Some of you think that I have suddenly turned socialist (or I am probably revealing my true self now) because I think that free vaccines against covid for everyone is a good thing.
Yes, I can afford popcorn at a multiplex, I can even afford the most expensive multiplex tickets in India. But that’s not the point here. The pricing strategy of vaccines is not about me or you for that matter, it is about the nation at large, and that is the context in which my writing on vaccines should be seen.
Economics to me is not mathematics as it is to many people. I believe in looking at the context and then writing what I think is right. And a free market doesn’t work in every context.
I have explained this in my pieces in great detail (you can read them here, here and here). Those interested in an informed argument can read the pieces. Those who aren’t, well, you have already decided which side I am on. And any amount of reading won’t change that.
Last year when the covid epidemic broke the Indian economy’s back, I suggested increased allocation to NREGA and money being put in Jan Dhan accounts, in the very first piece I wrote on rebooting the economy.
This is not something a firm believer in free markets would suggest. But I did. Because I thought it was important in the situation we were in. The government implemented these steps (not for a moment i am saying that they did it because I suggested them). Later on, I also suggested that India needs an urban NREGA.
I also suggested that the government should cut the GST on automobiles by 10% and cut the rate of income tax, so that people would be incentivised to spend more (the government didn’t do anything like that). These would have been seen as pro-market moves.
But all along my thinking was how can more money be put in hands of people, irrespective of whether it was socialism or capitalism. The brackets don’t interest me.
Over the years, I have also believed that rates of taxes on all forms of incomes should be the same (for which the stock market guys have really abused me in the past).
When covid broke out, the government decided to put a price cap on airline tickets. I didn’t see any of you free market guys saying anything against the government limiting the price of airline tickets. Why should that be done? Who travels by air in India? Do I need to specify that? All the talk about incentive now. Is incentive only important for Serum Institute? What about Indigo, Spice Jet, Go Air, Air India? Unka kya?
But a vaccine can be sold at any price.
The point I am trying to make here is that if you thought I would be doing free market free market all the time, then I didn’t lead you there. You only saw the things that you wanted to see.
It is easier to understand someone once you have bracketed them, identified them to believe in a certain kind of ideology. I get that. But then that’s not my problem. You thought I was the right echo chamber for you, clearly, I am not. There are lots of echo chambers on the internet, you can easily find one, where you fit.
I believe in what the former Bank of England and Bank of Canada Governor Mark Carney, writes in his new book Value(s): “ideologies are prone to extremes, capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith“.
कल से शिक्षित बेरोज़गारी का दसवां साल शुरू होने वाला है
जब ये सब शुरू हुआ था तब नहीं सोचा था कि नौकरी से ज़्यादा वर्ष शिक्षित बेरोगज़ारी में गुज़रेंगे. शायद मिडिल क्लास होने कि वजह से एक छोटी सी नौकरी की तलबगारी बनी हुई थी.
पर नौ साल वर्क फ्रॉम होम करने के बाद जो भी थोड़ी बहुत फीलिंग थी नौकरी की तरफ, वो पूरी तरह से ख़तम हो चुकी है. या फिर ये कहना चाहिए कि हम नौकरी करने के लायक रह ही नहीं गए है. प्रबंधन का प्रबंधन करना हमारे बस की बात नहीं है.
दुनिया भर के मैनेजमेंट गुरु entrepreneurship पर मोटी मोटी किताबें लिखते हैं, पर कोई ये नहीं बताता कि एक अच्छी नौकरी में, बॉस के ईगो और सहकर्मियों की असुरक्षाओं को सँभालते हुए, और इन्फ्लेशन से कम इन्क्रीमेंट पर ज़्यादा ध्यान नहीं देते हुए, ईमानदार कैसे बना रहा जाए?
खैर, हमें कौन सा हर महीने EMI देना है कि इन चीज़ों की चिंता की जाए, न ही बच्चों को पढ़वाना है या उनकी शादी के लिए पैसे जमा करने हैं. आपको ये सब करना है, इसलिए, बने रहिये. पिच पर नज़र बनाये रखिये और विकेट बचाये रखिये. कोई भी कभी भी आपकी तरफ गूगली फेंक सकता है, इसलिए उनकी कलाइयों पर ध्यान बनाये रखिये.
