Of all the controversial reforms that Prime Minister Narendra Modi has launched into the market, recent laws to liberalize agricultural sales may prove the most far-reaching.
In a rogue and rebellious session last month, parliament passed three laws that some say could pave the way for India to reverse the global food trade, while others fear it will ruin the livelihoods of millions of farmers. Within days, rural groups and opposition leaders launched public protests.
The movement toward a free market for agricultural sales reaches the heart of a system that directly affects more than half of the country’s 1.37 billion people, altering government controls on which millions of families have come to depend, but which they have hampered the nation’s efforts to productively cultivate one of the largest areas of fertile land in the world. If they succeed, India could not only feed itself, but become a major food exporter.
“We need private sector investment in technology and infrastructure for Indian agriculture to realize its full potential and better compete in the global market,” said Siraj Chaudhry, Managing Director and CEO of agricultural services company National Collateral Management Services Ltd. But the government must make its intention to win over the skeptics very clear. “This is a major policy change that affects a large and vulnerable section of the population.”
India processes less than 10% of its food production and loses about 900 billion rupees ($ 12.3 billion) a year due to waste due to improper cold storage, said Amitabh Kant, chief executive of the group of NITI Aayog government experts.
Modi has a long resume of controversial political steps, including banning high-value cash notes, the largest tax reform since independence in 1947, and the world’s strictest coronavirus lockdown rules. In comparison, the last one seems mild: a set of amendments to the laws governing the purchase, sale and storage of agricultural products.
However, eight opposition lawmakers were suspended for rebellious behavior when the new bill was passed, and groups representing farmers and political parties organized rallies, sit-ins and tractor rallies in grain-producing states like Punjab, Haryana and Madhya Pradesh. .
Shiromani Akali Dal, a longtime supporter of the ruling Bharatiya Janata Party, who rarely went against the decisions of Modi’s coalition, resigned from the government. He said farmers fear that the measures will eventually end the government’s price support regime for crops and leave them at the mercy of large corporations that would control the market.
Modi and his ministers say the concerns are unfounded and that the price guarantee program will continue. His administration even raised some floor prices for winter crops to try to reassure farmers that price supports are not in jeopardy.
It is a very emotional issue in India. The government sets minimum prices for more than two dozen crops and buys mostly wheat and rice for its welfare programs along with some legumes and oilseeds to avoid emergency sales by farmers. The massive subsidies help distribute basic goods to the poor through a chain of more than 500,000 stores at fair prices.
The problem has become even more burning due to the pandemic. The disruption of farms and supply chains has exposed weaknesses in the government’s welfare system, which is hampered by bureaucracy, lack of funds, and archaic distribution facilities.
Farmers note that while prices guaranteed by the government are often considered benchmarks, private buyers do not have to pay for them.
“We are disappointed,” said Charanjeet Singh, who grows rice, wheat and vegetables on his farm in the northern state of Haryana. “The government must ensure that all farmers, regardless of whether they are selling in designated grain markets or private buyers, will get at least the minimum price support.”
Analysts and industry experts say the new policy has the potential to change the face of Indian agriculture, which has been hampered by low yields and inefficient small holdings, by encouraging more contract farming. It is a system in which private companies agree on crop prices with farmers before harvest or even before planting, offering loans, providing quality seeds and encouraging mechanization.
The new rules would also make it easier to sell crops in other states or abroad. Farmers would earn more stable incomes and increased production would boost exports and income, they say.
“Overall, the reforms should benefit farmers and encourage contract farming,” analysts at Motilal Oswal Financial Services Ltd. said in a report. “As private sector involvement increases over the years, the supply chain and infrastructure of India’s agricultural sector will improve.”
Agriculture has lagged behind other sectors of the Indian economy. The rural poverty rate is around 25% compared to 14% in urban areas, according to World Bank data. Underinvestment has made the food supply vulnerable, a fact that is being underlined as the coronavirus spreads across the country.
Food inflation accelerated 9.7% in September as Covid hit the country’s already fragile supply chains. While supporters of agricultural reforms say the changes would make the system more robust in the future, others argue that the crisis reinforces the need for a safety net for farmers.
“It will be the end of the road for the food security program,” said Kannaiyan Subramaniam, general secretary of a farmers’ union in South India, which grows gooseberries, potatoes and other vegetables. “In the long run, corporations will monopolize trade, production and reserves. The government will succumb to the pressure of the WTO and get rid of the public purchase of cereals.
Before the new amendments, farmers in most states were prevented from selling their crops outside of government-facilitated wholesale markets and faced legal obstacles in transporting crops to other states.
Central to the reforms is an amendment to the Essential Commodities Act, a 1955 law that some say is the root of India’s agricultural inefficiency.
“It was a policy against farmers,” said Atul Chaturvedi, president of the Solvent Extractors Association of India, which represents vegetable oil processors. “This act hampered the growth of Indian agriculture in a big way.”
When prices rose due to demand, the law’s price control measures kicked in, discouraging investment to increase production, said Chaturvedi, who is also CEO of Shree Renuka Sugars Ltd. The government would sometimes also ban exports of some agricultural products to control prices, in addition to limiting the ability to store crops. Farmers suffered huge losses when production increased, especially of perishable products.
Some critics of the amendments to the law say the new situation could be worse for farmers. Corporations and multinational companies buy agricultural products at a cheaper price and sell at higher prices, “squeezing both ends through hoarding and the black market,” said the All India Kisan Sangharsh Coordinating Committee, a lobby group from farmers. “There is no penalty for breach of contracts.”
If the government can push through reforms while retaining the support of farming communities, it could create a platform for large-scale improvements in the country’s food production.The country is already the world’s largest producer of milk and the second-largest producer of milk. wheat. , rice and some fruits and vegetables. It is also one of the largest exporters of cotton, rice and sugar.
If India can raise productivity to global standards, the country could become “an important link in the global food supply chains,” wrote NITI Aayog’s Kant in a newspaper article. The new reforms, he said, set the stage for India to become “a food exporting powerhouse.”
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