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In An Abrupt U-Turn, PM Modi Says Farm Laws Will Be Repealed: All You Need to Know

Editor, TRANSFIN.
Nov 23, 2021 10:48 AM 8 min read
Editorial

In a surprise announcement on Friday, Prime Minister Narendra Modi said his Government would repeal the three farm laws that came into being 14 months ago.

The agriculture acts, which were introduced to modernise the farming sector and open it to private players, inspired widespread farmer-led protests that continue to this day. The laws will now be repealed in the upcoming Winter Session of Parliament.

Farm Laws 101

The "farm laws" refer to three separate legislations that were first introduced as emergency ordinances in June 2020. They were later passed by Parliament and received the President's assent in September that year.

However, in January 2021, the Supreme Court stayed the implementation of the laws. Ergo, the laws were in limbo even before Friday's announcement.

The movement against the farm laws found participants across the country. There were also supportive echoes in other countries. However, the bulk of the agitation was concentrated in Punjab, Haryana and western UP.

The laws’ repeal represents a significant turnaround for Modi, who had earlier described the “historic”, “revolutionary” and “watershed” reforms as having “broken the shackles of farmers”. It is also reminiscent of the current Government’s similar flip-flop of its contentious land acquisition reform Bill in 2015.

 

Brief Primer: What Were the Farm Laws About?

At the core of the farm reforms - and the protests - are the Minimum Support Price (MSP) and the APMC Act (APMC = Agricultural Produce Market Committee).

Now, APMCs are marketing boards established by state governments to safeguard farmers from price manipulations or exploitation by buyers. These boards designate the local marketplaces or mandis where farmer-buyer transactions can take place. Here, middlemen and buyers bid for farm produce (naturally, they aim for the lowest possible rates).

Meanwhile, the MSP tries to avoid cartel behaviour. It is a mechanism whereby GoI announces (at the beginning of the sowing season) the minimum price at which it will buy a farmer’s harvest. Fixing MSPs makes it more difficult for middlemen to quote dirt-cheap rates, since the farmer can always sell to state procurement agencies like the Food Corporation of India (FCI) instead.

Coming to the three laws, they aimed to (1) empower buyers outside designated mandis to buy directly from farmers, without the need of middlemen, (2) abolish GoI's powers to impose stockpiling limits except under "extraordinary conditions", and (3) introduce contract farming in India.

We discussed each of these farm laws + their pros and cons in our earlier piece on this topic. Today, let’s try to understand why GoI walked back on its reforms after months of relentlessly defending them, and what the implications of its u-turn might be…

 

The Manufacturing of Discontent

At the outset, the controversy around the farm laws seems like a black-and-white issue of Indians' typical distrust of the free market and apprehensions about private-sector greed. But it's slightly more complicated than that.

The protestors' main reservation was that the farm laws would be a gateway to the dismantling of the MSP system. This, in turn, stemmed from two main reasons - GoI’s perceived intentions and the very way in which the laws were passed.

One: A 2015 NITI Aayog paper titled “Raising Agricultural Productivity and Making Farming Remunerative for Farmers” was the philosophical underpinning of the laws. This paper called for a “reorientation of price policy...[which] 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 regions”.

Protesting farmers feared the reforms would spark a domino effect of deregulation in the agricultural sector. Moreover, if MSP was done away with, things like free power and fertiliser subsidies may be the next to fall, they reasoned.

Now, the MSP system (which presently exists for 23 commodities) is by no means flawless. It incentivises water-intensive crops like rice and wheat, GoI often ends up buying more than FCI’s storage infrastructures can handle, its further expansion is likely to stretch fiscal expenditures (i.e. taxpayer expenditures), and the system itself reaches only a small fraction of the national market. But it is still a crucial lifeline for countless farmers. It protects them from market price fluctuations and trader manipulations at mandis. It also ensures a reliable buyer in the form of the Government, which stockpiles its purchases and uses them to distribute to the poor under its Public Distribution System (PDS).

Besides, rolling back MSP would (1) be akin to political suicide (the current BJP government boasts the first single-party Lok Sabha majority in three decades - and even it winced the prospect of displeasing the farmer vote-bank) and (2) entail at least a short-term plummetting of crop prices, which obviously farmers obviously don’t want.

Two: Lawmaking is (rightfully) a deliberative process filled with consultation and compromise. Especially so when the legislation in question can fundamentally alter a sector that employs half the workforce. The farm laws, however, were introduced and passed in a matter of days. In the Lok Sabha, where the BJP enjoys a majority, the laws were passed without discussion between Members. And in the Rajya Sabha, where Opposition parties hold some sway, demands for the laws to be first studied by a Parliamentary committee - as is customary - and debated were ignored and the laws were passed by way of a voice vote.

FYI: In fact, the very practice of referring Bills to committees before passage has eroded over recent years. In the 16th Lok Sabha (2014-19), a meagre 25% of Bills were referred to committees. This number for the previous two Lok Sabhas was 71% and 60% respectively. Last year, no Bills were referred to a committee. And even far-reaching legislations like CAA and UAPA were rushed through Parliament sans deliberation, which is objectively undemocratic and unacceptable. Demonetisation in 2016 and the COVID-19 lockdown last year were also announced abruptly and without consultation, all the while giving citizens barely four hours of notice in each case. And true to its brand, even Friday’s announcement was done without consultation - the BJP-ruled Karnataka government, for instance, said the “announcement came as a surprise to us too...There were neither consultations nor intimation.”