समय बहुत कठिन चल रहा है. पहले तो न्यूज़ मीडिया की हालत ख़राब है और ऐसी ख़राब हालत में गेम पूरी तरह से बदल चुका है. हम जैसे अदना लोगों को भी अब नेटफ्लिक्स इत्यादि के साथ compete करना पड़ रहा है.
compete, शायद सही शब्द नहीं है यहाँ पर, पर कहने का मतलब ये है कि लोगों के पास अब भी उतना ही समय है जितना पहले था, पर अब करने को ज़्यादा चीज़ें हैं और वो भी फ़ोन पर. और फ़ोन पर अगर आप गेम ऑफ़ थ्रोन्स से लेकर मिर्ज़ापुर देख सकते हैं, या फिर paaarti हो रही है वाला मीम बना सकते हैं, फिर आप हमारे लिखे को पढ़ने की मगज़मारी क्यों करेंगे. शायद हम भी नहीं करते.
सच बोलिये तो हमने भी न्यूज़ मीडिया को पढ़ना तो लगभग बंद ही कर दिया है. पर हमारी वजहें कुछ अलग हैं.
माओत्से तुंग के ‘परमानेंट रेवोल्यूशन’ का भारतीय रूप हर सुबह उठकर नहीं देखा जाता. जिन चीज़ों पर बातें होनी चाहिए उन पर बात हो ही नहीं रही, और जिन चीज़ों का कोई मतलब नहीं है, उन पर फलसफे जड़े जा रहे हैं.
खैर, अच्छी बात ये है कि हमने बच्चे नहीं पैदा किये हैं और जिन्होंने किये हैं वो तो व्हॉट्सऐप पर मस्त हैं. इसलिए सब चिल कर रहे हैं, बुत बनकर बैठे हैं. जो बात दिख ही नहीं रही, वो समझ में कैसे आएगी!
प्लान बी ये है कि अगर शिक्षित बेरोज़गारी नहीं चलती रही तो फिर क्राइम फिक्शन लिखेंगे और इन किताबों में उन सभी लोगों का, जिनका असल ज़िन्दगी में गला दबाने का मन किया था, उनको एक-एक करके मारेंगे.
कम से कम मन की दुनिया में मन की बात करने की आज़ादी अब भी बनी हुई है.
और शायद इस मन के अंदर की मन की बात में, आप भी हों. तैयार रहिएगा. बुत बनकर मत बैठे रहिएगा.
The Lakshmi Vilas Bank has been put under a moratorium for a period of thirty days. The deposit withdrawals during this period have been limited to Rs 25,000. Let’s take a look at this pointwise.
1)The Lakshmi Vilas Bank is going to be merged with DBS Bank of India, the local unit of Singapore’s largest bank, the DBS Bank. The Section 45 of the Banking Regulation Act 1949 empowers the RBI to ‘make a scheme of amalgamation of a bank with another bank if it’s in the depositors’ interest or in the interest of overall banking system.’
Hence, if a bank is in bad shape and there is a risk of the depositors losing their money, the RBI has the power to merge this bank with another bank, in the interest of the overall banking system. This is precisely what is happening in this case.
2)The Lakshmi Vilas Bank has been in bad shape for a while. In fact, its gross non-performing assets or bad loans as of September 30, 2020, stood at 24.45%, which means that nearly a fourth of the loans given by the bank haven’t been repaid. Bad loans are largely loans which haven’t been repaid for a period of 90 days or more. Hence, the amalgamation of the bank with a bigger bank makes sense. Also, no public money is being spent for this rescue and that’s always a great thing.
3) This is not the first time that the RBI is merging a bank which is in a mess with a stronger bank. In the early 2000s, the Global Trust Bank was merged with the Oriental Bank of Commerce. In the early 1990s, the New Bank of India was merged with the Punjab National Bank.
