Farmers’ protests are threatening to snowball into the biggest political crisis of Narendra Modi’s tenure.
To give in to demands and scrap the laws would be an uncharacteristic admission of defeat for India’s strongman prime minister, who promised they would transform agriculture. But letting the unrest linger could cause chaos in food markets, alienate urban consumers, and potentially derail the post-Covid recovery.
Nobody doubts that for India to have a shot at exiting its lower-middle-income trap, farming must come out of its sub-3% growth rut. Productivity of labor, land, fertilizer and water have to improve. Massive private investments need to take place in storage and processing for the country’s 2% share of global agricultural exports to increase.
The dispute is over which strategy to pursue. Markets or organizations? That’s an old dilemma, made famous by economist Ronald Coase in 1937. Modi is leaning toward markets, promising to turn the entire country into a free trade area benefiting 119 million farmers and 144 million farmhands, plus their families. A large and growing number view this move as an end to institutional state support, which they fear will allow profiteering corporations to rush into the resulting vacuum. Tens of thousands of farmers have been camping near entry points to New Delhi since Nov. 26.
A compromise solution would require consultation – something woefully lacking when Modi’s government rammed the bills through a dubious voice vote in parliament in September. Even those who defend the reforms agree that both their intent and purported benefits should have been explained better. But it’s too late for public relations. A more tangible concession will have to be made: an additional law, perhaps.
To see what that might be, consider first what’s making farmers restive. A small section of India’s agriculture – most notably in Punjab – relies excessively on selling rice and wheat to the government at so-called minimum support prices. The purchase takes place in markets, known as “mandis.” One of Modi’s bills gave farmers the freedom to sell their produce outside the designated yards – and without having to pay taxes and fees to one of India’s 29 state governments. For grain cultivators, the worry that cropped up was, “If the mandi falls into disuse, will the government stop buying from us at guaranteed prices?”
The fear isn’t entirely irrational. The Food Corporation of India’s granaries are overflowing. The excess stock costs the taxpayer $25 billion, money that could have other uses in the post-Covid economy. Farmers know this. One of their demands is for legal backing for minimum support prices, something that could have ugly consequences for public finances. Authorities currently announce prices for 23 commodities, but these are largely meaningless except for wheat, rice and cotton in a few states.
