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What set out to be a substantial package of reforms of the agricultural commodities market has turned into a political crisis for the Narendra Modi-led National Democratic Alliance (NDA) government, with its oldest and most faithful ally, the Shiromani Akali Dal (SAD), walking out of the ruling coalition.
The Modi administration wants to enable farmers to access the bigger marketplace instead of the restrictive Agricultural Produce Marketing Committees (APMCs, a platform where the farmer and commission agent would negotiate the sale and purchase of major agri-commodities like rice and wheat). The government has dismantled the APMCs, telling farmers they would now be free to sell their produce anywhere in India. However, it ignored their fear that this move was a precursor to the gradual, and eventually total, elimination of subsidies, thus leaving them vulnerable to the vagaries of the global markets.
The Minimum Support Price (MSP) has, for years, been the floor that has guaranteed farmers a fair – and somewhat remunerative – price for their produce. Government agencies set the MSP after calculating the costs of inputs and labor and procure most major agri-commodities, harking back to an era when food shortage was a real fear in India. Their intervention ensures a degree of market stability but has, over the years, also deterred competition.
Keeping and eating the cake
Farmers want the MSP to continue but also want access to bigger markets. They are conscious of the insecurities this entails – for instance, the potential legal minefield that might emerge from a payments dispute between a multinational buyer and a small or medium farmer. The government has put a mechanism in place, empowering local officials with the authority to arbitrate. But cultivators remain unconvinced.
This is not the only problem. State governments, anxious to protect a crucial voter constituency, have hailed the reform but, at the same time, have erected barriers to the inter-state movement of major commodities, defeating the purpose of the reform. As winter procurement begins next week, this problem will manifest itself in many ways, especially in the current year of glut in foodgrain. Already, rice farmers from Uttar Pradesh are finding they cannot enter the borders of nearby Haryana to sell their crop – because Haryana wants to restrict open market procurement of rice to ensure a higher price for its own farmers.
In Punjab, which is considered the granary of India, many farmers are also big buyers of grain, themselves suppliers to multinationals. They dominate the agricultural markets and have made their resentment against the government’s interference clear. The SAD had to part ways with the NDA for precisely this reason – its voter base has been signaling that interventions in procurement will cause needless crimps in the system and could give rise to the emergence of new players threatening their position.
Impact of the protests
The protests are confined to the northern regions of Haryana, Punjab, and a part of Uttar Pradesh. And even in these areas, only about 6% of Indian farmers sell their produce at MSP rates. The opposition says MSP should have been made a mandatory part of the reform as a measure of reassurance. But the government’s counterargument is that farmers need better systems of price discovery, not price decisions imposed by bureaucrats.
The prime minister’s appeal, however, seems to be falling on deaf ears as politics has overtaken the central issues. Nevertheless, government managers hope that once farmers get busy with selling the harvest and winter sowing, the agitation will peter out on its own. Moreover, Modi will continue to enjoy a majority in the lower house of parliament despite SAD’s departure.