Farm Reform in a Union of States

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It is over 20 days that farmers are protesting. Many say that these protests have been the biggest challenge for the Modi government. While the protests may be hindering the post-COVID economic recovery — Indian federalism is under question. How can one read the situation?

The fact is that most farmers, especially the small ones, were always free to selling outside the mandis. Many state APMCs allowed exemption for farm produce below a certain limit. So to say the new laws have given Indian farmers the freedom to sell is not entirely correct. They have indeed given traders the freedom to buy outside mandis.

The farm laws carry no provision that does away with either the MSP or the mandi system. However, preventing the States from taxing trade outside the mandi can make the mandis redundant over time.

Agriculture is regulated by both the Centre and the States under the Concurrent List and State List. Why do then States see the laws as an attack on their revenues?

The discretion of the States to raise their own revenues has been under attack since the implementation of the GST. Now the Farm Produce Act 2020 seeks to restrict the power of the States to tax trade in farm produce. But the bigger issue here is: the participation of States in the process of reform. Do States have any agency? Do they matter?

Linked is the issue of ‘trust’ — trust between the Centre and the States. Trust between farmers and the government. No reform, least of all in agriculture can be implemented unless the States are on board.

Instead of seeking to improve and expand the mandi system, the new laws try to bypass the mandi system — which the States have been invested in. It is politically expedient to pillory middlemen, but they exist to fill gaps within the regulatory space.

It would be anti-reform if the MSP now becomes a guaranteed price because of this political brinkmanship. Government must intervene only to stabilise prices — not to guarantee them.

Improving the state of Indian agriculture cannot be just about new laws. Laws are no magic wand that will create systems overnight. The new laws give little indication of how the new system will fall in place — all they have is the fond faith that somehow markets will take care.

Given the COVID crisis, the government needs to do more, not less, to put new systems in place by handholding not just the Indian farmer, but the trader and the markets.

In a democracy, there is no substitute for dialogue. Dialogue with farmers, dialogue with States, within Parliament and its committees. The laws need to be dissected clause by clause beginning with their definitions — and discussed with the stakeholders.

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