The Indian agricultural reforms: Protect the small farmer

The protests against the agricultural reforms in India have made headlines in Europe, breaking through the COVID related doom and gloom. Social media has convinced us that over 250 million people are protesting nationwide in India, labelled as the largest protest in modern times, with over 11 Indian opposition parties supporting the farmers and the India wide strike.

The world now weeps for the solitary, poor, Indian farmer and CNN quotes various predominantly Punjabi and Sikh groups who lament how the reform affects the “poor Indian farmer”. CNN asks you to worry, because your spice rack may be at risk as would be your fashion given than India produces 68% of spices globally and more cotton than China. Very few news sites actually explain what the actual problem is and how does one protect the Indian farmer. Most are content at bashing the Indian government.

Internationally, the protests have received strong support, especially in countries like Canada, UK and Italy where the Punjabi and Sikh diaspora are predominant, where pro-Khalistan groups have found shelter.

The agricultural structure so far in India

Over half of the Indian population is engaged in agriculture while generating only 16% of the GDP  85% of Indian farmers manage farms smaller than 2 hectares. The current legal structure is outdated and opposition leaders such as Sharad Pawar of the NCP have in the past criticized the existing legal structure as “outdated”. While these protests politicize the farmers demands, they do little to protect the small, poor Indian farmer who was exploited before and continues to risk exploitation now.

The previous legal framework, including the Essential Commodities Act (1955), is over 55 years old. They were passed when India was a socialist republic, in days of drought, shortages and license raj and originate from British colonial laws which were designed to keep agricultural produce in the control of the colonial government which was why they had colonized India to begin with, for raw material initially for their industries and eventually to keep their armies fed and clothed during the war. So laws which controlled how and to whom farmers sold their produce when made sense during the years of colonialization.

The current laws obliged farmers to sell their produce at the Agriculture Produce Marketing Committees (APMC). The APMC’s are state government-controlled wholesale markets which are run by cartels of middlemen, who buy the produce from small farmers and resell them at higher margins, given that the small farmer neither has the money or the means to transport the produce to the APMC. Over time these middlemen have become a rich and powerful political lobby with strong political links. The APMC’s sell vegetables and several other goods through an auction system, which has been judged by neutral observers are non-transparent and farcical, with price fixing and corruption being rampant.

The second part of this story is the MSP or the minimum support price. Based on the recommendations of the Commission for Agricultural Costs and Prices (CACP), the Department of Agriculture and Co-operation, Government of India, the MSP is declared before every sowing season for 22 commodities on the Essential Commodities Act.  The Food Corporation of India, based on the MSP, buys wheat and rice from the APMC and sells it at highly subsidized rates to the Indian poor. The national government refunds this loss to the FCI, effectively financing billions of dollars making the Indian system the most expensive food procurement and subsidy initiatives globally. Then there are other issues, including the lack of cold storage etc. which create a lot of waste annually and make any exports of surplus by the FCI unfeasible.

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