Authors: Jade Yong Yu Jia and Leong Ke Xin Cherly
Research Head: Jade Yong Yu Jia
Editors: Sasthaa Gingee Babu (Uday)
The Republic Day marks the date where the Indian Constitution came into effect, declaring India as a sovereign state. It’s a monumental day which signifies the unyielding spirit of freedom amongst Indians. However, this very spirit is threatened by Narendra Modi’s seemingly authoritative farm laws, which has triggered one of India’s most violent protests on Republic Day this year. This paper aims to analyse the motivations of Modi’s government behind the farm laws and why farmers are vehemently opposed to it.
Background on India’s Agricultural Trading System
Agriculture is the primary source of livelihood for 60% of India’s 1.3 billion population, although the sector only constitutes 15% of the country’s economic output (Mashal et al., 2021). It is not limited to farming alone and covers a broad scope which includes input supplies, logistics, processing and marketing (Senapati, P. , 2014) . It also has an established regulated marketing system, allowing the farmers to sell through markets while protecting the poorer farmers from the volatility of the market. Under the traditional system, farmers were only allowed to sell their agricultural products at state-regulated markets called “mandis” which had middlemen and traders to ensure that the farmers were not exploited (Shankar, 2021).
Modi’s motivations for pushing forth the agricultural reforms
The agricultural sector has been progressing very slowly despite being the primary source of income for the majority of the population. It accounts for less than 18% of India’s GDP even though it is a significantly large sector (Desai, G.,2020), and loses about 900 billion rupees a year due to wastage from inadequate cold storage (Prakash & Parija ,n.d). Currently, the slow progress of the agricultural sector could be attributed to a lack of investments (India Brand Equity Foundation, 2017). Investments in technology and infrastructure would allow the agricultural sector in India to compete in the global market (Prakash & Parija ,n.d).
As such, Modi is trying to push forth three reform policies to address the inefficiencies in the agricultural sector. Firstly, he proposed to allow farmers to sell their crops directly to traders and retailers without being taxed for sales. This is meant to reduce the number of intermediaries that are prevalent in previously government-controlled marketplaces operated by the Agricultural Produce Market Committee. The second bill allows farmers to enter into farming agreements at predetermined prices and the government will provide dispute settlement mechanisms. The final bill reduces the central government’s involvement in regulating the food supply, allowing the buyers to purchase and redistribute the food without restrictions.
Why are the farmers against the agriculture reforms?
Over the years, farmers have been struggling with low crop prices, rising costs and competition, demonetization and widespread droughts which disrupt crop yield. With regards to the farm bills, a critical concern lies in how they omit information about the minimum support prices (MSPs), which serve as a safety net provided by the government in the event where prices dwindle for crops such as rice and wheat (Sahelirc, 2020). Through MSPs, the government promises to purchase crops from farmers at a certain price regardless market condition. Even with regulations in place, farmers were often put at a disadvantage as the middlemen and traders were often found colluding to give a very small share of the price (Shankar, B.,2021). Without MSPs, farmers fear that they will be at the mercy of large corporations who have greater bargaining power and can set lower prices. This is supported by how free market prices were generally lower than MSPs. While Modi has tweeted that the “System of MSP will remain”, farmers continue to grow anxious as long as it is not guaranteed in writing.
Farmers also fear that the farm bills could mark the onset of complete decentralization in the agriculture industry, where farmers will also cease to enjoy free or subsidized electricity and water. This fear is not unfounded, given that the Electricity Amendment Bill (2020) was passed a few months before the farm bills. Farmers are most impacted by the Direct Benefit of Transfer (DBT) clause under Section 65 of the Bill (Shrivastav, n.d). Under DBT, farmers would now have to pay for the electricity subsidy they previously received directly before being reimbursed by the government at a future date. However, this shift in subsidy burden has engendered insecurity among farmers, fueled by prior negative experiences in receiving timely repayments. As such, the farm bills further aggravate the multitude of problems ranging from tight cash flow to unpredictable crop yield that Indian farmers struggle with.
On the political front, the Bharatiya Janata Party (BJP), Modi’s political party, has been perceived to impose legislation and reforms in an extreme manner, without discussion, consultation and contention (The Economist, 2021).
How will the situation pan out?
