That it has been undoing historic mistakes to boost the Indian economy is a key narrative of the current NDA government led by the Bharatiya Janata Party (BJP). When such movements are criticized, he is quick to portray his opponents as representatives of a group of vested interests. Prime Minister Narendra Modi, who is the bulwark of the BJP’s current popularity, is leading these attacks from the front. This was seen in a big way during the demonetization and rollout of the goods and services tax (GST). The same script is repeated in the case of agricultural reforms. They were announced by the government in May and now face protests not only from the Opposition but also from partners within the National Democratic Alliance.
Are the current protests driven by vested interests?
Yes and no. Farmers in Punjab and Haryana, the wealthiest agricultural states, which also account for the majority of public procurement in India, are at the forefront of these protests. Both states are famous for charging a large commission for the sale of produce at the Agricultural Products Market Committee (APMC) markets. If the APMC lose a large part of their business, this will lead to a loss of what are essentially insured rents. So why are farmers unhappy with the measure? First, the logic of viewing local farmers and traders as opposed to each other could be misleading. The merchants who earn a commission from APMC sales may well come from the same socioeconomic group as the large farmers. Second, APMC rental income (last year around Rs 6.3 billion in Punjab), both for the government and private traders, is ultimately spent locally and thus , are a source of income and employment. There is no such guarantee when it comes to profits from large corporations. Any loss of this income will negatively affect the local economy.
Is there a broader political economy goal?
Differentiating the local elite, both in urban and rural areas, has been an important ingredient of BJP policy since 2014. Policies such as demonetization and GST are the ones that hurt local businesses the most. This alterity has been accompanied by a stellar increase in BJP funding from the corporate sector. BJP corporate donations increased from Rs 437.4 crore in 2014-15 to Rs 743 crore in 2018-19. The point is that the BJP no longer needs the financial backing of the local elite, something that was the defining characteristic of political finance in India. The careful strategy of placing the top non-dominant caste ministers in the BJP-ruled states is another crucial component of this strategy. A brahmin no maratha (Devendra Fadnavis) in Maharashtra, a Khatri punjabi no jat (Manohar Khattar) in Haryana, a programmed non-ahom tribe (Sarbananda Sonowal) in Assam, and last but not least Narendra’s own political rise Modi. as a non-dominant OBC leader at the expense of Patidars in Gujarat are some of those examples.
A weakened local elite, and hence weakened regional parties, only facilitate the BJP’s forward march. The proposed agricultural reforms are aimed at hitting the agricultural elite. Rent seekers in the APMC will lose their assured income and the landed elite will face a much more powerful buyer when they sell their products. This is also the class that does not benefit from the government’s welfare policies and could have spoken out against the growing restriction of farm income.
Does the Center guarantee the highest profitability for farmers?
Earlier this week, the government announced a ban on onion exports. It also plans to ditch the buffer stocks in the next two months. Both moves are aimed at lowering prices (which will hurt farm income). Inflation data through August show that retail and wholesale onion prices were losing momentum in recent months. Wholesale prices, in fact, had been declining, also at an increasing rate. It was only in September that prices rose again and farmers may have made up for some of these losses, but government action will ensure that they do not happen.
Why has the government done this?
You are concerned about rising inflation. Headline retail inflation has been above 6%, the upper bound of the RBI comfort level, for five consecutive months. Food has a 39% share in the Consumer Price Index basket. This proportion is likely to be much higher for poor people. In a democracy, where the majority of the population spends half of their income on food, it makes eminent political sense to intervene when food prices are rising, even if it hurts farm incomes. The fact that the government banned onion exports within months of announcing market-friendly reforms is a stark reminder that it will continue to intervene and lower prices. Farmers have long complained that there is no similar intervention when agricultural prices plummet and farmers suffer losses.
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