Archive for December, 2020

15 Dec

Farm Laws: Good Economics, Bad Politics

Posted by vramani in agriculture, government, Innovation, political economy, public affairs, public policy. Tagged: , , , , .

“The road to hell is paved with good intentions”. This saying sprang to my mind once the three Farm Bills were rammed through Parliament, with the opposition not even being given the parliamentary freedom to have its say in the Rajya Sabha. The absence of collegial decision making seems to be the signature tune of the present central government, as I have had occasion to bring out in an earlier blog (see here). Starting with the enactment of anti-beef laws in different states and moving on through demonetization, triple talaq, Kashmir, CAA, COVID lockdown, labour laws, farm laws and now ‘love jihad’ laws, the governments of the ruling party at the centre and in states ruled by them have relied on legislative majority, Prime Ministerial 8 PM pronouncements and the Ordinance Factory route to push policy down the throats of the citizenry.

The three bills focus on (a) freeing private entities from the oversight and jurisdiction of the Agriculture Produce Marketing Committee (APMC) in respect of transactions outside the APMC market yard area, with no licences being required from and no fees being payable to the APMC; (b) easing up the Essential Commodities Act to allow for far greater price variation in commodities before state restrictions on prices kick in; (c) providing for direct contractual arrangements between farmers and private entities. On the face of it, these measures seem to be exactly what are required to free the agricultural sector from the clutches of exploitative middlemen, ensure a fairer deal for the farmer in terms of better prices for his produce and encourage the growth of entrepreneurship to promote innovation and investment in the farm sector. Why then have these “reforms” attracted so much ire from the farming community, leading to a virtual blockade of the national capital?

It would be easy (and the lazy option) to dismiss the present turmoil as a political gimmick, sponsored by vested interests who stand to lose from the reforms process. Deeper reflection would, however, reveal the inadequate homework done by the authors of these three bills on critical issues, with the lack of clarity sowing major doubts in the minds of farmers. Though it might appear on the face of it that the agitation is largely driven by the interests of the better-off farmers, the issues that remain unresolved need to be squarely faced as they will raise their heads in the years to come and continue to act as flash points for farmers’ discontent.

The future of Minimum Support Price (MSP)

The first issue that has reverberated over the past couple of months has been the future of the MSP. While this has largely been operative only in respect of the two major cereals, paddy and wheat (and, to a far lesser extent, in respect of some other crops), the farmer is apprehensive that the move to a “free trade area” outside the APMC and the entry of contract farming on a large scale in the days to come will sound the death knell of the MSP. While the Government of India has been at pains to stress its commitment to retain the MSP in the future, it has not spelt out its strategy in respect of the MSP in an environment where there is extensive private entity-farmer trade, with prices being determined by direct negotiations between the farmer and the private party. This issue assumes importance especially in a set up where there is an unequal relationship between the farmer and the purchaser of his produce. If there are just two or three big oligopsonistic buyers, there would be grounds for apprehension that, sooner or later, the few buyers could start dictating prices to the farmers. In the absence of a trading licence system and the lack of institutional oversight by the APMC or any other regulatory body, the field would be open for the entry of any oligopsonistic private entity to attempt to dominate the market on its terms. The dilution of the stocking limits in the Essential Commodities Act can also justifiably give rise to fears in the farmers’ minds that end-buyers (read large corporates) will build up stocks to drive down agricultural product prices. At that point, the farmer would expect the government to step in and guarantee purchase of his produce at the APMC at a price that meets the cost of production plus a markup for profit. The legislation, as it stands at present, is silent on this eventuality.

The MSP system needs to be remodelled over time to achieve a much greater diversity in the crops procured, from millets and maize to pulses, oilseeds, horticulture and cash crops. This is essential if the huge surplus stocks of rice and wheat in Food Corporation of India (FCI) godowns are to be reduced. Not only does this increase the financial burden on the Government of India of paying the FCI for these stocks, it also increases wastage percentages. Reducing the incentive to grow water-guzzling, input intensive paddy in states like Punjab and Haryana is also crucial to checking environmental degradation, reflected in the deteriorating soil quality and depleting groundwater levels in these states. It should also not be forgotten that the MSP will have an important role to play as long as government has to guarantee the supply of foodgrains through the public distribution system (PDS), with the FCI as the prime supplier to the PDS.

