Decoded: Why farmers are up in arms against Modi govt's farm Bills

Why did the govt push these Ordinances and why is it facing opposition to them, both from within the government and outside it

Union Food Processing Minister and sole representative of the Shiromani Akali Dal - one of BJP’s oldest allies - in the Union Cabinet, Harsimrat Kaur Badal tendered her resignation in opposition to the three agriculture related Bills introduced by the Modi government during the Covid-19 pandemic. 

The Bills, which relate to regulating out of mandi transactions and allowing free trade between them, facilitating and providing a framework for contract farming activities and exempting certain items from the Essential Commodities Act were announced as part of the Atmanirbhar Bharat package in May and cleared by the union cabinet in June and notified immediately thereafter.

Since then there have been stray agitations against the Bills, but the protests got bigger with time particularly in the major agrarian states of Punjab, Haryana and to some extent in western UP.

While the agitations have been led by farmers, commission agents have also joined the protests in some places.

On Friday, farmers have called for a nationwide bandh in protest against the Bills. The Congress and other major Opposition parties are supporting the bandh. The biggest impact of these protests is being felt in Punjab, Haryana and western Uttar Pradesh.

Business Standard tries to look at the major pain points about the Bills as flagged by the farmers and also the politics behind them, which has culminated into the first major internal political setback for the ruling dispensation in its second term.

What are these Bills?

The three Bills called the The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill-2020, The Farmers (Empowerment and Protection) Agreement On Price Assurance and Farm Services Bill 2020 and The Essential Commodities (amendment) Bill—2020 seeks to provide an ecosystem for farmers and traders to sell and buy outside the designated mandis, without disturbing their existing mandi structure, provides framework for contract farming agreements between farmers and buyers’ entities and thirdly exempts certain agriculture commodities from the purview of the Act except in extraordinary circumstances such as abnormal increase or fall in prices.

Prime Minister Narendra Modi addressing the media ahead of the Monsoon Session of Parliament, in New Delhi on Monday. Union Minister Arjun Ram Meghwal also seen.

What are the arguments against these Bills?

There are basically three major arguments against the three Bills which have been vastly debated in the public domain in the last few weeks. The first and foremost argument which is being put forward by farmers of Punjab and Haryana and also parts of west UP is that once these Bills are made into laws, the existing system of MSP and procurement will come to an end.

The fear is that if FCI sees value in going for off-mandi transactions, it will gradually move out of the states and the entire mechanism of procurement which has been the backbone of the two states farming since the Green Revolution days will crumble.

In the 2019-20 marketing season, Punjab and Haryana contributed over 65 per cent of the wheat purchased for the Central pool estimated at 34.13 million tonnes along 34.3 per cent of the rice purchased for the same pool estimated at 44.39 million tonnes.

The fear is also fueled to some extent by growing wheat and rice procurement in states outside Green Revolution baskets of Punjab and Haryana. In the last few years, Madhya Pradesh in wheat, and Chhattisgarh, Telangana and Odisha in rice, have emerged as new grain baskets. 

The government according to some experts is also keen on expanding its procurement basket, first to bring more farmers within the MSP bracket, but more importantly the intention is also according to some quarters is to cut down on the costs as Punjab and Haryana charge high taxes on mandi operations, while in MP, Chhattisgarh and Odisha, the mandi and other incidentals charges are less. 

The fear of Centre curtailing MSP operations has also been fanned by several reports by the Commission for Agriculture Costs and Prices (CACP) which is the Centre’s main price setting body for determining price of commodities that will be purchased. The CACP has repeatedly underscored the need to review the ‘Open Ended Procurement’ of wheat and rice as it is a burden on the exchequer and leads to multiple problems including an unending cycle of high subsidies on food.

It says that Centre requires 50-55 million tonnes of wheat and rice annually to run its PDS operations while the purchases are in excess of 80 million tonnes which leads to massive strain on resources and storage.

Prime Minister Narendra Modi addressing the media ahead of the Monsoon Session of Parliament, in New Delhi on Monday. Union Minister for Parliamentary Affairs, Coal and Mines, Pralhad Joshi, the Minister of State for Parliamentary Affairs and Heavy

The second major argument is that once the out-of-mandi transactions start taking shape, the APMCs or regulated markets in the states will crumble and will be starved of funds. Presently, according to some estimates there are around 7,000 regulated markets and over 22,000 market yards in the country which are under some sort of regulation. Once, farmers start selling outside the mandis and buyers who can be anyone and everyone (the act on trade says that anyone having just a PAN card can buy directly from farmers within the prescribed rules), the APMC revenues will take a big hit which some say is used to develop mandi infrastructure, provide grading and sorting facilities and also some infrastructure to farmers, including rural roads.

