The Modi government has taken a bold political step by ushering in far reaching reforms that will free the Indian farmers from socialist-era regulations that hinder price discovery and open up the sector to foreign and domestic investments that can bring in billions of dollars and new technology to India's farms.
Indian President Ram Nath Kovind has given his assent to the three Bills that promise to reform and revolutionise the country's farm sector. The three Bills, now Acts of Parliament, are the Farmers′ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020 and Essential Commodities (Amendment) Bill 2020.
They will become the law of the land as soon as the government formally notifies them, which is expected to take place very soon. The three Bills were passed by the two houses of Indian Parliament, but not without drama.
Most analysts and agricultural experts have welcomed the new laws, which have been compared to the liberalisation of the Indian economy in 1991, which unleashed a new era of growth and prosperity across urban and semi-urban India.
Rural India was largely left out of the ambit of reforms as the farm sector, which provides livelihoods to 60 per cent of the Indian population, remained untouched by the winds of change blowing across the rest of the economy.
Now, foreign investors, who have poured hundreds of billions of dollars into the Indian manufacturing and services sectors over the past three decades are likely to start looking seriously at the country's agricultural sector.
This will bring in, apart from large volumes of fresh investments, new technologies and innovations that will increase farm incomes, generate fresh jobs and provide a fresh impetus to economic growth.
These new laws will free the farm trade from the stifling strait jacket of antiquated rules that prevented farmers from receiving the best prices for their produce, hindered private and foreign investments in the agricultural sector and facilitated bureaucratic interventions that made farming unremunerative. Indian Finance Minister Nirmala Sitharaman had announced these reforms measures in May.
The Farmers' Produce Trade and Commerce (Promotion & Facilitation) Act.
This Act will promote transparency and efficiency in farm trade, free farmers from the clutches of the government-nominated licensees they are now forced to sell their produce to, allow them to sell their produce anywhere in India and facilitate the receipt of remunerative prices, thus, increasing farmers' incomes substantially.
Most importantly, this Act will eliminate the monopoly of government-run Agricultural Produce Market Committees (APMCs) to which farmers had to mandatorily sell their produce. Every region has its own APMC, effectively turning its members who are all licensed middlemen, into a monopoly buyer of crops.
These APMCs, which were formed by the government in an era when India faced massive food shortages and even famines were meant to protect poor farmers from big retailers and to ensure that retail prices did not go through the roof.
Over times, these APMCs transformed into cartels of powerful middlemen comprising the local political elite in different regions. They have acquired a stranglehold over the Indian farm trade, cornering all the benefits the government doles out to the agricultural sector, leaving the poor farmer, which they were meant to protect, in the doldrums.
By breaking the monopoly of these entrenched middlemen, the new law creates an eco-system that allows farmers to sell their produce even to private buyers, including big companies. Further, they can now sell their produce anywhere in India, thus, enabling free inter-state trade that will facilitate better price discovery and ensure higher revenues for farmers.
This Act will also enable farmers to enter into contracts with food processing companies, exporters, large, organised retailers, etc., for the sale of their produce at remunerative prices, thus, securing the viability of the farm sector.
This new law provides a framework for agreements between farmers and companies that protects and empowers farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers.
This will encourage farmers to enter into contract farming deals with food processing companies, aggregators, exporters and large retail chains to sell their future produce at pre-agreed prices. This transfers the market risk from the farmers to the buyers.
Then, this Act will also facilitate the introduction of new technologies to the Indian farming sector, which is starved of both investments and technological innovations. It will also enable farmers to directly market their products to end users, thus, eliminating the middleman's share; this will increase farmers' incomes.
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The law provides for marginal and small farmers, defined as those who own or till less than five hectares of land - comprising 86 per cent of all Indian farmers - to form farm producers' body to enable them to engage in collective bargaining and negotiations while entering into contracts.
This has taken agricultural commodities like cereals, pulses, oilseeds, oils, onions and potatoes out of the essential commodities list. This means food processors, traders and others can no longer be penalised for holding stocks in excess of arbitrarily set limits. Also, the government will no longer have the power to clamp down and set prices except in very exceptional circumstances.
For example, investors are now wary of setting up warehouses and cold storage chains to for their own use as the government can set any arbitrary stock holding limit, hold them to be in breach of the law and prosecute them for hoarding and black marketing.
This amendment eliminates that possibility and opens the door to private and foreign investment in the agricultural sector, including in food processing, aggregating, warehousing, cold storage and other infrastructure that will increase the shelf life of farm produce.
Farmers can, therefore, be expected to earn higher returns as a result of these new laws. This will increase rural purchasing power and provide some support to India's flagging Covid-stricken demand curve.
In a series of tweets welcoming the passage of the Bills, Indian Prime Minister Narendra Modi said: “Our agriculture sector is in desperate need of latest technology that assists the industrious farmers. Now, with the passage of the bills, our farmers will have easier access to futuristic technology that will boost production and yield better results. This is a welcome step.”
A second tweet added: “A watershed moment in the history of Indian agriculture! Congratulations to our hardworking farmers on the passage of key bills in Parliament, which will ensure a complete transformation of the agriculture sector as well as empower crores of farmers.”
He further said: “For decades, the Indian farmer was bound by various constraints and bullied by middlemen. The bills passed by Parliament liberate the farmers from such adversities. These bills will add impetus to the efforts to double income of farmers and ensure greater prosperity for them.”
These far reaching reforms, the most ambitious ever attempt to liberalise India's moribund agriculture sector, has met with sporadic protests in two states - Punjab and Haryana.
Led mainly by the opposition Congress and the Left parties, these farmer protests are fuelled by the fear that the new farm laws are the thin end of the wedge - that they will eventually lead to the abolition of the minimum support price (MSP) mechanism that provides a remunerative floor price for sale of crops by farmers.
The Modi government has denied any such plan with the Prime Minister, the Agriculture Minister and other senior government functionaries vehemently rejecting the charge.
Other reasons cited by the protestors are: States will lose revenues if the APMCs lose their monopolies over grain sales; big companies will draw up one-sided contracts to squeeze Indian farmers; big aggregators will become the mainstay of the agricultural trade, giving rise to a new set of monopolists who will corner all the profits accruing to the farm sector; and the recent ban on onion exports created doubts about how much freedom the farmers will actually get.
All these arguments, or some variation of them, were also made when then Prime Minister P.V. Narasimha Rao opened up the Indian economy in 1991. There were fears that Indian businesses would be overwhelmed by foreign competition. Many people accused the government of selling out to foreign and domestic business interests to the detriment of Indian consumers.
All of these contentions were disproved by the developments over the next three decades.
Similarly, experts expect the fresh round of farm sector reforms to transform the Indian agricultural economy and change the face of rural India and bring prosperity to millions of people who have so far been denied the fruits of the liberalisation process that has freed up other sectors of the Indian economy.