4)The money of the depositors in the Lakshmi Vilas Bank is safe. It’s just that they can only withdraw up to Rs 25,000 over the next thirty days. This is where the problem starts. I am sure there must be many depositors out there who have all their savings in this bank. They will be in a spot of bother if there is an emergency and they need money. The trouble is they cannot withdraw more than Rs 25,000 and money which cannot be accessed when it is needed, is basically useless.
5) Many depositors in India follow the fill it, shut it and forget it, model of saving. Once they have money in a bank they automatically assume that it is safe and given that, they don’t take the most basic precautions. This explains why so many people had all their savings in just one bank like the Punjab and Maharashtra Cooperative (PMC) Bank, which continues to be under a moratorium. In fact, there have been regular news stories in the Mumbai media about the depositors of PMC Bank needing money and being unable to access it. There will be similar individuals when it comes to Lakshmi Vilas Bank as well. This explains why the entire issue is much more than just the safety of deposits.
6) In case of Lakshmi Vilas Bank, it was very clear that the bank has been in trouble, unlike Yes Bank, which wasn’t declaring the correct numbers. In March 2018, the bad loans of Lakshmi Vilas Bank were at 9.98%. They have been rising ever since. The bad loans crossed the 20% level as of September 2019, when they stood at 21.25%. Depositors should have been lining up for their money when the bad loans rate crossed 10%. If they didn’t withdraw their deposits when the rate crossed 10%, they should have at least been lining up when it crossed 20%.
7) As of March 2018, the bank had deposits worth Rs 33,309 crore. By September 2019, deposits had fallen to Rs 27,864 crore, a drop of 16.3% over a period of 18 months. Given the fact, that the bad loans rate was heading towards 20%, not many people withdrew their deposits. Only the smart money moved out.
Between September 2019 and September 2020, the total amount of deposits with the bank shrunk by 24.7% to Rs 20,973 crore. Hence, quite a lot of money moved out of deposits in the last one year. Nevertheless, a bulk of the depositors stayed with the bank.
8)Why would one continue banking with a bank which has a bad loans rate of over 20%? There can be multiple reasons for it. The depositor is unaware of the state of the bank (fill it, shut it, forget it, as I said earlier). The depositor is aware of the state of the bank but feels that no bank will be allowed to fail. This is a fair assumption to a large extent, but there are conditions to this, while the deposits may be safe, there access might be a problem. Finally, the depositor just likes the fact that the bank is paying a higher rate of interest than other banks. Currently, the Lakshmi Vilas Bank is paying 7% interest on a 366 day deposit, in a market where most banks are paying 5-5.5% on a deposit of a similar tenure.
9)What are the lessons in this for all of us? The first lesson is the old investment cliché of don’t have all your eggs in one basket. Hence, don’t have all your savings in one bank. Spread them out. This ensures that even if one bank account is put under a moratorium, you have access to other bank accounts from which you can withdraw money. This is very simple advise but a lot of people don’t seem to be following even this.
10) Keep a track of the bad loans rate of your bank. It is not very difficult. You can Google it up or there are many websites which share this data. As a rule of thumb, do not bank with a bank where the bad loans rate has crossed 10%. While the RBI will not allow a commercial bank to fail, you may have problems in accessing your money for a while, if the bank is put under a moratorium. And that can’t possibly be a good thing.
11)What happens if the bank is not reporting its bad loans data properly? Yes Bank did this. Only after an administrator was appointed the real state of the bank came out. In this case it is very important to keep looking at the outstanding deposits of the bank. If they are shrinking by any chance, clearly there is something going on which you don’t know about, but the insiders clearly do. Hence, it’s time to withdraw your money.
12)Finally, every time a bank is put under a moratorium or even otherwise, the question that most people seem to ask is, are my bank deposits safe. As an outsider, there is no way for anyone to determine that 100%. Hence, the question to ask is, how do I make my bank deposits safer if not totally safe. And the way to do that is to follow the methods mentioned just above.
Between March 27 and October 23, the total amount of deposits with commercial banks in India, have risen by Rs 6.32 lakh crore or 4.4%. This has happened despite falling interest rates and high inflation. This means that the average Indian depositor is more interested in return of capital rather than return on capital. He doesn’t want to take on much risk while he is investing.
