FTHE ARMERS ARE over half of India’s workforce, but barely produce a sixth of its GDP. There are many reasons for this shortfall. The small size of most farms is one of them. About 86% of land holdings are less than two hectares. They are also decreasing, as each new generation inherits smaller and smaller plots.
Yet one of the biggest underlying causes of inefficiency, ironically, is a tangle of laws designed to protect smallholders from businesses that grab businesses, greedy middlemen, hoarders and land speculators. ruthless. In the 1950s and 1960s, paternalistic governments, in the hope of both promoting “food security” and helping the poor, implemented a series of well-intentioned policies that, among other things, limited contracts to long term to supply crops to businesses, forcing farmers to sell their harvest in designated wholesale markets and set minimum prices for a multitude of commodities. Instead of protecting farmers from the depredations of capitalism, these policies simply exposed them to new forms of exploitation.
The roughly 7,000 wholesale markets, for example, have gradually fallen into the grip of a class of middlemen – often wealthy farmers themselves – who set the terms of sale, create cartels to manipulate supply and often serve as lenders. The concentration of business in the markets makes them an easy target for cash-strapped state tax collectors. As a result, a recent central bank study shows that farmers tend to glean a relatively small proportion of the retail value of their products.
Producers of wheat, rice and some other crops, on the other hand, were able to earn guaranteed prices higher than market prices by the government itself. This ensured plentiful stocks: the government’s current 70 million tonne grain mountain could feed India for a year. But it has also led to distortions. A small number of larger farms collect most of the subsidies. The overabundance of some grains has reduced diets to a healthier range of country foods. The lucrative alternation of summer rice and winter wheat sucks up valuable groundwater and encourages the burning of rice stubble to clear fields, adding to severe air pollution.
Narendra Modi, the prime minister, pledged during last year’s election campaign to double farmers’ incomes by 2022. The pledge has stoked skepticism, but his government, with a strengthened majority in its second term, seems eager to act. Since mid-September, he has thrust a trio of farm bills into law. These aim to end the obligation for farmers to use state-sanctioned wholesale markets, freeing them from contracting production for longer periods – for example to supply restaurants or manufacturers of food. ‘packaged food – and finally to reduce the government’s power to set prices and stocks of crops it deems essential.
Mr. Modi’s propagandists compare these changes to the revolutionary reforms of the 1990s that freed the Indian economy from the restrictions of the previous “licensing raj.” It seems overkill. But economists largely welcome the new laws, confirming that many past agricultural policies no longer serve their purpose. Many farmers agree; one group claiming to represent southern producers has described the Farm Bills as “visionaries.”
Yet Mr Modi’s first wave of reforms drew complaints beyond the foreseeable anger of the opposition. Agricultural lobbies in much of northern India have vowed to resist the changes, suspecting they could be a precursor to dismantling support prices as well as subsidies that farmers receive for electricity, fertilizers and other inputs.
Some analysts see the reforms not as necessary practical steps, but as the pursuit of a political strategy that created new constituencies for Mr. Modi by undermining precisely the groups that benefited from old rural power structures, such as middlemen, large landowners and landowner castes. general. The changes will likely also reward new groups that have supported Modi, such as large companies who can now find better investment opportunities in agriculture.
Even as the prime minister claimed to liberalize agriculture and help farmers, his government imposed an export ban on onions, the rising cost of which apparently worries urban voters. Even more undermining, in the eyes of Mr. Modi’s political opponents, was the way he passed farm bills.
In Rajya Sabha, the upper house of parliament, loud calls from the opposition for more debate have been canceled. Amid a loud crash, two of the laws were passed by voice vote. Protesting MPs were then suspended, the opposition came out of both houses.
This has allowed the government to pass many bills in quick succession, including major changes to labor laws. As with agriculture, these reforms may be long overdue, but Mr. Modi’s legislative haste and disregard for consensus generates unnecessary ill will along the way. ■
This article was published in the Asia section of the print edition under the title “Yield Curve”