Marketing issues (including price discovery)

Mandi/APMC related prices play an important role today in fixation of the price at which trade takes place outside mandi/APMC areas between farmers and traders. There is little clarity on how price discovery will take place in future in direct contracts between traders/sponsors and farmers, where there may be few buyers and a vast body of sellers. Realisation of a price that is fair to the farmer presupposes availability of price information and the ability to source the buyer who can offer the most favourable price. This requires the presence of a well-developed electronic marketing network, as envisaged by the announcement of the e-National Agricultural Market (e-NAM) system in the Budget of 2016-17. The e-NAM drew on the Rashtriya e-Market Services Private Limited (ReMS) initiative launched in Karnataka in 2014, which has been analysed in a November 2016 paper by researchers of the Indira Gandhi Institute of Development Research, Mumbai. Their study reveals three major areas where reforms are essential if a thriving national e-market for agricultural products is to flourish: (a) a legal framework which supports a platform for agricultural transactions across the country; (b) incentives to all stakeholders — farmers, traders, commission agents, mandi/APMC officials and others who are part of the agricultural marketing ecosystem — to participate in the new electronic platform at locations across the country; and (c) development of physical and financial payments infrastructure to facilitate seamless real-time trading across multiple locations.

Unless APMCs/mandis act as countervailing centres to forestall efforts to dictate prices of agricultural commodities through the more powerful bargaining position of a few buyers, farmers would be placed in a position where they are compelled to accept not so favourable prices. But this requires vibrant APMC/mandi centres fully linked to e-NAM, so that farmers have a ready alternative site to sell their produce in the event they are not happy with the terms offered by private buyers. Governments, especially at the state level, will need to invest in physical and financial infrastructure in terms of many more APMCs/mandis, facilities to grade produce, accurate weighing, quick delivery and easy online payment to attract farmers to the APMCs/mandis. Winding up APMCs does not promote a flourishing trade in agricultural products, as the experience of Bihar, which abolished APMCs in 2006, amply shows. Opposition from traders and commission agents, who stand to benefit from opaque transaction systems, will need to be effectively countered by assimilating them into the new marketing process.

Regulation and dispute resolution

The provisions for regulation and dispute resolution in the new laws are woefully inadequate. Conciliation and adjudication of disputes between seller-farmers and buyers have been brought solely within the jurisdiction of the executive magistracy. As one who has functioned as an Executive Magistrate during his career in the civil service, I can safely assert that the Executive Magistracy does not have the requisite knowledge skills to adjudicate on commercial disputes. More disturbingly, this responsibility comes on top of multifarious responsibilities already cast on the executive magistracy. Even with the best of intentions, cases are going to pile up in their courts. The absence of alternative avenues to redress grievances through the judicial system will not only adversely impact the rights of farmers but is also, in my view, a violation of the fundamental rights guaranteed to every citizen under part III of the Constitution of India.

The absence of a regulatory framework to oversee the proper conduct of transactions between buyer and seller will also, without doubt, affect the weaker side, clearly, in this case, the farmer. The uncertainty caused by prolonged litigation will have its deleterious impact on agricultural investments and will contribute to significantly weakening the bargaining position of the farmer.

What should the Government of India do to restore farmer confidence?

The quotation with which I began this blog in effect means“…promises and plans must be put into action, otherwise they are useless”. The Government of India (GoI) needs to:

first, repeal the two Farm Acts and the amendments to the Essential Commodities Act;

second, come out with a White Paper listing the issues that are crucial to the success of farm reforms, especially the backward and forward linkages that will enable the farmer to access the marketplace as an equal. These include availability of credit and insurance, easy access to efficient markets and a legal framework that honours contracts promptly;

third, give a guarantee that the APMC/mandi system will continue on the same basis as before the enactment of the Farm Laws;

fourth, involve all stakeholders in discussions on the future directions that the MSP and procurement should take, especially in relation to changing cropping patterns to both meet nutrition needs of the population as well as to tackle the growing ecological degradation caused by rampant overuse of fertilisers, water and power, with its attendant implications for high-cost agriculture;

fifth, while meeting the food requirements of the population, notably its vulnerable sections, through the PDS, work out mechanisms to ensure a fair deal for the farmer as well, without taxing the government budget to breaking point;

sixth, consult with state governments on a subject that falls squarely within the State List in Schedule VII of the Constitution of India. The GoI could possibly incentivise the adoption of these reforms in different states, starting with those states where its party is in power. The demonstration effect of successful reforms can then percolate to other states.

