Follow Us:

Full Circle

The balance of trade is against the agricultural sector, because prices of agricultural produce have risen much more slowly than the prices of items of general consumption, while the cost of agricultural inputs like fertilisers, pesticides and diesel have risen exponentially. The distress in the agricultural sector vis-à-vis the rest of the economy becomes apparent once we note that 45 per cent of our population is engaged in agriculture which accounts for only 17 per cent of the GDP


After a year marred by farmers’ protests, blocked roads, mutual recriminations and low-level politicking, things will hopefully return to normal with the repeal of the Farming Acts.

To recapitulate, on 7 June 2020, just after the total lockdown was lifted, the Government promulgated three ordinances viz. Farmers’ Produce  Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 (FPTC Ordinance), Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020 (FAPAFS Ordinance) and the Essential Commodities (Amendment) Ordinance, 2020.

These ordinances were not welcomed by farmers; protests instantly erupted in Punjab and Haryana. However, the Government did not relent and hurriedly converted the three ordinances into Acts in September 2020.

According to the Government, the three Farming Acts were intended to ameliorate the pitiful condition of farmers. The FPTC Act was designed to end the monopoly of the Agricultural Produce Marketing Committees (APMCs) and allow free purchase and sale of agricultural produce across India, enabling farmers to get better prices for their produce and sparing farmers from payment of APMC and other charges.

The FAPAFS Act legalised contract farming that would result in farmers engaging with processors, wholesalers, aggregators, large retailers, exporters etc, leading to private sector investment in agricultural infrastructure. Briefly put, the FAPAFS Act would have provided entry of business entities in farming, ensuring bumper production at a low cost through advanced technology and economies of scale.

Removal of restrictions on storage, by amendment of the Essential Commodities Act, would have given adequate holding capacity to agriculturists. However, farmers were not convinced by the Government’s prediction of a rosy future for them. Rather, farmers apprehended that the entry of corporates in farming would lead to huge mechanized farms, threatening the livelihood of agricultural labourers and small farmers. Farmers also feared that cashrich companies may force them to enter into disadvantageous farming contracts.

The farmers’ worst fear was that after some time the Centre would end the current system of open-ended FCI procurement  and they would not get Minimum Support Price for their produce, after which large corporates would dictate prices of agricultural commodities. The farmers’ protests were so intense, that uncharacteristically, Prime Minister Modi repeatedly came out in defence of the new legislation, accusing opposition parties of misleading farmers.

Disturbances, that often threatened to detach the National Capital Region from the capital and create an urban-rural divide in society, may cease after the Farming Acts are repealed but the agricultural sector faces a number of systemic problems that need urgent attention.

First and foremost, the balance of trade is against the agricultural sector, impoverishing farmers, because prices of agricultural produce have risen much more slowly than the prices of items of general consumption, while the cost of agricultural inputs like fertilisers, pesticides and diesel has risen exponentially.

The distress in the agricultural sector vis-à-vis the rest of the economy becomes apparent once we note that 45 per cent of our population is engaged in agriculture which accounts for only 17 per cent of the GDP. Paradoxically, despite its promise of doubling farmers’ income by 2022, the last thing the Government wants is a substantial increase in food prices; a rise in their prices would impact the poor adversely and also erode the political capital of the Government.

That said, agriculture can become profitable only after huge investment in farming infrastructure. The Government had hoped that the Farming Laws would attract private investment in agriculture, taking away farmers’ problems from its plate. However, this did not happen and the Government is back at square one. As in the case of reduction of taxes on petrol, politics has trumped economics with the right decision being taken for the wrong (political) reasons.

The crux of a number of problems related to agriculture and the environment is the overproduction of food grains that are purchased at MSP by the Food Corporation of India. FCI godowns, typically, hold 2.7 times of our annual requirement; as on 1 April 2020, food grain stocks stood at 73.85 million tonnes which was three-and-a-half times of our reserve requirement of 21.04 million tonnes.

A small part of the grain purchased by FCI is used in the PDS while the rest is stored in the open and is pilfered or rots away. Additionally, excessive use of subsidised water in agriculture depletes the water table and mindless consumption of fertilisers degrades the land. Clearly, the solution lies in weaning farmers away from the cultivation of MSP crops to crops that can be sold at a good price in the open market, but as the Supreme Court observed in the stubble burning case, the behaviour of farmers can be changed by offering incentives and not by changing the law.

In a nutshell, the problem now is that of diversification of agricultural production while limiting production of food grains. Affluent societies like the US and EU handle the problem of over-production by providing incentives for limiting production. This solution may be too costly for us but changing the mix of the crops planted by farmers and better marketing facilities for non-traditional farm produce could change the face of Indian agriculture.

The successful cultivation of non-traditional crops like dragon fruit, strawberry, bell pepper and mangoes by farmers in Punjab and Kutch, shows that this may be a workable proposition. However, for most farmers, the market beyond food grains is treacherous, imperfectly developed and poorly understood. When fracking took off in a big way in 2012, the use of a derivative of guar gum, Fast Hydrated Gum (FHG), increased exponentially, leading to the price of guar soaring to Rs 28,500 per quintal, from its earlier level of Rs 2,000 per quintal. Thereafter, market forces got activated and guar prices dropped sharply in the next season.

Depending on the price of crude in the international market, the price of guar currently ranges between Rs 4,200 to Rs 6,000 per quintal, while the export price of FHG is around Rs 27,500 per quintal. Obviously, a properly developed market for guar would ensure much higher prices for guar farmers. Another problem is the Government’s propensity to ban exports and even import agricultural produce should their prices rise.

A recent instance would suffice; just before the passage of the Farming Acts in September 2020, the Government had promised remunerative prices to vegetable farmers under the TOP (Tomato, Onion and Potato) initiative, but as soon as the prices of onions rose, the Government banned onion exports. The ban was lifted in early October but by the end of October, the Government had made preparations for importing 30,000 tonnes of onions and potatoes to depress the prices of these commodities.

A beginning could be made by educating farmers about how to grow new crops and how to market them. Instead of a bureaucratic Extension Division of the Department of Agriculture, thousands of field workers would be required to impart practical training to farmers. Adequate finance and high-quality seeds would also have to be made available. Rural roads would have to be made functional.

Thereafter, mandis for particular agriculture products would have to be developed near the place of cultivation. Presently, all such conditions are absent; the farmers who plant non-traditional crops have to face the vagaries of the market ~ during the lockdown period starred hotels shut down, leading to huge losses for floriculturists and producers of exotic vegetables. Viewed from another perspective, Farming Acts were the antithesis of the organic, local, pasture-based, humane farming that the Government was promoting till recently, through initiatives like Zero Budget Natural Farming.

The repeal of the Farming Acts would be a boon for the environment which would have been further degraded by large-scale mechanised farming and also for small farmers whose condition would worsen even more. Summing up, farming is the traditional Indian occupation and the Indian farmer is hardy and industrious, well-used to adversity.

The agricultural sector was the only sector of the economy that withstood the vagaries of the Coronavirus scourge and which grew at a time when all other sectors collapsed. Demand for tractors, agricultural implements, fertilisers etc. kept the cash registers of many manufacturing concerns ringing. The Government would be well advised to implement all-encompassing agricultural reforms like the Swaminathan Report and not listen to armchair experts, who espouse quick fix solutions like the Farming Acts.

As US President Dwight D. Eisenhower had observed: “You know, farming looks mighty easy when your plough is a pencil, and you’re a thousand miles from the corn field.”

(The writer is a retired Principal Chief Commissioner of Income-Tax)