In 1991, the Indian Government introduced initiatives to liberalize the economy. These changes included reducing import tariffs, deregulating markets, and reducing taxes.
These reforms transformed the economic landscape of India. With these initiatives, foreign investment increased by 316.9% between 1992 to 2005. India's GDP also grew from $266 billion in 1991 to $2.3 trillion in 2018.
Though India gained from these initiatives, 'Bharat' missed out in this race. These initiatives of 1991 failed to address the agricultural sector. Indian farmers were the main casualties.
“An Agricultural Produce Market Committee (APMC) is a marketing board established by a state government in India to ensure farmers are safeguarded from exploitation by large retailers, as well as ensuring the farm to retail price spread does not reach excessively high levels.” - Source: APMC Wikipedia Page
While APMCs have their benefits, Farmers face several restrictions in marketing their produce. They cannot sell outside the notified APMC market yards. Also, they have to sell only to the registered licensees of the State governments. Further, different APMC legislations prevail across states. It has restricted inter-state trade opportunities for these farmers.
Why were the bills required?
The Parliament passed two farm reforms bills.
1) Farmers’ Produce Trade and Commerce Bill, 2020 and,
2) Farmers Agreement of Price Assurance and Farm Services Bill, 2020.
These are the solutions offered by these bills -
A. Free farmers to choose their trade partners.
B. Remove APMC barriers.
C. Encouraging private investment in Agriculture
The removal of APMC barriers will promote intra-state trading opportunities. It will also open up a whole new market for farmers. This market includes processors, wholesalers, aggregators, wholesalers, large retailers, and exporters. This will, in turn, lead to better price discovery and bargain power for the farmers.
The entry of the private sector would also encourage more investment in infrastructure. It will result in improved supply chain, storage and export-related facilities.
Key concerns of the farmers:
Farmers are apprehensive about possible withdrawal of the MSP (Minimum Support Price) system. It means they fear that the government will withdraw their hand-holding. Which, in turn, will leave the farming community at the ‘mercy’ of big corporates.
PM Narendra Modi has assured farmers on this issue. He assured the continuity of the MSP under the government procurement program.
The sale, lease or mortgage of farmers’ land will remain prohibited under the new law as well. Effective dispute resolution mechanisms are also put in place.
Key concerns of the state:
The bills address the concerns of the farmers. But, the interests of agriculture-dependent states appear to be at stake. With the monopoly of APMCs under threat, revenues of the states could decline further.
For example, States like Punjab and Haryana levy 6% & 4% taxes on their APMCs, respectively. The center pays these taxes to the states. Under the new laws, procurement can take place outside the APMCs. It means the Center can save this expenditure.
The reforms of 1991 failed to liberalize Indian farmers. In 2020, the pandemic has provided another opportunity to introduce fresh reforms.
New laws will allow farmers to explore fresh markets. They will also boost private investment opportunities. The reforms promote direct marketing by eliminating intermediaries. It will result in better price realization and a higher income for farmers.