Shruti Rajagopalan is an assistant professor of economics has discussed how the government’s help is the main cause for agrarian distress prevailing in India.
- The problem is that farmers are not allowed to use all their resources and engage with global markets and the political response, both from government and the opposition, has been paternalistic in the past.
There are six specific ways in which Indian farmers are shackled.
- Institutionalization of Agriculture produced through APMC which has done by government under the guise of protecting farmers.
- Main purpose of establishing APMC is to provide for larger market to farmers means that more consumers can compete for the produce enabling better prices.
- However, the APMC prevents this and severely limited the market by dividing the market geographically into different regions and insisting that a farmer can only sell to the mandi in his region.
- Prevents consumers, wholesale and retail food companies from buying directly from the farmer.
- It has been observed the Mandi licenses are given only to those with political patronage, often used as a side business for politicians
- As a result, the farmer receives depressed prices, while the final consumer pays a high price for the same produce. All the money goes to the politically blessed and licensed middlemen.
- Second, the minimum support price (MSP) has been impoverishing farmers and consumers for decades
- The government promises high prices, to help farmers, but is not able to deliver on those promises by actually buying all the produce.
- Farmers produces more expecting a high MSP but forced to dump their produce when MSPs are not delivered.
- Due to heavily regulated or banned futures trading in agriculture Indian farmers lament when they have a bumper crop as prices and MSP fall
- Futures trading helps smooth cycles in the market. However, Indian farmers are not allowed to participate and so they cannot use the bumper crop in a given year to prevent the downside from bad crops in other years.
- Third, the farmers have been denied a market for land, their biggest asset and are unable to exit farming
- Farmers are not allowed to sell their land to non-farmers, and they cannot themselves easily change the use of their land.
- This has limited and depressed the market for agricultural land and the price agricultural land can fetch.
- Four, because land titling records face additional uncertainty
- Without good land records, the ability to raise credit using land as collateral is limited
- The government has regulated local moneylenders by limiting the interest rates, further reducing access to credit.
- This means farmers only have state-owned banks and cooperatives for agriculture credit and are at the mercy of government policies to avail farm loans.
- Five, the inputs used by farmers are severely controlled
- The government, having killed the private market for agriculture inputs such as seeds and fertilizer, forces the farmers to now rely on subsidies.
- By controlling inputs such as water, electricity, seeds, and fertilizer, politicians can offer subsidies in exchange for support as a political tool
- Farmers are prevented from buying most of their inputs in market settings, because of statutes such as the Essential Commodities Act.
- The government promises free electricity and water, which are unreliable because of the massive shortages caused without a price system.
- Six, farmers are not allowed to experiment with new technologies
- Whether this is technology in fertilizer, machinery, or pesticides, the Indian government does not allow it and force farmers to wait till the new technology introduced once in a century like Green revolution.
- Further partial ban on genetically modified (GM) seeds are more problematic. A lot of the new GM seeds are more resistant to pests and bacteria, and reduce the need for other inputs such as pesticides, water and fertilizer
- Any experimentation is done illegally and a black market has emerged for GM seeds, harming both farmers and produce.
- Farming in India, mostly done on a small scale, without much technology, or insurance, is one of the most difficult jobs.
- Farmers deal with hundreds variables and uncertainty, and still manage. The problem is that farmers are not allowed to use all their resources and engage with global markets.
- The truth, however, is that farmers don’t need the help the government has provided over seven decades. The government’s help is the cause of the distress.