Bad communication costing the government

For the last 5 days, farmers from 4 states of northern India have been protesting in Delhi. There numbers are in lakhs and braving the December cold, they are here for the longs haul. 

The farmers are protesting against the three act passed by the parliament recently whose nomenclature is tough but in simple language can be explained as – One relaxes restrictions governing purchase and sale of farm produce, the second relaxes restrictions on stocking under the Essential Commodities Act (ECA), 1955, and the third introduces a dedicated legislation to enable contract farming based on written agreements.

These three bills need to be read together as they address the supply chain of the farm produce – the method of production (contract farming), the method of selling (other than mandis area / questions on MSP ) and lastly the stocking of food grains (easing of ECA). Of the three, the first two are also called the farm bills. 

They share a premise that they will enable private players to invest in agri-food supply chains more easily, lead to gains in efficiency downstream along the supply chain (and upstream in the input supply chain) and that these gains will be passed on to farmers in the form of higher output prices or lower input prices as the case may be.

Clearly, opinions have been divided on the above. Some have hailed the bills to be the watershed moment of the Indian agriculture and others have sounded the death knell for the farmers. The sceptics believe that this will lead to the withdrawal of the state from a crucial sector of the Indian state and will lead to exploitation of the farmers. Well, this is an idea of the 70s cinema of Amitabh Bachchan whose sell by date is long gone. We are in new economic scenario and should confront and accept the new challenges and realities. 

The other aspect is that there has been a gross communication failure on the part of the central govt to explain to the farmers about these laws and how will it benefit them. Also, the manner in which they were passed in the parliament was just unparliamentary, to say the least. This communication gap has been fully exploited by some political parties who launched a campaign working on the insecurities of the farmers. 

What needs to be understood that the major reason for any protest in regards to these bills is as much to do what the bills say as it does with what is left unsaid. 

Looking at the issues at hand, first the marketing of the food grains. Marketing reforms need to be in the larger context of state support and private intervention should be a part of it. So it is essential to have a clear articulation of the intended trajectory of policy by the government. Leaving such gaps will lead to situations like it faces in Delhi today. 

“Agriculture”, “markets and fairs” and “trade and commerce within the state” are all state subjects in the Constitution (Entry 14, 26, 28, List II, Seventh Schedule). Agricultural markets have therefore been the responsibility of the states. At the same time, the centre has an overarching responsibility via Article 301 to ensure that there is free trade within the country: of ensuring “freedom of trade, commerce and intercourse”.

Thus, state regulated APMC mandis regulate agricultural trade within a state. These typically mandate that purchase of certain ‘notified’ agricultural commodities be through government-regulated markets (mandis) with the payment of designated commissions and marketing fees. Traders and intermediaries (commission agents) typically require a licence to operate in these mandis.

This arrangement was done in the 60s to protect farmers’ interests but now it has rendered the farmers dependent on these middlemen who are financiers, brokers and traders, all rolled into one. This is not to say that all agents and traders are evil but the nexus between traders and commission agents tends to keep the competition out and leaves the farmer with little bargaining power. 

In a study it has been found that commodities change hands as many as 5-6 times from farmer to the end consumer. By removing the interstate barriers to trade, the farmer price can increase by almost 11% !

Nowhere in these bills has the government talked about removing APMCs or MSP. What will come under pressure, though, is the commission of arhtias, mandi fees and cess that the states collect which account for as much as 8.5% over the MSP in Punjab, amounting to roughly 4500-5000 crores in a year. 

We should remember that almost 90% of the agri produce is sold to the private sector. Sectors like milk, poultry, fishery don’t go through the mandi system and there growth rate is 3 to 5 times higher than that of wheat and rice. 

So creating another space outside the domain of the mandi is not so much of a problem. What is does though, it disturbs  the setup which has been in place for decades now. That setup feeds and provides the power to the power holders, it empowers and exploits the farmers, all at the same time. Making any changes to the system will have some ramifications. 

Another demand is making the MSP statutory and make it legally binding, implying that anyone who buys below the MSP could face prison. In reality, of the 23 commodities for which MSP gets announced, only 2 – wheat and rice, enjoy it meaningfully and that too in only 6-7 states. 

The FCI is loaded with grain stocks that are more than 2.5 times the buffer stock norms indicating massive economic inefficiency in the grain market system, costing the tax payers thousands of crores and yet people die due to hunger in the country. 

For a moment, if we imagine that MSP is made binding then it will distort the market. Might lead to a situation where it will be cheaper to import than to buy from the market. And what if the private sector doesn’t buy? It will lead to a flood in the FCI, making the stocking unsustainable. And then why should the MSP be restricted to just 23 crops, why not extend it? Opens up a pandora’ s box leading to a financial disaster. 

So effectively, the government should see where the insecurity of the farmer is stemming from and should try to address it. It should communicate the blank spaces which are left vacant in between the lines. These communication efforts will help the government also to understand the unsaid and articulate it better and to the people it will be a more empathetic executive.

Had a debate happened in the parliament, these issues might have been sorted out. Bludgeoning the laws through the parliament, after all, does have its aftereffects. 

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