The third argument against the Bills is that it will lead to corporatisation of Indian farming as once the three Bills kick-in (particularly the one on contract farming), farmers will lose their say and could fall prey to the mercy of big retailers and corporates. The fear also stems from the fact that some existing examples of contract farming have led to disputes and discord between the farmers and buyers.

The government’s justification

The Central government contends that none of the arguments being forwarded by the farmers’ groups is true and most are politically motivated.

The govt argues that nowhere is it mentioned in the Bills that MSP procurement will stop, but instead the experiences of the last few years have shown that its MSP procurement has increased manifold and more crops and farmers have been brought under it.

“You see, the government has to run the public distribution system by any count and for that we require annually 50-55 million tonnes of wheat and rice. If MSP operations are stopped, from where will India get such huge amounts of grain,” NITI Aayog member and eminent agriculture economist Ramesh Chand asked Business Standard recently.

On dismantling of APMCs, the government says that the Act does not mention anywhere that it infringes upon the rights of APMCs. In a letter written to SAD head Sukhbir Badal recently, agriculture minister Narendra Singh Tomar has said that states will be free to run the APMC s, levy taxes there and even declare any area as APMCs or market yard for its convenience. The act only provides a framework to regulate out of mandi transactions by declaring the entire area outside the mandi across the country as trade area. In such an area no taxes can be levied by any state or local or municipal bodies and anyone will be free to buy and sell their commodities. Centre says, the act does not harm the interest of mandis and APMC and their committees, but just provides an alternative marketing option to the farmers. 

The opposition to the Bills is primarily coming from states that have been India's food bowls since the Green Revolution and have a very well established set up of mandis, commission agents and brokers.

Presently too just around 30-35 per cent of the total production of cereals, pulses, vegetables and oilseeds is sold through the regulated markets. Which means that bulk of the transactions take place outside these regulated markets. These legislations just seek to regulate such out of mandi transactions and lower the fees charged on them because in several states though transactions do take place outside the mandis, states charge a fee on them as well.

On the third argument of the Bills leading to corporatisation of Indian agriculture and exploitation of farmers in the hands of big corporates, the Centre’s argument is that nowhere in the Bills is it mentioned that farming will be done by the Corporates or their appointed agents. It says that in all the three Bills, it is clearly mentioned that land or any encumbrance on it won’t form part of the contractual agreement and if such an agreement is entered into, it will not only be null and void but also punishable as per law.

The Centre says that the Bills along with the recently announced Rs 100,000 crore agriculture infrastructure fund will only help in boosting private investment in farming and fill the critical gaps in storage, mechanised transport and distribution.

According to the 2018-19 Economic Survey, private investment in agriculture and allied activities has dropped from 15.6 per cent in 2013-14 to 12.8 per cent in 2016-17.

So are these flawless legislation?

Not exactly, experts who have studied the Bills have pointed out several flaws in the Bills that could potentially snowball into major problems in the future. One major lacunae is the dispute-resolution mechanism: Both the trade Bill and contract-farming Bills rely on lower bureaucracy in a state and give its unbridled power to adjudicate. Also, some are complaining that the Bill on trade does not have adequate checks and balances to regulate out-of-mandi transactions that could lead to cartelisation and proliferation of unregulated trade.

The government's counter-argument to these is that the Act does contain a provision that says the Centre might prescribe a system for electronic registration for a trader, modalities of trade transactions and mode of payment of the schedule farmers’ produce in a trade area, if it feels necessary in public interest to do so. 

According to officials, using the same provision of the ordinance, if the Centre feels at some point that undesirable trade activities are being conducted outside the mandis and there is a need to record the quantity sold as well as the price, it can be done.

A trade area is defined as an area which is outside the regular mandis.

Revenue loss to states

One big reason for some states opposing the three Bills is fear of losing a big chunk of their revenues.

The Commission for Agricultural Costs and Prices (CACP) in its latest rabi report noted that in 2019-20, the statutory taxes (mandi tax/APMC cess + arthiya commission) levied on wheat in Punjab and Haryana were in the range of 5.5 percent and 4.5 percent respectively.

While in other States like Uttar Pradesh and Madhya Pradesh it was lower at 2.5 per cent and 2 per cent.

