October , 2020
Efficacy of the new agricultural laws
17:21 pm

Kishore Kumar Biswas

Economists, irrespective of schools of thought, are doubtful about the fruitfulness of the recently enacted agricultural reform laws. Even Ashok Gulati, who is one of the most prominent supporters of allowing free market dynamics in the Indian agricultural sector, is not very optimistic about the new agricultural laws.

The new three agricultural laws are considered as the biggest reforms in agriculture by a section of economists. Summarily, the first law would allow farmers to sell their products freely to any one in the country as against mainly in the government sponsored mandies (markets) earlier. The second law permits contract farming by the farmers with any organisation or person and the third law allows stocking of many food items without any limit - although subject to some conditions. There has been a political uproar in the country and opposition parties has declared a nationwide strike against the laws. One of the oldest allies of the ruling NDA government, Shiromani Akali Dal has left the NDA and the only minister from that party has resigned in protest.

Economists’ views

The first name that comes to mind in this regard is Ashok Gulati, Infosys Chair Professor at ICRIER (Indian Council of International Economic Relations). He has been advocating for agricultural reforms in the similar line of thoughts for decades. He considers the present agricultural reforms similar to India’s economic reform of 1991. In an article published in a national media a few days ago, he wrote that the economic rationale of all the three acts was to provide greater choice and freedom to farmers to sell their produce and buyers to buy and store. This would, according to him, create competition in agricultural marketing. As a result, this would help to build more efficient value chains in agriculture by reducing costs, enabling better price discovery and improving price realisation for farmers. This would not only help farmers but also help the consumers by reducing the prices of the agricultural products in the market. However, this is not the end of the story. Gulati thinks that the reforms would encourage private investment in storage. This would reduce wastages and help to contain seasonal price volatility.   

But Gulati was not satisfied with the enactment of the laws only. He suggested that India needed more. According to him, India needs to create a Farmer Producers Organization and invest in marketing infrastructure. He also wrote that NABARD (National Bank for Agriculture and Rural Development) should take the responsibility to build rural infrastructure for which the government has allocated `1 lakh crore and bring in private agencies and state governments for its implementation.

But at the same time, he expressed his doubts in implementing the reform laws. He cited a glaring example of failure of a policy passed by late Arun Jaitley. Jaitley announced a scheme called TOP (tomato, onion and potatoes) to stabilise their prices through processing and storage. It is known that the prices of these products are highly volatile. Jaitley had allocated `500 crore for the scheme. The Ministry of Food Processing was entrusted with the implementation. Gulati pointed out that even after three years of the scheme, not even 5% of the announced money has been spent. So, it is clear that even the supporters of agricultural reforms have doubts about its efficacy.

A different but important way of seeing the agricultural legislations has been forwarded by Himanshu, Associate Professor, Jawaharlal Nehru University. In his articles in national media, he has tried to say that the reform in APMC mandis was not a new idea and successive governments have tried to address it. Even many leaders of the agricultural sector talked about different political interferences and even in many cases, the middlemen created problems. But on the whole, the middlemen have a favourable role in price discovery in the mandis. Himanshu cited the example of Bihar where since 2006, the farmers can sell their products elsewhere also but there was no sign of improvement in pricing of farm products. Most of the products were being sold below the MSP. But in spite of that, a huge number of farm products are sold in the mandis. On a different occasion, Himanshu had pointed out that already 17 states had relaxed the Agricultural Produce Marketing Committee (APMC) system and in some states like Kerala, there were no APMC mandis. In the present situation, any law mandating freedom of selling farm products may not be an answer to the current problem of pricing.

Ajoy Srivastava, Indian Trade Service, thinks that in many cases, contract farming may be suitable only to those who can avail the opportunity but in most of the cases, it may not help farmers. In the case of hoarding, he questions in his article in a national media, whether the removal of the stocking limit can lead to monopoly and hoarding. He thinks that global agricultural trade is highly concentrated. Just four traders control 90% of the international grain trade. These four are not traders only. They control most parts of the farm-to-fork supply chain. He thinks that this may be a reality in Indian agriculture as well.  

Hoarding may create a new problem. Srivastava cited the example of China. Grain traders and flour mill owners of China hoarded wheat this year in anticipation of a huge rise in prices due to the pandemic and the flood situation in many regions. In India, a similar incident may happen. So, according to Srivastava, for better pricing the government has to intervene in setting up storage facilities. The massive difference between what farmers get and what consumers pay for farm products is due to the poverty of the farmers. Farmers have to sell immediately after the harvest. In India, there is a huge lack of post harvest infrastructure facilities. This is why farmers of Punjab get much higher prices for the same products than in Bihar - as Punjab has better mandi facilities than that of Bihar.

Inadequate infrastructure is to blamed  

Several economists think farmers have not been getting good prices as the marketing of their products is very difficult. Infrastructure is not at all conducive to better pricing. This is why in the free market situation small farmers, who are the majority of the total farmers, would not get better prices at all.  At present, on an average, access levels to markets under the APMC system are at the rate of one for an area of 434.48 square kilometre. But it is well below the recommendation of the National Commission for Farmers (NCF) which emphasises on one market for 80 square kilometres. Many economists categorically say that there is evidence that mere liberalisation does not lead to private investment in new markets.   


If the government really aims to strengthen competition in the agricultural sector, the standard suggestions are that it should plan for the required expansion of the APMC market system. At the same time, it has to take action to remove trade curtails, provide farmers good roads, logistics of scale and real time information and empower them through the Farmers Commission recommended by the NFC. One has to remember that in the pandemic situation, agriculture is the only sector that is showing positive growth and saving the economy.

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