The Economist explains
Why has Narendra Modi abandoned cherished plans to overhaul Indian farming?
Farmers were worried about the effect the reforms would have on their incomes
INDIA’S PRIME MINISTER, Narendra Modi, surprised the country by announcing on November 19th that his government will repeal three laws introduced more than a year ago that were intended to modernise agricultural markets. They had proved extremely unpopular. An extraordinary movement of angry farmers, many of them Sikhs, coalesced around the capital, Delhi, in protest nearly a year ago—and then held its ground, through gruelling cold and heat and the worst of the covid-19 pandemic. Mr Modi’s concession, made on the birthday of Guru Nanak, the most revered of Sikhism’s saints, produced an eruption of joy on the outskirts of Delhi and beyond. The protests’ organisers count the 670 people who died in their camps as martyrs to the cause, now triumphant. How did the protests gain sufficient momentum to force the recalcitrant Mr Modi to reconsider?
Many farmers headed for the outskirts of Delhi in November 2020 from the nearby states of Punjab and Haryana, riding tractors and lorries provisioned for a long protest. On Republic Day, January 26th 2021, thousands demonstrated against the national government with a series of orderly tractor-parades, while a smaller contingent broke away and scuffled with police around the Red Fort, a 17th-century monument long associated with India’s ruling powers. The police fortified barriers around the protesters’ camps, cutting off water, electricity and the internet.
The farmers advanced their first complaint in September 2020, when Mr Modi rushed through parliament three bills to reform Indian agriculture. The new laws were supposed to empower farmers by giving them a greater say in the sale of their produce. For more than five decades, they had been selling only in designated wholesale markets controlled by state governments, never directly to buyers. The markets, or mandis, are supposed to protect farmers from bigger players by interposing a layer of carefully monitored middlemen. The basic idea, according to Mekhala Krishnamurthy of Ashoka University, is that “wherever you find a very large number of small sellers, they are vulnerable to monopsonies.” A big buyer or cartel of buyers, in other words, can dictate prices.
But over time the mandis and associated laws have proved disappointing to all parties. Lack of transparency, collusion among traders and price-fixing agreements have reduced farmers’ earnings. Delayed payments push them to borrow heavily from moneylenders. A shocking number are driven to suicide. With nearly 60% of all Indians depending primarily on agriculture for their income, any hindrance to the sector has a colossal impact on the whole country.
The new laws would have deregulated the market. First, they were supposed to allow farmers to sell their produce outside mandis and directly to buyers. This might have given farmers more choice and made them less dependent on the middlemen. But the laws were thin on detail, and farmers feared they could be manipulated. The protesters pointed fingers at a pair of multinational firms close to Mr Modi, anticipating that they would have become the greatest beneficiaries of the reforms. The farmers also reasoned that new buyers, big or small, would obviate the mandis, wiping out even the most basic protections—like keeping fraudsters off the buying lot. “When markets are imperfect,” Ms Krishnamurthy observes, “deregulation tends to exacerbate inequalities.” The new rules sidestepped important questions about the future of the mandis. Likewise they said nothing about minimum-support prices, which have enriched many farmers in Punjab and Haryana. Price floors are supposed to defend farmers against fluctuations owing to, for example, blights and monsoons. In the aggregate, however, they have done more harm than good, fouling up incentives in the most productive states and distorting rice and wheat markets everywhere. Arguably Punjabis and Haryanvis have gained the most under the current system; undoubtedly they stood to lose the most under a reorganisation.
Even the most obvious improvement promised by the reforms made farmers leery. To modernise Indian agriculture, one of the new laws would have allowed for large-scale cold storage. But that would have meant removing limits on stockpiling of commodities for future sale. And whereas agribusinesses have the capacity to hoard large quantities of produce, farmers usually have to sell theirs within a few days of harvest. Fearing they would be taken advantage of, farmers ditched their ploughs and drove their tractors to Delhi’s gates. In January the government suspended the laws’ implementation for 18 months, but the farmers refused to relent in their demonstrations, demanding revocation, nothing less.
The government’s biggest obstacle, more than any particular point of contention over policy, was a trust deficit. Agronomists and economists were in nearly uniform agreement with the thrust of the new laws. But Mr Modi’s government has made a habit of bypassing oversight to force through bold changes, and it has been noticed that some of these reforms backfire. Its experiment with “demonetisation” in 2016, its draconian approach to covid-19 lockdowns in March 2020 and then its pollyannaish disregard for coronavirus protocols in the months leading up to the emergence of the Delta variant have created painful memories. The details matter too, and in matters of agriculture these vary drastically from state to state. In some states mandis are cherished, in others virtually ignored. Bihar, 900km east of Delhi, scrapped its mandi system in 2006, yet continues to be one of the poorest states in the country, now with less regulation. Farmers there were told that private investment would grow and traders would buy produce at higher prices, but that did not happen. Elsewhere in northern India, farmers were watching.
The farmers’ protests are not over yet. Leaders of the movement say their fight will go on until the laws are formally repealed, which the parliament is expected to take up during its winter session later this month. Mr Modi is not known to back down from political confrontations. In this case he may have been persuaded by the prospect of imminent elections in the state of Uttar Pradesh; its western regions have shown signs of rallying to the farmers’ cause. Home to more than 200m Indians, Uttar Pradesh cannot be ploughed under.