As the 1990s began, India found it difficult to repay the interest on the $ 90 billion in foreign loans that had underpinned a socialist system, causing a balance of payments emergency. Then the country resorted to a series of economic reforms to get out of the crisis.
The 1991 Big Bang reforms led by then-Finance Minister Manmohan Singh lowered some of the world’s highest taxes and duties, ended a government permit system known as the raj license, and devalued the currency. However, the reforms bypassed agriculture in India, dominated by heavy subsidies.
On Wednesday, a desperate Union government sent a long series of proposals to agricultural unions to appease farmers protesting by the thousands on Delhi’s borders against a set of sweeping farm reform laws, the first attempt to open the outdated agricultural sector.
However, farm unions have clung to their demand to remove three market-friendly farm laws that they say will damage their livelihoods, dealing a blow to the reform agenda of the Union government.
Farmers fear losing out to large corporations if private traders get a free market in deregulated markets. The government says the changes will give farmers greater market access and stimulate investment.
The agricultural sector employs half of all Indians, but adds only 16% to the country’s gross domestic product (GDP), which means that too many people are engaged in agriculture than is required to generate the same levels of income. farm income.
Some scholars, such as Ashutosh Varshney of Brown University, say that a distinction needs to be made between “mass politics and elite politics” in debates about the “politics of economic reform.”
“So, it is easier to do a stock market reform or financial reforms because their scope is limited to a certain elite sector of the population. But when it comes to tough reforms that affect the masses, like labor reforms or agriculture, these are areas where we will see big challenges, ”said KK Kailash, who teaches political science at Hyderabad University.
The new agricultural laws allow companies to freely trade agricultural products abroad, allow private traders to store large quantities of basic products for future sales, and establish new rules for contract farming.
The government says allowing traders to store large amounts of food products will incentivize them to invest in supply chains and storage space, which is in short supply. Lack of storage means that farmers often discard products like tomatoes and potatoes during oversupply, when prices drop.
The concessions offered by the government provide for greater oversight of the private markets proposed under the new laws.
Farmers have come to trust regulated markets from decades ago despite studies showing that these markets are run by cartels of traders who manipulate prices. These cartels also lend money to farmers, creating interconnected markets that limit farmers’ bargaining power.
See LIVE updates from the farmers’ protest here
Recent studies show evidence of monopolistic practices in these regulated markets that the government now wants to open up to private competition.
In December 2010, when onion prices soared, an investigation by India’s statutory antitrust agency, the Competition Commission of India (ITC), revealed that one company accounted for nearly a fifth of total trade that month. in Lasalgaon, the largest onion in Asia. market near Nashik in Maharashtra.
A 2012 report from the National Council for Applied Economic Research identified collusion as a major obstacle in fair trade, with a handful of traders monopolizing almost all major markets.
India’s agricultural trade is commission based. Licenses for all intermediaries, from the commission agent, the wholesaler, the carrier, the owner of the storage chain and even the rail agent, are often in the hands of the same business families, which in effect produces oligopolies.
However, these markets also offer farmers guaranteed minimum prices for commodities, protecting them from risk and giving them a sense of security thanks to government control. The new reforms allow corporations to operate with minimal regulations.
“The main concerns (are) about eliminating regulation on traders and companies and thus eliminating all protections for farmers that the regulatory system offers,” said Kirankumar Vissa of Rythu Swarajya Vedika, an agricultural activist who opposes to reforms.
Despite evidence that the current agricultural trading system is highly inefficient, farmers say the very goal of the new reforms is to favor large corporations.
“The heart of the matter is that the government’s laws target large corporations that go against the interests of farmers and consumers. Why can’t markets be run by farmers? “said Kavitha Kuruganti of the Alliance for Sustainable and Holistic Agriculture, an agricultural activist who was involved in recent talks with the government.
Economists attribute India’s impressive economic growth over the years to reforms in industry, foreign exchange markets, and manufacturing.
According to official data, agricultural subsectors, such as horticulture, milk and fisheries, where government intervention is low, have grown on average between 4% and 10% per year, compared to a uniform growth rate of 1, 1% in cereals where government intervention is high. .
“This clearly indicates that in recent times, liberalized markets are more favorable for agricultural growth,” states a paper written by researchers from Niti Aayog, the government think tank.
But some economists argue that reforms that take a big step forward in the private sector will not work in an impoverished agricultural sector. “Agriculture generally needs a combination of reforms, investment, price support and subsidies. Emphasizing one over the other will not help, ”said K. Mani, a former economist at Tamil Nadu Agricultural University.
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