In the final analysis, I have to come back to where I started this blog. The present government at the centre has, in the recent past, pushed through too many measures without adequately consulting stakeholders or taking the advice of those who have the benefit of years of experience of working in those areas. The damaging effects of such unitary approaches not only sow distrust about the intentions of the central government in the states ruled by opposition parties and in the population at large, they also adversely affect the lives of millions of people. It may be good politics in the short run (from the viewpoint of the ruling party) but it leads to disastrous economic, political and social consequences, in the short, medium and long term, for the country. The government at the centre now needs to talk the walk (i.e., discuss before framing policy) since its approach hitherto has been to walk through without talking.

1 Dec

Let a Hundred Flowers Bloom

Posted by vramani in elections, government, public affairs. Tagged: , , , .

(After a nine month hiatus, the Gadfly Column resumes publication today. Blogs will be published on the first and fifteenth days of every month. The blogs will also be carried on Facebook, Twitter and LinkedIn. Comments are welcome)

 

It is a reflection of the irony of our times that a blog on liberal democracy has, for its title, the words of Chairman Mao in 1957, when he said “Let a hundred flowers bloom; let a hundred schools of thought contend.” Over sixty years later, the jury is still out on whether this represented a genuine attempt to encourage inner party democracy or whether it was a shrewd move aimed at weeding out dissidents, followed as it was by a ruthless purge reminiscent of the Stalinist Soviet Union of the 1930s. And yet, the beauty of Indian liberal democracy since 1947 has been the space given for alternative views to flourish and for state policy to reflect the consensus arrived at after listening to opinions from all shades of the political spectrum.

Of course, there have been the occasional hiccups like the Emergency and the tendency of successive governments in India (both at the centre and in the states) to use draconian legislation to curb views interpreted by them as seditious or as a threat to public order. But Indian democracy has survived so far, despite the gloomy prognostications of many Western “Cassandras”, precisely because of its diverse population, drawn from a khichdi of languages, religions, castes and ethnicities.

I will stick out my neck by saying that caste divisions in the majority Hindu community and the formation of linguistic states postponed the slide into a unitarian state ruled by one community. Undoubtedly, there is much to be said for reforming Hindu society through the “annihilation” of caste as a marker of social privilege. But the assertion of specific caste groupings through the electoral process in different states ensured that political power did not remain with a monolith like the Congress. When the Janata party experiment failed in 1979, one of the reasons was the discomfort of various coalition partners with what they saw as the efforts of the then Jan Sangh to use the levers of powers to build up its sectarian political base. The fall of the V.P. Singh government, backed by the Bharatiya Janata Party (BJP), in 1990 was a foregone conclusion right from day one of that government. The Raja of Manda knew his survival as Prime Minister was contingent on withstanding the Ram Mandir Shilanyas programme and L.K. Advani’s Rath Yatra. His Mandal gambit was intended to check the possibility of the consolidation of the Hindu community on the emotive Ram Janmabhoomi issue. Unfortunately for him, not only was the Congress Party not willing to back him, the “Young Turk” Chandrashekhar was only too ready to assume the mantle of Prime Minister, even if only for a little over seven months. The 1990s rise of parties like the Bahujan Samaj Party (BSP), Samajwadi Party (SP) and Rashtriya Janata Dal (RJD), based on the support of specific castes and social groups, ensured that, for twenty five years after the Babri Masjid demolition, the party that stood to gain from its demolition was in power for just five years in Uttar Pradesh (UP).

