Economics of Food Security: Analysis of the Agricultural Reforms under the Atmanirbhar Bharat Abhiyan

– Alolika Chakraborty

Introduction

The Agriculture sector in India employs over 56.6% of the workforce in the country, yet it is governed by decades old agricultural policies. These policies had been enacted to usher in an era of food security in India and to prevent hoarding and black marketing, but have since failed to keep pace with the changing needs of an emerging economy. The prevailing agricultural policy has for long been considered a major impediment to private investment in the agricultural sector. In light of the prevailing global pandemic, the Government has recently introduced various sectoral reforms set to provide much-awaited relief to the farming community.

Proposed Agricultural Sector Reforms

The Cabinet has only recently declared that extensive agricultural reforms shall be undertaken. These reforms were a part of the Atmanirbhar Bharat Abhiyan declared by the Prime Minister in order to bring the economy back on track. The Cabinet approved the proposal for amendments to the Essential Commodities Act, 1955.

Section 3(1A) is to be added to the legislation allowing the Government a mechanism to regulate agricultural foodstuffs in extraordinary circumstances based on price triggers. An amendment is also proposed to the Schedule read with Section 2A, which seeks to deregulate agricultural commodities such as cereals, pulses, oilseeds, edible oils, onion and potatoes from the list of regulated essential commodities on the Schedule to the Act. This amendment would mean that these commodities are exempt from imposition of stock limits by the Government.

This has been a long pending claim of the farming community for an increase in private investment in the agriculture sector and thus better returns to the producers.

In an official statement, the Agricultural Ministry declared that the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services has also been approved by the Union Cabinet. Seeking to empower farmers to better engage with various stakeholders in the agricultural economy, this reform re-allocates the risk arising due to market uncertainty, and reduces the transaction costs to ensure maximization of the cooperative surplus arising out of the possibility of a successful bargain.

The reforms aim to equip farmers with modern technology and to make the agricultural sector more competitive by allowing the market forces to decide commodity prices, supplement farm income. However, no changes have been declared as regards the deployment of the Minimum Support Price (MSP) Program.

 In furtherance of the objective to achieve One India, One Agricultural Market, the Cabinet has also approved the Farming Produce Trade and Commerce (Promotion and Facilitation) that will do away with the restrictions on sale of farm produce outside the notified Agricultural Produce Market Committee mandis(market yards). This development will allow intra-state and inter-state trade outside the registered premises of the State licensed APMCs.

The monopolization of the State APMCs over the agricultural market is sought to be remedied and this move is expected to break the barriers to allow the market forces to govern in deciding fair prices for the commodities. The proposal of electronic trade in agricultural commodities, regulated by the Central Government, is also in the works. A separate dispute resolution mechanism wherein the buyers buying directly from the farmers will have to make payments within three days is being considered. All disputes in this regard shall be heard by a sub-divisional magistrate who will be required to decide it within thirty days.

Analysis of the agricultural policy package in light of the Pandemic Economy

The reforms bring in the much-awaited improvements required to help the farming population during these trying times. These policy improvements were required even though the Minimum Support Price regime had been in place for quite some time. The MSP regime failed to provide adequate relief to farmers due to a number of factors listed in a Niti Aayog Report including lack of awareness and information asymmetry, exploitation by middlemen, fragmented markets, lack of proper purchase centres in many villages and lack of requisite advice to farmers regarding crop diversification. These factors have led to limited access to markets for small farmers.

This has further ensured that most farmers sell their produce at prices lower than the prevailing MSPs. A recent report on Policies and Action Plan for a Secure and Sustainable Agriculture opined that the MSP mechanism or lack of it had in a number of areas forced small and marginal farmers to resort to extreme measures such as dumping their produce for want of buyers.

The proposed changes become all the more important in light of a recent OECD-ICRIER report findings that despite the large subsidies deployed by the government to ensure power, fertilizer and irrigation support to the farming community in India, the policy impact has been a reduction in the gross farm revenue by over 6% per annum. The report further discloses that the market support price to the producers throughout the period 2000-2016 remained way below the reference prices in the international markets.

The deregulation of the Agri-commodities under the Essential Commodities Act, 1955 is thus expected to boost the export potential of agricultural products from India. This becomes vital for India during the prevailing crisis, as the World Trade Organisation has forecasted an all-time slump for global trade. This causes greater concern because 2019 was already seeing a decline before the pandemic struck. The Indian Government thus seeks to ensure through these agricultural reforms that Indian agro exports may benefit from the trade restrictions imposed upon Chinese goods both due to the distrust spawned by the pandemic as well as the ongoing US-China Trade War.

The pandemic has brought the factors such as the pre-existing decline in economic output and growth into sharp focus thus underlining the necessity for such reforms in order to remedy the supply side shock. The exodus of the huge migrant workforce, returning to the villages due to the lack of security and job opportunities in the cities has spurred the supply shock as more and more units close down due to lack of workers.

Through these measures, the government hopes to revive the agricultural economy while also countering the demand side shock through better prices to the producers hence meeting their costs on one hand while also creating a more robust agricultural market system in the country.

Conclusion

The measures proclaimed by the government are no doubt phenomenal in that, they introduce the much-needed reforms to boost the agricultural sector. Yet, the issue still remains whether this alone will be enough to ameliorate the hardships of the people and jumpstart the economy as Unlock 1.0 is set into motion. Unlock 1.0. is the term the government uses to refer to re-starting the economy with the opening up of shops and commercial units in a staggered manner.

Globally, several countries had recognised a need to announce stimulus packages to support their economies much before the pandemic, due to declining economic growth. Yet, India that is a developing country having an unorganised sector (i.e. employing people without a written contract, no health benefits, social security or paid leaves) amounting to 83% of the workforce, is yet to declare a comprehensive fiscal stimulus package for them. This has led to incomprehensible hardships for the “migrant labourers”, a class of people who travel to the urban areas for few months every year in search of work and return during the harvesting seasons to their villages.  

Though the government has time and again announced various fiscal packages to provide food and cash to the vulnerable sections, the transfer, ex-gratia payments to the PMJDY accounts and a revision of the MGNREGA wages, these have proved to be insufficient in ameliorating the sufferings of the masses. Further, the Government has released only minimal funds to certain states under the State Disaster Response Mitigation Fund. It seems the government is waiting to assess the situation further before deciding to announce bigger packages that may require it to breach the 3% fiscal deficit to GDP threshold limit provided under the Fiscal Responsibility and Budget Management Act, 2003. Such a measure is feared to reduce India’s credit standing internationally and dampen the inflow of FDI into the country.

The Heterodox Economists Collective has recommended that the Centre announce a fiscal stimulus package worth 10 lakh crore in order to tide over the pandemic and revive the economy by providing universal ration, cash transfers, special bonds for low interest public borrowing and employment guarantees to both rural and urban workers. It further opined that the government suspend the fiscal deficit targets in light of the impending necessity caused due to the pandemic. Economist Jayati Ghosh further warned that the economy was doomed if urgent policy action on the above lines is not taken by the government.

Therefore, the government needs to choose its policies very carefully as this will decide the future for the Indian economy that is reeling under a huge supply shock due to the lockdown on one hand, and also a demand shock due to the tight-fisted approach of the people, afraid to spend their savings in light of the impending crisis. This is the time to build trust among the citizens, which will go a long way in rebuilding the economy after the pandemic.

This article is authored by Alolika Chakraborty. She is a student of law at Gujarat National Law University.