But not taking much risk doesn’t mean that one switches off totally after depositing money with a bank and has zero idea of the state of the bank. We are in the twenty first century and we need to be able to do a little better than that. It’s your Lakshmi at the end of the day and you need to take care of it.
Over the last week many of you have asked me to write on this particular topic. One gentleman even suggested on Twitter, perhaps sarcastically, that I was slacking. (I guess after this 3,800 word piece, he will clearly not say that).
Well, I wasn’t slacking. This is a complicated topic with multiple issues and because of that I was trying to read as much as I could, before offering my views on the issue. (Also, I might be writing more on the issue in the days to come).
What do the Bills which have been passed by the Parliament seek to achieve?
Yesterday, the Rajya Sabha passed two out of the three Bills being referred to as the Farm Bills. These two Bills are the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, and the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020.
The Lok Sabha had already passed these Bills. There was some ruckus in the Rajya Sabha where the Bill was passed through a voice vote.
The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, allows the farmers to sell their produce outside the Agricultural Produce Market Committee (APMC) regulated markets. The APMCs are government controlled marketing yards or mandis.
This law allows farmers to sell their produce to cold storages, warehouses, processing plants or even directly to the end consumer (you and I, restaurants, hotels etc.) The state government is not allowed from levying any market fee, cess or any other levy in these other market places (or trade areas). In short, anything that the state government can do is limited to the physical area of the APMCs. The Bill allows intra-state trade and inter-state trade.
So, the farmers clearly have more choice on who they want to sell. But they are still unhappy about it? Why? This is a question that will get answered in the piece.
Now let’s take a look at the other Bill. The idea behind Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020, is essentially to create a framework for contract farming. This needs an agreement between the farmer and a buyer, before the production happens.
Of course, this hasn’t gone down well with the farmers either.
Why are the farmers protesting?
The passage of both the Bills hasn’t gone down well with the farmers. In fact, farmers in Punjab, Haryana and Western Uttar Pradesh, had been protesting even before the Bills were passed by the Parliament. Why has that been the case? Let’s take a look pointwise.
1)As mentioned earlier, the farmers of Punjab, Haryana and Western Uttar Pradesh, are the ones, primarily protesting. Hence, farmers across the country are not protesting against these Bills.
The farmers of these states are primarily protesting because the government procurement infrastructure in these areas is very good. This is primarily because the Green Revolution of the 1960s started here. In order to encourage farmers to adopt a new variety of wheat, the government offered procurement through the Food Corporation of India and a minimum support price (MSP) to farmers, which was declared before every agriculture season. Since then the system has evolved and the government sets an MSP on 23 agricultural crops, though it primarily buys only rice and wheat. In the recent years, it has bought some pulses and oilseeds as well.
The fear among farmers is that the next step in the agriculture reform process will be the doing away of government procurement process as well as the MSP. This is going to primarily hurt the farmers from Punjab and Haryana, who benefit tremendously from this.
2)The farmers who benefit from the government procurement process and MSP are medium and large farmers. As the document titled Price Policy for Rabi Season—The Marketing Season of 2020-21, published by the Commission for Agricultural Costs and Prices 2020-21, which is a part of the Agriculture Ministry points out:
“As indicated by data received from some states, medium and large farmers occupy a major share in total procurement in the State and share of small and marginal farmers, though improved during last few years, remain low.”
Hence, it’s the bigger farmers who are protesting against the passage of these Bills. (It is important to make this distinction because the media is largely using the word farmers).
The government and Prime Minister Narendra Modi have assured that there are no plans to do away with government procurement or the MSP policy for that matter. The trouble is the protestors don’t seem to be buying these assurances and there is good reason for the same.
3)Why are the big farmers not buying the government’s assurances? The answer perhaps lies in the fact that it is but natural that the next step in the process of reforming agriculture is reforming government procurement and the MSP policy.
“There is a need for reorientation of price policy if it is to serve the basic goal of remunerative prices for farmers. This goal cannot be achieved through procurement backed MSP since it is neither feasible nor desirable for the government to buy each commodity in each market in all region.”
This paper essentially had the philosophical underpinnings on which both the Bills we have been talking about are based. Also, if the government purchases and the MSP are done away with, there will be further danger of free power, fertiliser subsidy etc., being done away with as well.