The way the laws were shoved through Parliament increased farmers’ apprehensions about GoI’s intent. Then there were also statements from the top brass The Agriculture Minister called the reforms “small bills” and downplayed the accelerating protests outside Delhi as a “crowd” gathering, the Karnal SDM told police officials to “smash [farmers’] heads”, BJP General Secretary Tarun Chugh characterised farmers as “urban Naxals”, Law Minister Ravi Shankar Prasad called protestors the “tukde tukde gang”, and the PM himself derided those protesting with farmers as “andolanjivis”.

All these developments augmented the trust deficit between GoI and farmers and intensified the protests. There were other concerns too. Such as the very legality of these laws (“Agriculture” is a state subject but “inter-state trade and commerce” is a prerogative of the Union Government), plus the electricity reforms and the fines on stubble burning. The treatment meted out to protesting farmers by the State - shaming, name-calling, police brutality and denial of water, power, medical and toilet services - further soured farmer-GoI relations. Tensions peaked in January, when farmers broke barricades and entered Delhi on Republic Day, breaching the Red Fort and clashing with the police.

Critically, the farm law saga happened after a period when Government presence in rural life had become more pronounced, thanks to initiatives like MGNREGA, the Food Security Act, PDS and Kisan Samman Nidhi. The legislations were widely perceived as the Government retreating from its role, shirking its responsibilities, and replacing itself with big private companies, which put farmers further on edge.

 

Anatomy of a Turnaround

All said and done, the PM’s announcement on Friday took many by surprise. That’s because the protests had been raging for well over a year already. The intensity of opposition, while still going strong, had climbed down over recent months. The laws were anyway in limbo thanks to the apex court’s convenient inaction on the matter. And Modi is well-known for his strong-leader, won’t-back-down image. Case in point: the agitation against the CAA, which was just as overwhelming as the farmer protests, if not more - after all, while the farm protests were chiefly concentrated around Delhi and three states, the anti-CAA movement was overtly nationwide and also led to international fallout. But the Government did not back down then. Why now?

Realpolitik may be a factor. Assembly elections in UP, Punjab, Uttarakhand, HP and Goa are around the corner. The ruling party’s performance in recent by-elections in Punjab, Haryana and HP was dismal. Whether it can hold on to power in UP and win it in Punjab is largely dependent on whether it can shed its perceived anti-farmer image. With the farm laws axed, the party hopes to reap handsome electoral dividends.

 

What Now?

On Friday, Modi said a committee comprising representatives from Union and state governments would be formed to look into agriculture-related issues, including zero budget farming, fertilizers, MSP, crop patterns etc. He appealed to protestors at Delhi’s gates to “return home in good spirits”.

Farmer leaders, however, are reportedly staying put for now. They say they will not budge until the repeal is actually enacted in Parliament (the next session commences on November 29th). They may also prolong their movement by demanding that MSP be made a legal right.

The business impact of Modi’s abrupt u-turn food remains to be seen. Processing companies' sourcing operations and expansion prospects are likely to be hit. FMCG stocks were largely in the red today. Contract farming existed in many states pre-2020 and will continue to be exercised even after today. However, the repeal of the legislation might send out the wrong signal vis-a-vis GoI’s commitment to reform. It could also continue to hamper inter- and intra state agri transactions outside mandis. Also, exhaustive plans to boost agri e-commerce stand to be dismantled.

However, regardless of one’s position on the farm laws, the notion that the agricultural sector is in dire need of reforms is an undisputed one. Supply chain modernisation, expanded buyer access, farming technique modernisation, MSP rationalisation, and enhancing logistical and storage infrastructures are some items on the table for a sector that has for years been plagued by low productivity, low incomes, poverty, underemployment, debt and farmer suicides.

The agenda for the Government’s proposed committee - and indeed for any Government in the near-term - is to both modernise Indian agriculture and cater to streamlining the economy’s agri predisposition (agriculture is a sector that contributes about 20% to GDP while employing nearly half the workforce). The latter cannot be done without broader economic growth and job creation - two fronts where the Government has underperformed miserably. Case in point: the share of the workforce employed in manufacturing and services has stagnated or, worse, fallen since 2016 with workers actually returning to agriculture. And this trend cannot simply be dismissed as a natural consequence of a once-in-a-century pandemic: it predates COVID by years.

If nothing, the repeal of the farm laws could inculcate again in the political class the importance of debate and committees in the lawmaking process. Even the most well-intentioned legislation is a dubious one if it is passed without consultation with elected officials and stakeholders.

Meanwhile, the Twitterverse is awash with wordy rants and witty asides. One of the lighter takes is the observation that scientists were actually wrong about what the most powerful force in the universe. It’s not gamma-ray bursts, which are emitted when gigantic stars 150x bigger than the sun explode. No, the strongest force in the universe is actually UP’s Assembly elections!

FIN.
 

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