These taxes go up further when incidentals such rural development and infrastructure development cess, commission to society, ‘nirashrit shulk,’ (sort of destitute fee) ‘mopari charges’ etc are levied by states. For Punjab, the total comes to around 8.5 per cent, the highest in the country, while in Haryana, too it is in the range of 6-7 per cent.

According to some estimates, based on the current levels of procurement of wheat and rice and also arrival trend in mandis, Punjab stands to loose around Rs 4,000-5,000 crore as mandi revenues if transactions move outside the mandis, while in case of Haryana, the loss could be somewhere around Rs 1,000-1,500 crore per year. 

In the current context this is a big amount when state revenues are constrained by Covid-19 induced slowdown in economic activities.

Already, some states have started moving in to protect their turfs. Rajasthan, recently, designated all warehouses and godowns under the FCI and state warehousing corporation as mandis thus retaining its powers to charge mandi fees. 

The order by the Rajasthan government is being read as a move to nullify the impact of Centre’s Bills as it designates all out of mandi areas as trade zones free from any taxes that also includes warehouses and godowns.

The politics at play

Among political parties and states, Punjab Chief Minister Captain Amarinder Singh has been one of the severest and first critics of the Bills as he sees them as an infringement of the state’s rights and also a move to end the MSP system.

He is also using them against his state opponents, the Akalis. For the Akali Dal in Punjab and also BJP's newest ally the Jannayak Janta Party (JJP) in Haryana (headed by young Dushyant Chautala), aligning with the Bills is fraught with danger as it could antagonise their primarily rural and agriculture dependent vote back. 

The influential Jat (Haryana) and Jatt (Punjab) voters who are primarily into farming and own large land parcels in both the states have been solidly supporting these two parties for a long time, some experts said. 

Harsimrat Kaur Badal’s resignation can also be seen in this context. 

In west UP, the Bhartiya Kisan Union (BKU) is trying to steer the agitation as here too the farming is dominated by large landholders. 

Why are farmers protesting only in Haryana, Punjab and to some extent, western UP?

The opposition to the Bills is primarily coming from states that have been India's food bowls since the Green Revolution and have a very well established set up of mandis, commission agents and brokers.

These are the people who will be hit hardest if the mandi system becomes redundant over a period of time.

According to some estimates, the livelihood of over 50,000 brokers and commission agents and several thousands farm labourers is dependent on the mandis, while the case is not that in other parts. Moreover, farmers in Punjab, Haryana and west UP are better organised than their counterparts in other states. A sizable chunk of the taxes collected in Punjab and Haryana in the mandis goes as commission to these commission agents.

Punjab, Haryana and west UP, are also regions where landholdings are traditionally large and per capita income of farmers is higher than other parts of the country. 

The agitation has not yet spread to eastern and parts of southern India as most farmers there are small and marginal while the mandi structure is also not robust and well-organised in many areas such as Bihar.

Not a new thing

The bills and the intent behind them is not a new development. Infact, umpteen committees and reports have been published in the last few decades recommending the need for freeing up the mandis. The Congress government during its tenure had also in fact moved to bring such an Act to free up agriculture trade, but could not get it approved due to lack of political consensus.

Even now, states allow contract farming and have delisted several items from the mandi acts such as fruits and vegetables in Maharashtra.

Infact, according to the Dalwai Committee report on doubling farmers income, there are more than 400 such farmer-consumer markets in India but most don’t function in an efficient manner except few as there isn’t an enabling ecosystem. 

In 2003, the Centre chipped in with the first model APMC Act to reform the regulated markets in the country. 

Countless committees and panels have made recommendations on these lines. Attempts to offer farmers alternative selling options have been in the works for more than 15 years with several states denotifying a range of fruit and vegetables from the ambit of the AMPCs, framing laws for contract farming and promoting private markets and yards.

Experiments such as Kisan Mandi or Apni Mandi in Punjab, Uzhaver Sandhais in Tamil Nadu, Krushak Bazaars of Odisha or the Delhi Kisan Mandi promoted by Small Farmers Agribusiness Consortium (SFAC) or Rythu Bazaars in Andhra Pradesh where farmers sell directly to consumers without intermediaries have been functioning for quite some time. 

Direct sourcing by big processors, food retailers and so on has worked sporadically in some areas but most states are yet to frame clear rules on this process. Reports show that just over 200 direct procurement licences have been issued by 11 states in the country, the maximum by Maharashtra.

Contract farming is the third option but here, too, just over 15 companies are engaged in contract farming in the country, the maximum once again in Maharashtra and Haryana.