4)The MSP policy has led to excess production and excess procurement of rice and wheat by the government over the years. As of September 2020, the Food Corporation of India had 700.27 lakh tonnes of rice and wheat. As per the stocking norms for food grains, FCI needs to have an operational and strategic reserve of 411.2 lakh tonnes as of July and 307.70 lakh tonnes as of October. These massive stocks of rice and wheat are despite the government deciding to distribute a lot of rice and wheat for free to bring down the negative impact of the covid pandemic.
It has also led to farmers growing rice and wheat at the cost of other agricultural crops. As the NITI Aayog research paper referred to earlier points out: “Per capita intake and availability of pulses in the country has declined to two third since early 1960s. During the 50 years between 1964-65 and 2014-15, per capita production of pulses declined from 25 kg to 13.6 kg.”
Now, you cannot fault farmers for doing this. If they are incentivised to grow something, with a regular buyer available in the form of the government, they are bound to do that. Why take a risk, when a safer option where the government increases the price of rice and wheat every year, and buys what is produced, is available.
In fact, it is safe to say that if the government procurement is lowered (even without the MSP being done away with), the price of rice and wheat will fall. If private markets are established, it will fall even faster. This is something that the big farmers of Punjab and Haryana, don’t want, hence, the protests. It is worth remembering here that the marginal and small farmers, who own land of less than two hectares, are largely consumers of food, and food inflation tends to hurt them.
“For example, more than 95 percent paddy farmers in Punjab and about 70 percent farmers in Haryana are covered under procurement operations while in other major rice producing States like Uttar Pradesh (3.6%), West Bengal (7.3%) Odisha (20.6%) and Bihar (1.7%), very small number of rice farmers benefit from procurement operations.”
In total, the procurement system reaches around 11.8% of the rice farmers. This explains by the protests are limited largely to Punjab and Haryana.
6) Punjabis themselves eat very little rice. But the solid procurement system in place ensures that the Punjabi farmers grow a lot of rice.
Procurement of rice in major producing states 2018-19.
Source: Price Policy for Kharif Season—The Marketing Season of 2020-21.
As can be seen from the above chart nearly 89% of the rice produced by the farmers in Punjab is procured by the government. In Haryana, it is 85%. Clearly, the farmers in Punjab and Haryana have a huge incentive in growing rice and doing away with price risk.
The government procurement system and the MSP have essentially ensured that semi-arid areas like Punjab and Haryana, grow rice, a crop which needs a lot of water. And this has created its own set of problems. “Continuous adoption of rice-wheat cropping system in North-Western plains of Punjab, Haryana and West Uttar Pradesh has resulted in depletion of ground water and deterioration of soil quality, posing a serious threat to its sustainability.” It also creates the problem of stubble burning during the winter months.
7)How do things look for wheat, the other crop procured majorly by the government? Take a look at the following table.
Statewise procurement of wheat.
Source: Price Policy for Rabi Season—The Marketing Season of 2020-21.
As can be seen from the above table Punjab and Haryana are again the major beneficiaries when it comes to procurement of wheat. Uttar Pradesh is the biggest producer of wheat but only around 11-12% of its production gets procured by the government.
As the NITI Aayog paper referred to earlier points out: “The pricing policy has also discriminated against eastern states where procurement at the MSP is minimal or non-existent. With part of the demand in these states satisfied by subsidised PDS sales of the grain procured in other states, prices of wheat and rice in these states end up below what they would be in the absence of price interventions of the government. The price policy has thus also created a regional bias in crop pattern as well as incomes of farmers.” The fact that inequality has gone on for years is disturbing. But this does not mean that the government should procure more rice and wheat from these states as well.
8)The other big fear among farmers, those representing them and many economists, is that large corporates will take over contract farming. The politicians suddenly want farmers to trust corporates and the market process, after spending decades abusing them. This is not going to happen suddenly, especially in an environment where there is big fear of large corporates taking over many other areas of business. All this is happening precisely at a time when the government has banned the export of onions. The messaging just isn’t right, given that if the government trusted the market process, it wouldn’t have banned the export of onions.