Initially, the government adopted a conciliatory approach to the unrest, with ministers engaging in 11 rounds of talks with farmer leaders and offering to postpone the implementation of the laws by 18 months (Kazmin, 2021). However, this was rejected by farmers who demanded the laws to be repealed altogether. Various figures have also taken the side of farmers. For example, lawmakers from the main opposition Congress party stormed out of parliament to demonstrate solidarity with protesting farmers (Bhardwaj, 2021). International figures such as Rihanna and Greta Thunburg have also publicly expressed support for the farmers on Twitter (Kazmin, 2021). The United Nations has also called on authorities to “exercise maximum restraint” and to respect the “rights to peaceful assembly and expression” (United Nations, n.d).
In latest developments, Modi has invited protesting farmers for talks on the 10th of February 2021. While the outcome of this talk is uncertain, one thing for sure is that Modi and his government must change the way they engage farmers to be successful. Evidently, the three farm bills themselves must change to account for the concerns of farmers and ease the transition towards deregulation, and this re-formulation of policies is best achieved by granting farmers a voice in the process.
1. Bhardwaj, M. (2021, February 10). India's Modi invites protesting farmers for talks on farm bills. Retrieved February 14, 2021, from https://www.reuters.com/article/us-india-farms-protests-idUSKBN2AA1LH
2. Desai, G. (2020, December 24). The Modi Government is confronting agricultural reform. Retrieved February 03, 2021, from https://www.eastasiaforum.org/2020/12/24/the-modi-government-confronting-agricultural-reform/
3. India Brand Equity Foundation. (2017, July 17). Analysis about indian agriculture industry, market size, export & investment opportunity. Retrieved February 03, 2021, from https://www.ibef.org/industry/agriculture-india.aspx
4. United Nations (n.d.) India: UN rights office urges 'maximum restraint' in ongoing protests | | UN NEWS. Retrieved February 14, 2021, from https://news.un.org/en/story/2021/02/1084072
5. Kazmin, A. (2021, February 12). India's farmers set for long haul as they lay Down Modi challenge. Retrieved February 14, 2021, from https://www.ft.com/content/4cd6f1b2-712b-4c07-bd03-e2cc2b833468
6. Market access: Domestic support: De minimis export subsidies. (n.d.). Retrieved February 3, 2021, from https://cordis.europa.eu/docs/results/212617/final1-final-publishable-result.pdf
7. Mashal, M., Schmall, E., & Goldman, R. (2021, January 27). Why are Farmers protesting in India? Retrieved February 19, 2021, from https://www.nytimes.com/2021/01/27/world/asia/india-farmer-protest.html
8. Prakash, A., & Parija, P. (n.d.). Narendra Modi's farm reforms could turn India into a food-export powerhouse. Retrieved February 03, 2021, from https://economictimes.indiatimes.com/news/economy/agriculture/narendra-modis-farm-reforms-could-help-turn-india-into-food-export-powerhouse/articleshow/78691982.cms?from=mdr
9. Sahelirc. (2020, December 03). India's government to Meet farmers as thousands protest against farm reforms. Retrieved February 14, 2021, from https://www.cnbc.com/2020/12/03/why-india-farmers-are-protesting-three-farm-reform-bills.html
10. Senapati, P. (2014). A Study Of Agricultural Inputs Marketing In India. Retrieved February 18, 2021, from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.446.9063&rep=rep1&type=pdf
11. Shankar, B. (2021, February 01). Why Indian farmers are so angry about the MODI GOVERNMENT'S agricultural reforms. Retrieved February 03, 2021, from https://theconversation.com/why-indian-farmers-are-so-angry-about-the-modi-governments-agricultural-reforms-154428
12. Shrivastav, U. (n.d.). Electricity amendment Bill 2020: Why does it trouble the farmers? Retrieved February 14, 2021, from http://www.businessworld.in/article/Electricity-Amendment-Bill-2020-Why-Does-It-Trouble-The-Farmers-/01-01-2021-360480/
13. The Economist (2021, January 16) The failure of India's farm reforms is a parable of mismanagement. (n.d.). Retrieved February 14, 2021, from https://www.economist.com/leaders/2021/01/16/the-failure-of-indias-farm-reforms-is-a-parable-of-mismanagement