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What economists like Ashok Gulati still don’t understand about agriculture in India

What economists like Ashok Gulati still don’t understand about agriculture in India

Do Indian farmers understand the agrarian economy better than Ashok Gulati? Ridiculous as it might sound, the answer could well be: yes.

Professor Ashok Gulati is the leading agricultural economist in India, and among the scholars I read, consult and respect. He combines solid scholarship with genuine concern for the farmers. He has the spine to stand against governments of the day, including the Narendra Modi-led one, and if need be, against farmers’ movements. In line with his position over the years, he has welcomed the three new agricultural bills, calling it the 1991 moment for Indian agriculture. Most enthusiasts of this measure, including ThePrint’s Editor-in-Chief Shekhar Gupta, have used his arguments to support these laws.

Sadly, Gulati is profoundly mistaken. It is not a mistake of biased scholarship, bad data or poor reasoning. It is a profound error of an economics that seeks to offer policy advice to the government. This became clear to me for the first time when reading a rich exchange between two economists, Jean Dreze and Ashok Kotwal. In response to Kotwal’s advocacy of cash transfer over subsidised food to the poor, Dreze drew a distinction between an economist who advises the government and an economist who advises the poor. The policy advisor must think of the possible benefits while assuming that his or her suggestions will be implemented fully and in the right spirit. The advisor to the poor must focus on the likely consequences of a policy, how would a policy be implemented, on the ground. Dreze said that on paper, direct cash transfer can be the most economical and efficient way to help the poor, but food-grain delivery through ration shops is their best real-life option.

This is true of the three agricultural legislations as well.

Economists vs farmers

On paper, the economic rationale for these laws follows from the textbook of economics and can be stated best in Professor Gulati words in The Indian Express: these laws “provide greater choice and freedom to farmers to sell their produce and to buyers to buy and store, thereby creating competition in agricultural marketing. This competition is expected to help build more efficient value chains in agriculture by reducing marketing costs, enabling better price discovery, improving price realisation for farmers and, at the same time, reducing the price paid by consumers. It will also encourage private investment in storage, thus reducing wastage and help contain seasonal price volatility”. How can anyone, except those with ideological blinders, disagree with these measures? The opposition’s claims that farmers won’t get minimum support price (MSP) is “plain falsehood”, writes Swaminathan Iyer, another economist I read with respect.

Their reasoning is not bad. But their assumptions about ground realities are shaky. And their projections about how these acts will be implemented are wishful thinking. Naturally, their conclusions are profoundly mistaken. A farmer, who doesn’t understand the intricacies of economics, intuitively arrives at a better ‘impact assessment’ of these laws than these ‘disciplined’ minds. If you prefer a formal argument and not just intuition, don’t go for a regular economist, but read an anthropologist like Mekhala Krishnamurthy, an activist like Kavitha Kuruganti, or a grounded economist like Sudha Narayanan.

Assumptions vs reality

Let me examine four assumptions that must hold for these laws to bring the promised bonanza to farmers. The first assumption is that farmers lack choice when selling their crops because they are forced to sell it to the sarkari mandi, the Agricultural Produce Market Committee (APMC). This is a false picture, because only one quarter of all agricultural produce is sold through these mandis. Three-fourth of Indian farmers already enjoy the freedom that the government promises them. What this overwhelming majority of farmers actually needs is not freedom from mandis, but more and better-operated mandis. In all these years of travelling and meeting farmers, I hear them complain about the absence of mandis or about its poor functioning, but I have never met a farmer who complains about not being allowed to sell outside the mandi.

The second assumption is that the laws would save the farmers from exploitation by the commission agent (‘arhtiyas’, in north India). This assumption is also unreal, not because arhtiyas don’t cheat farmers but because big agribusinesses would not get rid of middlemen. Big companies simply cannot deal directly with thousands of farmers; they need someone to aggregate. In all probability, the same arhtiyas who worked in sarkari mandi would offer their services to the private agribusiness that sets up a private mandi. So, the farmers will suffer two layers of middlemen in the new private mandis: the bad-old commission agent plus the new corporate super middleman.

The third assumption is that the market would function in a fair manner, so that farmers would get a slice of the additional profits made by stockist or trader thanks to greater efficiencies, larger volumes and lower costs in the new system. But no one has explained the basis for this very benevolent assumption. Why would the private traders wish to part with any additional profit they make? Why would they not collude to deny the farmers a fair price? Why would they not resort to ‘agri-business normalisation’, offer good prices for a few seasons and then squeeze the farmers? That depends on the bargaining power of the farmers. Currently, the farmers are very weak vis-à-vis traders and mandi officials, but can occasionally arm-twist them through political representatives. In the new system they would lose even this limited clout. The dispute resolution mechanism proposed in the new laws is a joke. The economists put their faith in the emergence of farmers cooperatives (Farmer Producer Organisations, in the official lingo), but that will take years, if not decades.

The fourth assumption is that the government will maintain and enhance its investment in agricultural infrastructure. Nothing can be more naïve than this. Farmers understand it better than the economists that these three laws are not just policy measures; these are signalling devices. The Modi government is announcing its intent to withdraw from agriculture in terms of investment, regulation and extension work. Private players would invest in warehouses and cold storages, so the government can step back. The real point about the creation of a “trading zone” outside the APMC is not the opening of private trade (because trade within the APMC is almost entirely private trade) but of unregulated trade. We are shifting into an unregulated and non-transparent trade in agriculture with no mechanism to record, collect and collate data, and no requirement for registration of traders. And contractual farming would be the perfect excuse to withdraw from extension services as well.

A signal to farmers

The farmers can read the writing on the wall: retreat of the state means loosening of the little influence they occasionally wield. They have heard about the recommendations to step back from procurement. They can visualise the consequences of dismantling of APMCs; they can smell the withdrawal from Minimum Support Price. And they know about the latest decision to ban export of onions as a sign that the government will never hesitate to step in when farmers might stand to make profit. They read political signals better than economists.


Author: Yogendra Yadav

Published In: The Print

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