9)Another reason that farmers don’t trust corporates is the rise in their input costs. As the document titled Price Policy for Rabi Season points out: “The increase in cost of production was mainly driven by rise in farm input costs such as human labour, machinery, seeds, fertilisers, fuel, etc.” The belief is that this rise in prices is primarily because of the increasing corporatisation of the agri-input sector.
To conclude this section, the government procurement and the MSP where introduced in a certain time when India didn’t produce enough food grains to feed itself. These are policies of a bygone era and help only big farmers in certain states, and hence, they are the ones protesting, despite the assurances by the government.
Will the government be able to do away with procurement and MSP?
This is a tricky question. The procurement and the MSP system are one side of the equation, the supply side. On the demand side, the government sells the rice and wheat thus procured at heavily subsidised prices under the aegis of the Food Security Act, through lakhs of ration shops under the public distribution system.
So, while the big farmers of Punjab and Haryana might feel that the government will do away with procurement and MSP, it is not possible at one go. What is possible is that the government can cut down on procurement, in order to ensure that FCI does not have to maintain excess stocks like it has over the last few years.
The food subsidy system is a system which has been in place and which is much more complicated and much more spread across the country, than just the big-farmers of Punjab and Haryana. Also, with the covid pandemic, the importance of the food security system has clearly come to light. Actually, only once the government does away with the food security system can it do away with MSP and procurement. This is too big a challenge for any government.
Theoretically, it’s possible to do this and give cash handouts to people so that they can buy rice and wheat, but the political repercussions of doing away with food security the way it currently exists, is not something any government will be able to handle. It’s too big a risk.
This problem of government assuming something and farmers believing the opposite, can only be solved if the two sides talk it out. But that is unlikely to happen, given that the Bills have already been passed.
Reform by stealth
Like has been the case with economic reforms in India in the past, this time was no different as well. The government resorted to reform by stealth and aggressively pushed the Bills through the Parliament, without either talking to the Opposition parties or farmer organisations.
This has led to the firm farmer belief that MSP and government procurement will go in the next round of reform. If the government had tried to talk to the farmers before pushing through the Bills that might perhaps have helped.
Secondly, if contract farming and trade markets other than APMC have to pick up, the state governments need to be on board as well. No corporate or businessman is going to attempt contract farming or setting up trade markets where agricultural produce can be sold by farmers, unless the state government is on board as well.
Hence, some talking would have helped. But then that’s not this government’s style.
a) “Market Committees are reportedly democratic institution but in fact… [the] Committee is dominated by politicians and traders not by farmers as required.”
b) “The provisions of the APMC Acts are not implemented in their true sense. For example, market fee and commission charges are legally to be levied on traders, however, same is collected from farmers by deducting the amount from farmers’ net proceed.”
c) “Market fee is collected in some States even without actual trade-transaction has taken place and simply on landing the commodity at processing units. While in other States trade transaction outside the market yard is illegal.”
Once we take this into account, there is a clearly problem with the way APMCs function. Also, they restrict competition and tend to assume that the farmers are not smart enough to do their own thing (something that many politicians have made a career of). In that sense the freedom that these Bills provide the farmer are great.
Having said that, the absence of any regulation in non-APMC trade markets is not a good sign.
2)Are the farmers going to benefit almost overnight, as is being projected on the social media in particular and media in general? The simple answer is no. It needs to be pointed out here that as per the Agricultural Census of 2015-16, 12.56 crore or 86.2% of India’s operational holdings are small and marginal that is less than two acres in size.
Hence, most of the farmers really don’t produce enough to be able to deal with any marketing system, the old one or the new one, in a direct profitable way. For such small farmers to be able to benefit and get a better price for their produce without selling to a middleman, all kinds of other infrastructure is needed. These include everything from more cold storages to improved roads connecting villages to the newer markets that come up, power supply which can be relied upon (so that a cold storage can function like one) and traders who compete to get their produce.
