New Farm Laws and Labour Codes is the way forward

Source: The Indian Express

Syllabus: GS-3  Issues related to direct and indirect farm subsidies and Issues related to direct and indirect farm subsidies 

Synopsis: The agriculture and labour reforms passed recently creates a condition for productivity and enhance growth. This benefits millions of small farmers and unorganised workers.

Farm Laws and the changes it brings: 

In India, Farmers earn less than people engaged in the services sector. This difference is not common in all countries.

  • An RBI study shows that a potato farmer only gets 28 per cent of the amount paid by the consumer. Across all crops, the farmgate price (the net price of the product when it leaves the farm) is 40-60 per cent less than the consumer price.

How the earlier existing laws were problematic to farmers? How the new farm laws are of help?

The Green Revolution and subsidies have expanded India’s agricultural production. But the farmers have not gained. This is because the mediators have taken 40-60 per cent of the profit. The problems with the earlier laws are, 

    • First, the stock limits mentioned in the Essential Commodities Act. The Act mention a certain amount of stocks to be maintained to satisfy the food security needs of India. This restricted large-scale processing units from running at full capacity. This led to the problem of food wastage. 
      • 30-40 per cent of vegetables and fruits are lost due to inadequate storage, processing and transportation facilities.
      • New Farm Law (The Essential Commodities (Amendment) Act, 2020): The Act removed the stock limits and introduction of the contract farming act. This will bring in new investments to tap the wasted resource.
    • Second, earlier under the APMC Act, only traders registered in APMCs can buy farmers’ produce. This restricted the outsiders and favoured registered intermediaries. Intermediaries used this to make a profit instead of farmers. 
      • New Farm Law (The Farmers’ Produce Trade And Commerce (Promotion And Facilitation) Act, 2020): The new laws amend this provision that favoured the intermediaries. Farmers now will have an option. Either sell to the traders registered or to the outsiders.   
      • Now private market/non-APMCs registered trader can also set up an agricultural market and compete with APMCs registered intermediaries.
      • For example, Karnataka implemented the Uniform Market portal in 2014, enabling trade across taluka APMC limits without APMC fees. This increased farmer’s profit.

Labour reforms and the changes it brings:

  • Parliament has passed 3 labour code bills aimed at labour welfare reforms. These codes cover more than 50 crores unorganized and organized workers in India. This also includes platform or gig workers also. These three codes were
    1. Industrial Relations Code, 2020
    2. Code on Occupational Safety, Health & Working Conditions Code, 2020
    3. Social Security Code, 2020.

First, multiple labour laws have not encouraged employment creation. These laws have created hindrances for job creation due to the high costs of compliance. For example, India’s employment elasticity with respect to GDP growth is 0.2. China and Bangladesh have an elasticity of 0.44. And 0.38 respectively.

      • New Labour Codes: India’s labour reforms will promote growth with higher employment elasticity. This is because these codes are the simplified comprising of many prior labour laws.

What is employment elasticity?

Employment elasticity is a measure of how employment varies with economic output. For example, An employment elasticity of 1 implies that with every 1 percentage point growth in GDP, employment increases by 1%.

  • Second, the old labour laws protected existing jobs at the cost of preventing new job creation.
    • New codes: The new codes would incentivise the firms to create new jobs. It is also in line with the reforms being undertaken by our neighbouring countries.
    • For example, Bangladesh increased formal jobs by legalising fixed-term employment and banning union activity in FDI industries. It raised the threshold for seeking prior permission for laying off workers. 

Suggestions to improve further:

  • India should bring in economic reforms. Aadhaar-enabled social safety nets and direct income transfer to the poor will pay off by enabling growth with a massive expansion in employment.
  • The social safety nets have been created to ensure the right to food and direct income transfers to farmers. This will protect incomes of the vulnerable even as competition increases productivity and growth.
  • The government should continuously communicate with those unhappy with the reforms. The government should explain how the current status quo is hurting farmers and informal workers.


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