultivation and livestock rearing. Small scale and lack of modernisation characterises a major chunk of India’s agriculture. New technology and farming techniques are crucial to increasing farm productivity, reducing cost of cultivation, and improving farm realisations. Farmer education and extension services will go a long way in improving farming practices. There is a dire need to communicate with farmers and win his confidence if new techniques are to be adopted. Limited success of soil health card and nutrient-based subsidy being an example how well-intended policies can fail to yield the desired results in the absence of a buy-in from farmers. Increase in yields of staple food crops can help farmers diversify into other value-added cash crops.

An impetus to farmer producer organisations (FPOs) can help farmers achieve scale, and better coordinate cultivation and marketing of their produce. Self-help groups (SHGs) can help farmers diversify their income streams. However, FPOs and SHGs have had limited success owing to lack of managerial skills and quality control. Focused development of such soft and technical skills amongst farmers and rural population, may be say under ‘Skill India’, could help FPOs and SHGs achieve greater success. Agri-based industries in rural areas can help utilise excess labour from the farms and provide new employment opportunities, and at the same time provide a ready market for farm produce. Easy access to formal credit too can help farmers lower their borrowing costs.

Free and functioning agricultural markets can help farmers increase the incomes from their farm produce. Deeper and open agricultural markets can help market participants with better price discovery and foresight of market conditions. Better agriculture and supply chain infrastructure will be crucial for the success of trading markets. Bringing players on board eNAM and other trading platforms will be critical, as will be helping farmers access international markets.

The recent reforms may or may not stay. By itself, the ability of any reform to transform agriculture will be limited. Bihar became the first state to abolish the APMC Act in 2006. Studies have shown the impact of that on the plight of farmers has been a mixed bag, owing to nuances of the rural socio-economic setup.

To really bring about a marked change in the plight of farmers, coordinated and comprehensive effort will be required on the part of the government, the private sector and farmers. Participants will need to have confidence and work with one another to identify the problems and find solutions. This is the only way India can achieve income security for its farmers and nutritional security for itself.