Nehru and Rajaji were strongly opposed to the creation of linguistic states, worried as they were about the development of fissiparous tendencies in the new republic. It took the martyrdom of Potti Sriramulu to hasten the move towards linguistic states. Political developments in the 1960s seemed to vindicate their fears: the attempted imposition of Hindi provoked a backlash in Tamil Nadu (then Madras State) and the bifurcation of Punjab raised strong passions in the Punjabi Sikh population (to be unfortunately revived in the years after 1980). But the creation of linguistic states also had a positive spin off in the formation of strong regional parties, starting with the DMK in Tamil Nadu, followed by the star duo of MGR and NTR in the neighbouring states of Tamil Nadu and Andhra Pradesh and spreading like wildfire to states all across the country, from UP, Bihar, Maharashtra and Karnataka to Odisha, Assam and Bengal.

The clout of regional parties has diminished somewhat in recent years, thanks to a variety of reasons. Poor governance, especially in states like UP, has cost parties like the BSP and SP dear, while the influence of “Big Brother” BJP has reduced the scope for independent maneuvering by parties like the Biju Janata Dal and the Telugu Desam Party. With legislators apparently ready to desert the ship that won them the elections (for reasons that do not need to be explicitly spelt out here), India has entered a phase of fluid politics, where the results of an election do not guarantee which party or parties will govern a state for the next five years. “Aaya Rams” are back with a vengeance more than fifty years after 1967, though whether they will metamorphose into “Gaya Rams” over time is still a moot point.

It is in this context that the recent statement at a conference by the Prime Minister endorsing the idea of “One Nation, One Election” and stating that this is not “just an issue of deliberation, but also the need of the country” has set the cat among the pigeons. No report on his speech has clarified whether “one election” is restricted to just parliament and state elections, though that is the inference we can draw for the present. The issues of expenditures on conducting elections every now and then and the impact of frequent elections on development works can be debated. What is more crucial are the implications of such a move for the federal nature of the Indian state. A state government does not draw its legitimacy from the central government, given that India is a Union of States, affirmed by no less sanctified a document than the Constitution of India. Issues that are prominent in state elections do not often figure on the national agenda. More importantly, in the absence of any provision to recall legislators, elections offer people the only opportunity to hold their representatives accountable. There is also the issue of the lack of predictability of the tenure of a Vidhan Sabha (or, indeed, of the Lok Sabha). Loss of majority of the ruling party or dissolution of the House could trigger fresh elections well before the due date. It would be well-nigh impossible, without major constitutional changes, to manage such contingencies were simultaneous elections to become the norm. I am not holding the simplistic view that simultaneous elections necessarily lead to the same party winning at both the state and central levels. But in recent years, there has been a marked tendency to highlight issues of nationalism and patriotism, with even the armed forces being dragged into election speeches. Playing on people’s emotions could skew results in state elections, especially where large sections of the electorate, including the so-called “educated middle class” have no nuanced understanding of the issues at stake, falling prey to the barrage of fake news streamed at them by social and electronic media. There is also the very likely danger that, given the opacity of the Electoral Bonds system, one party could garner a very high proportion of the funds donated, something that recently available information seems to corroborate.

But, above all, I value the festival of democracy characterised by elections at regular intervals at different levels of government, from the gram panchayat level up to the Lok Sabha. Having conducted and supervised elections at the Lok Sabha, Vidhan Sabha and municipal levels, I have observed the coming to life of people who are otherwise immersed in the mundane chores of life, whether in Motihari, Muzaffarpur or Mumbai. The right to vote is an affirmation by the citizen of her dignity as an individual. She has the unfettered right to exercise her discriminating judgment each time there is an election, whether to the Lok Sabha, Vidhan Sabha or local bodies, and the full authority to question those who seek to represent her on issues, be they national, state or local. She may be, in daily life, a domestic worker, nurse or shop salesperson. But come election time, she is the power behind the throne, determining the future of those who seek to govern the country or state. It would certainly be churlish to deny her her place in the sun for brief periods at regular intervals in a five year period. Why reduce it to just one time in five years, when governments spend money on so many unnecessary items? Nor are elections the main reason why governments function so inefficiently in executing development works. The ability to handle transfers of power without bloodshed is the mark of a mature democracy, no matter what the cost is in terms of time, energy or money.