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Two steps forward, one step back

Farm policy reflects a lack of clarity about the future of agriculture

Bs_logofarm policy, agri sector
Illustration: Binay Sinha
Shubho RoyBhargavi Zaveri
6 min read Last Updated : Jul 23 2020 | 8:07 AM IST
A series of recent developments in the field of agriculture creates a perception that India is embracing a market-led agriculture sector. On  June 5, the Union government notified three Ordinances that ease control on the storage and sale of agricultural produce. On July 13, the Karnataka government promulgated an Ordinance that reduces restrictions on the sale of agricultural land. The principle underlying these developments is the same — allowing the farmer the freedom to contract, a right guaranteed under the Constitution and a virtue that every liberal society aspires to keep intact. The government of Telangana, meanwhile, is reportedly proposing a new policy which will give it control over what farmers grow on their land. The Telangana policy is in stark contrast to the developments at the Centre and in Karnataka. The differing approaches reflect a more profound ideological conundrum towards agriculture in India.  

The set of Ordinances promulgated by the Union government seeks to achieve three objectives. First, they entitle farmers and traders to carry on trade and commerce in agricultural produce outside a licensed Agricultural Produce Market Committee market. The second Ordinance sets up a framework for formalising contract farming — contracts between farmers and traders — for selling agricultural produce harvested in the next season. It creates scope for financing the farming cycle of the farmer and sets up a mechanism for dealing with disputes arising out of the contract. The third Ordinance defines the limited circumstances under which the government may regulate the supply of agricultural produce via the Essential Commodities Act. For example, it states that stock limits may be imposed only where the price of agricultural produce goes beyond a certain defined threshold. Thus, while it does not entirely take away the power of the state to curb the storage and supply of agricultural produce, it restricts the circumstances in which the government may exercise its powers. 

Similarly, Karnataka promulgated an Ordinance that allows farmers to sell agricultural land to non-agriculturists. Some restrictions like landholding ceilings will, however, continue. Even with the limits, the law reflects a fundamental shift in values. The policy goal in India has been to discourage farmers from selling their land, especially if the buyer is not a farmer. The government believed that this would protect the farmer from unscrupulous buyers, ignoring the fact that the restrictions destroyed the value of farmland and, thereby, was disadvantageous to impoverished farmers who wanted to leave farming. 

Illustration: Binay Sinha
Illustration: Binay Sinha

 
The developments at the Centre and in Karnataka indicate a move, howsoever half-hearted, towards liberalising farming from state-led sectoral policies that have hitherto restricted the farmer’s freedom to trade and monetise assets. They are small steps towards a market-led agricultural sector that is free of arbitrary state intervention and based on contract enforcement and the rule of law. 

The Telangana government, however, is pursuing a Soviet-style policy of centrally planning the crops that may be cultivated by farmers in the state. Reportedly, the initial plan is that farmers have to grow paddy on 50 lakh acres, cotton on 50 lakh acres and red gram on 10 lakh acres. Farmlands close to urban areas will grow vegetables and horticultural crops. It is proposed that farmers who do not comply with the cropping pattern announced by the state will be cut-off from both procurement and state support, such as farm input subsidies and the much revered Rythu Bandhu income support scheme. 

The reported intent of this proposal is to encourage crop diversification and allow farmers to obtain a better price for their products. The policy is problematic for two reasons: (i) the state does not have better information than the farmers, (ii) state failure in procurement will be borne by the farmers. 

The Telangana government is assuming that the state is better placed than the farmers to foresee the demand for agricultural produce. It ignores the well-documented impact that minimum support prices offered by the state have on cropping decisions. It is another matter that procurement by the state often fails for several reasons, such as its timing, the capacity of the state government to procure everything that is cultivated and the awareness levels of the farmers themselves. 

Telangana’s decision to rely on experts to dictate cropping patterns belies years of experience in how centrally-planned economics has failed universally, be it India, Cuba, North Korea, or the Soviet Union. F A Hayek argued that market knowledge is not centralised in a single mind, whether of the State or its appointed experts. Rather, knowledge is dispersed, highly localised and discovered through markets that facilitate the discovery of prices. Market processes are a more robust feedback loop to the farmer than state diktat. 

The second problem will arise in the implementation of the policy. Directing large swathes of land to cultivate single crops may increase the production of those crops substantially. Consequently, the market price of these crops will fall. If the state government is unable to declare a sufficiently high minimum support price and procure all the produce at that price, farmers will be in deep trouble. The market will have a supply glut, and the prices will be lower. Even if the government purchases all the produce at artificially high prices, it will then have to sell it in open markets at much lower prices. The loss from this transaction will have to be borne by the taxpayers. If the programme fails, the farmers lose money. If the programme succeeds, taxpayers will subsidise the buyers of those commodities. Success will also entrench the policy and force the government to commit more financial resources in the coming years. Overall, it increases the imprint of the state on agriculture and subjects the farmer to its enforcement machinery as well.

The two differing approaches to agriculture reflect a lack of intellectual clarity about the future of Indian agriculture. On the one hand, we see some green shoots of liberty for the Indian farmer. On the other, a state is regressing to the failed policy of centrally planning agriculture. While a federal democracy can be a crucible of many experiments, is there a reason to retry one which has failed universally? 
Roy is a researcher at the University of Chicago,  and Zaveri is a researcher at the Finance Research Group 

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Topics :farm crisisagri schemes

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