All of this is very important if farmers are to get a better price for their produce. A survey carried out by the Reserve Bank of India and published in the central bank’s October 2019 bulletin found:
“The survey findings revealed that farmers’ average share in retail prices vary across crops between a range of 28 per cent and 78 per cent [across 14 crops]. The traders’ and retailers’ mark-ups were generally found to be higher for perishables than nonperishables.” The Survey also found that “retailers’ margins were generally higher than the traders’ margins in consumption centres across commodities, possibly due to significant product loss at the retail stage, particularly for perishables.”
In fact, the state of Bihar did away with the APMC Act in 2006 and didn’t get anywhere near higher incomes for farmers, given that the basic infrastructure to get market transactions going was not available.
This is why all the other infrastructure mentioned earlier becomes important. And it can’t be achieved without the active participation of the state governments. Hence, communication between the central government and the state governments on this issue is very important. And that hasn’t happened. Also, as usual, the central government hasn’t gone into the details. It has talked about how the farmers will benefit and is driving home that narrative aggressively, without really talking about the all the practical issues that will keep cropping up. (Remember demonetisation? Remember GST? Why does this feel like déjà vu?).
3)It is worth remembering that arthiyas (commission agents) who buy produce from farmers at APMCs, are locally influential people. Hence, assuming that parallel systems of buying and selling in the form of new trade markets, will come up automatically, is rather stupid. It is worth remembering that many arthiyas are themselves big farmers and can ensure that the system continues to work as it is. They might just move out of APMCs to avoid paying levies (which are very high especially in states of Punjab and Haryana at 8.5% and 6.5%, respectively). Everything else might continue to be the same. This depends on whether creation of new infrastructure is worth not paying the levy.
This is why, at the cost of repetition, proper healthy communication between state governments and the central government becomes very important. Also, it will be interesting to see whether the central government continues to procure rice and wheat through the Food Corporation of India (FCI) at the APMC mandis in Punjab and Haryana, using arthiyas and paying levies amounting to 6.5-8.5%? Or will it choose to move out, thereby hurting the revenue stream of the state governments? (Did someone say cooperative federalism?)
4) It is being assumed that buyers who currently buy from big commission agents, will start buying directly from farmers and let go of the middleman. There is a reason why these buyers buy from agents. It is convenient for them to do so. Do they want to take on the headache of building a new system right from scratch? Is it worth their time and money?
These are questions for which answers will become clearer in the days to come. But prima facie given the abysmal ease of doing business in most states, I see no reason why the buyers won’t continue buying from the agents, instead of having to deal with many farmers. As mentioned earlier, a bulk of India’s farmers are too small to benefit from any market- oriented system, unless they organise themselves in the forms of cooperatives and farmers-producer organisations.
Also, if governments really want to help these small and marginal farmers, they need to reform the change in land usage norms, and let farmers who want to sell their land be able to sell it anyone else and not just other farmers.
5) There is great fear of Big Business taking over agriculture. As per the Agricultural Census of 2015-16, the number of medium and large operational holdings is at 63.16 lakh (A medium sized operational holding has an area of 4 hectares to up to less than 10 hectares. And a large sized operational holding has an area of 10 hectares or more). These are huge numbers we are looking at. Just imagine the kind of scale needed to deal with these many number of farmers. If just take a look at large operational holdings, they are at 8.31 lakh. Hence, it’s not going to be easy for any corporate to do anything without involving middlemen.
If businesses just concentrated on states which have a higher proportion of medium and large operational holdings they are looking at Punjab (33.21% of the total operational holdings), Rajasthan (19.47% of the total operational holdings) and Haryana (14.35%). Not surprisingly, farmers of Punjab and Haryana are worried. They would rather deal with the known devil, the government, who, they can always vote out in the next election. But how do you vote out a corporate?
To conclude, the central government clearly hasn’t gone into the details of what will it take to really make the life of an average farmer better. As usual it is only interested in selling the narrative that the passage of these Farm Bills will ensure that farmers get a better price for what they produce. (Remember, the 50% higher MSP story they tried selling sometime back?)
When it comes to the opposition parties, they have managed to get low-hanging fruit to put the government on the mat after a while, and not surprisingly, they are cashing in on that.
Meanwhile, nobody is really worried about the farmer.
I would like to thank Chintan Patel for research assistance.