Ram Madhav
February 12, 2021

Govt’s agricultural reforms allow for greater access to investment, job creation in rural sector

An entrepreneur invests his money, manufactures output and looks for a maximum profit from it. Any businessperson who invests money, time and energy would do the same. The travesty in our country is that a farmer, who also invests his money and energy and produces a crop has to look not for the “maximum profit price”, but for “minimum support price”, popularly known as MSP. The MSP regime, which became a political tool for parties to entice farmers during elections, is actually an oppressive regime for the ordinary farmers. Coupled with the British-era mandi system, the regime has been distorted and has become exploitative.

The MSP regime for the crops produced by a large number of farmers was seen as necessary to protect them from price fluctuations and exploitation by the traders and middlemen. But the mandis are doing just the opposite. When a farmer reaches a mandi, he has to depend on the auction price of the registered traders, which in most cases, is below the MSP. Collusion and corruption in the mandi establishment facilitate this fraudulent practice. If a farmer refuses to sell his produce below the MSP, he has to either languish at the mandi for days until his turn comes again or simply go home without selling his produce. That’s why many small farmers refuse to go to the mandi and dispose off their produce locally to a merchant collector, often below the MSP.

The MSP regime is distorting farming patterns in the country too. MSP applies to 100 per cent produce in rice and wheat farming, while it applies to 25 per cent of the produce in a number of other crops. Since the MSP guarantee is there, more and more farmers tend to produce crops like rice and wheat. Once produced, the farmer looks to the government to procure his entire crop. In many agriculture-dependent states, the Food Corporation of India is unable to execute the growing quantity of MSP crop procurement, resulting in huge stockpiling in warehouses and wastage. State governments face massive financial difficulties due to the FCI’s failure in procuring from them, while for political reasons, they can neither delay the procurement nor delay payments to farmers.

Until now farmers in several states did not have the option to sell outside the mandi and MSP regime. The three agricultural reforms that Prime Minister Narendra Modi’s government has brought about facilitate greater freedom for the farmers with respect to their produce and marketing. Indian agriculture badly needed this fundamental reform of opening up the sector for greater investor intervention to benefit the real tillers rather than middlemen and traders.

The PM has rightly referred to the fundamental crisis in Indian agriculture. The size of the farms is shrinking as the land is transferring from generation to generation, resulting in a rise in the number of small and marginal farmers. It is no surprise that a large proportion of our population is directly dependent on agriculture unlike in countries like America, where the agriculture-dependent population is below 2 per cent. Smaller farms mean less produce and no power in the hands of the producer to dictate pricing. The lack of market intervention has left these with smaller farm holdings — less than two hectares — at the mercy of the mandis and MSP.

There are two ways of addressing this fundamental problem. One, to increase the size of the farm so that the crop quantity becomes competitive and profitable for the farmer. But that will be possible only when we create more non-agricultural jobs. Sadly, we face an acute job shortage in the country. The second option, which the Modi government appears keen to explore, is to allow market forces to make direct interventions at the grass roots and provide better profits to farmers. Fear of markets is inherent in the psyche of many societies that were exposed to socialistic protectionist practices for long. Most of these fears are based on hypotheses, if not hyperbole. Not that market forces are not exploitative. But the legal framework that the government’s reforms entail ensures that such exploitative practices are mitigated. For example, the reform would facilitate investments flowing into villages for agricultural produce. But those investments will have a right over the crop only, not on the land or other assets of the farmer. Such restrictions would discourage unscrupulous elements from exploiting farmers. On the other hand, educated youngsters can now look at agriculture as a profitable profession and return to villages with energy, enthusiasm and equipment.

Once the investment inflow into the agriculture sector directly at the grass roots is facilitated, it would also lead to the creation of several allied activities like cold chains, processing units and warehouses. Crop patterns will also change and diversify. There will be scope for the creation of new jobs in the rural sector. The family of a small farmer work today as tillers on their meagre farmland and as labourers on their neighbour’s land. They can now do better by being tillers in their own land and participants in allied activities outside.

In that sense, the present set of reforms is forward-looking and progressive. India needs to change its outlook towards agriculture.Bold reforms that allow greater investment infusion are necessary to make it a profitable profession for farmers. In any case, the present regime needs to continue to fulfill the government’s PDS obligations. Hence the PM’s assertion that “MSP tha, hai aur rahega” (MSP was, is and will remain). Indian farmers need not worry that they will be left at the mercy of the market forces.

Every party and farmers’ organisation wanted such a reform. Their opposition to it today looks political and opportunist. All should come together in the interest of the farmers and Indian economy.

(The article was originally published in Indian Express on 12 February 2021. Views expressed are personal.)

Published by Ram Madhav

Member, Board of Governors, India Foundation

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  1. India Foundation is appreciated for the great work done for the benefit of our country. Best wishes to all the people in the Governing council.

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