Farm bills: Not so fatal?

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Just as American news channels are flooded with stories of the upcoming election, the Indian media is similarly dominated by conversations surrounding the so-called “Farm Bills.” These controversial pieces of legislation have sparked tremendous protests and accusations by left-leaning pundits of greedy neoliberalism towards Prime Minister Modi. I, on the other hand, believe that the Farm Bills are not nearly as harmful as their opponents make them out to be, and they are, in fact, rather beneficial to the Indian economy. 

Before delving into this topic any further, it’s worth describing what these Farm Bills are more specifically. The Farm Bills are actually a collection of three farm reform laws: 

  • The Farmers Produce Trade and Commerce (Promotion and Facilitation) Ordinance 2020 
  • The Freedom of Food Stocking by Agribusinesses Ordinance/ The Essential Commodities (Amendment) Ordinance 2020
  • The Farmers (Empowerment and Protection) Agreement on Price Assurance Farm Services Ordinance 2020

The first bill’s aim was to give farmers greater choice in deciding their resellers. As it stands, farmers are forced to use the highly inefficient government APMC mandis as their vendors along with their corrupt arhatiya middlemen. Furthermore, the bill is more permissive of interstate agricultural commerce, which will give farmers access to a broader market in which to sell their produce. Critics suggest that mandi-based revenue will decline. Good! Less money flowing to the state means more money staying in private markets, where the allocation of resources tends to be guided by the rationality and preferences of individuals, rather than unelected bureaucrats. Furthermore, the cost of operating agricultural markets through APMC mandis, with their highly arbitrary minimum support prices, is passed on to both the farmer and the consumer, with the former suffering from lower prices and the consumer being the victim of higher prices, both of which disproportionately negatively impact the poorest sectors of India.

The second bill looks to liberalize the government’s draconian policy towards the “hoarding” of agricultural goods. Various commodities, including cereal, potatoes, and pulses, will no longer be considered “essential commodities,” thus allowing farmers to “invest” their crops for future sales. This also creates appropriate incentives for larger corporations to engage in large-scale agriculture in India, which, in turn, creates jobs and leads to cheaper food for Indian consumers. Critics appropriately level the concern that these same corporations could “dictate” price terms to farmers if they stock their inventories accordingly. This may be true, but if it is, it is simply an indicator that there was an inefficient overallocation of resources in the farming sector, and, while some farmers stand to lose, many more low-income Indians will stand to gain from decreased prices of staples.

The final bill primarily concerns itself with the ability of farmers to engage in contract farming. This undoubtedly expands the ability of the average farmer, with a very small amount of land, to sign away the uncertainties of the agricultural markets to more financially sturdy businesses. These same businesses also have tremendous incentive to help farmers modernize their farming techniques and maximize their yield. Opponents who suggest that farmers have a weaker hand in negotiations are ignoring these broader benefits. Any student of introductory economics will be hard-pressed to deny that market interactions must necessarily benefit both parties involved. Farmers are entirely free to choose whether they wish to engage in contract work or not, and its deeply concerning that statist politicians are bent on believing they know what’s best for each individual farmer better than the farmer himself.

Professor Milton Friedman once very eloquently wrote, “A major source of objection to a free economy is precisely that it … gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.” The critics of the Farm Bills are bent on controlling a market with knowledge that is so dispersed, that they simply cannot have it to use it. The only criticism that any reasonable man can offer is that they do not go far enough! The Indian agricultural market is still tangled in a web of regulation and subsidies that only works to stiffen the joints of the market process. One can only hope that Prime Minister Modi uses these Farm Bills as a starting point for more sweeping reform in the agricultural industry.

DISCLAIMER : Views expressed above are the author’s own.

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