Dissecting Modi’s Farm Bills

India’s BJP government recently introduced two farm bills that has generated lot of controversy of late: 1) The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 and 2) The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020. Opposition parties are alleging that Modi is selling out Indian farmers to big businesses and the prime minister is claiming that this bill will help farmers by removing the often hated middlemen from the agriculture sector. He said,

Mr. Modi said Indian farmers had been bound by several constraints and bullied by middlemen for years.

One of the cabinet ministers of the BJP government even resigned protesting against these bills.

In this article I want to discuss some of the implications of these bills. Before I do that I want to first quickly dispel the myth about the supposed villainy of middlemen. Some groups of people in our societies like middlemen or hoarders or speculators etc., are seen by most as purely evil people who are out there to suck our blood. Is the middleman really a villain? Can farmers do without him? Should we blame him for farmer’s poor condition in India?

As Prof. Walter Block has very nicely demonstrated in his very important book Defending the Undefendable, middlemen actually harm no one. In fact, they provide a vital service of connecting sellers with buyers which without them will be very difficult. Here is Prof. Block,

We are told that middlemen are exploitative. Even worse than other profiteers—who at least provide some type of service—the middleman is considered entirely unproductive. He buys a product which someone else has made, and resells it at a higher price, having added nothing whatsoever to it, except the cost to the consumer. If there were no middlemen, goods and services would be cheaper, with no reduction in quantity or quality.

Although this concept is popular and prevalent, it is an incorrect one. It reveals a shocking ignorance of the economic function of middlemen, who do indeed perform a service. If they were eliminated, the whole order of production would be thrown into chaos. Goods and services would be in short supply, if they were available at all, and the money that would have to be spent to obtain them would rise wildly. (p.179)

Why is this? Because, for example, in agriculture sector there are many services which middlemen provide which will simply be impossible for individual farmers to provide for themselves on their own e.g., they provide services of warehouse or cold storage in the urban markets where farm products typically come from the rural farming areas for selling or the services of transporting farm products from the rural to urban areas etc. How many individual (small and marginal) farmers of India can themselves do all these works on their own? Can they transport their own products to city markets? Can they own warehouses in cities? Can they own cold storage facilities in cities? No. And in the absence of all these vital services the rural farm products can’t reach the urban markets and that will create their short supply and raise prices astronomically high. A middleman in the market naturally comes into existence to fill this gap. And for providing these vital services if he is earning some profit then what is so wrong about it? If these middlemen are appointed by the state then that is a problem of the state socialism and not the market system. The problem that government has started cannot be solved by the very same government by passing such bills.

And as these bills show, in the absence of private middlemen the only middleman will be the state itself. Government is promising to provide all those above mentioned facilities to the farmers either directly or via companies that are appointed and promoted by them. Now anyone familiar with the government functioning will know what a disaster government run or appointed facilities are going to be. Not only those services will be horribly inefficient and costly, to the taxpayer, but also, as always happens with the government, there will be no correcting mechanism to remove those inefficiencies. In the market if some middleman is not providing proper services then he will simply go out of business because he will make losses, but in the government sector there is no profit and loss system working so government never goes out of business easily like that. In the absence of market’s inbuilt corrective mechanism, situation for farmers will just become worse.

Government becoming the middleman also shows the natural need of having middlemen in the economy. Middlemen carry out an important function and so they are naturally needed. Vilifying them will not do away with their vital role. The only important question is, who can be a better middleman? Private individual(s) working in the market system or the government or their appointed cronies? Theory and history both tell us, the former.

After dispelling the myth about the villainy of the middleman, now let us analyze the bills to understand their implications.

First, the text of these bills is not available on the ministry of Agriculture and Farmer’s Welfare website. I could locate the text of the farmers’ produce trade and commerce (promotion and facilitation) bill, 2020 from the Loksabha website. The texts of bills and acts should be easily available to the citizen of this country so they can scrutinize it and critique it if needed.

The first impression that I get from reading this act is that this is yet another move by the Modi government to centralized powers in Delhi. State government run APMCs will lose business as well as revenue because they are not allowed to levy any charges on any inter or intra state trading which will take place outside APMC. Chapter 2, Article 6 says,

No market fee or cess or levy, by whatever name called, under any State APMC Act or any other State law, shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers’ produce in a trade area.

GST has already weakened state government finances, and Modi government has the chutzpah of telling state governments to increase their borrowings instead of paying them their promised due of GST, and with this act states will lose more revenue and they all will become more dependent on the central government. Any freedom loving person must oppose this heavy centralization of power in Delhi. Freedom works best when political power is decentralized. Weakening state governments is definitely not going to give Indians more freedom. If this trend continues then soon states will become irrelevant and all decisions will be taken from the center which won’t be good for anyone because in that uniformity there won’t be any chance for any state to do something different because their local circumstances will be different, which will always be the case as no state is same. Demonetization, GST and the on-going Covid-19 lockdown amply show the dangers of such centralization of power.

Looking at the functioning of the present government, I will not be surprised to see corporatist companies like Adani, Ambni, Tata, Birla etc., starting the trading areas or electronic trading companies. Chapter 2, Article 5(1) says,

Any person (other than individual), having a permanent account number allotted under the Income-tax Act, 1961or such other document as may be notified by the Central Government or any farmer producer organisation or agricultural co-operative society may establish and operate an electronic trading and transaction platform for facilitating inter- State or intra-State trade and commerce of scheduled farmers’ produce in a trade area:

Provided that the person establishing and operating an electronic trading and transaction platform shall prepare and implement the guidelines for fair trade practices such as mode of trading, fees, technical parameters including inter-operability with other platforms, logistics arrangments, quality assessment, timely payment, dissemination of guidelines in local language of the place of operation of the platform and such other matters.

Such facilities require huge investments which only these corporate houses can provide. Politically well connected people will get the license to start such trading areas and they will then very likely start exploiting farmers. Farmers will very likely become their hostage now. These companies will now be the new (government appointed and promoted) middleman!

Price Information and Market Intelligence System is also going to be provided by government promoted companies. Which companies government will promote is anybody’s guess!

Apart from this, there are lots of provisions for central government’s firm grip on new trading areas in the name of mythical public interest. State governments are again losers here as they lose the control of local agriculture market to the center. And if I have to choose between the state and central government control, any day I will choose the state government which is more in touch with the local ground realities.

Not only that, as usual, government officials will not be liable to any court proceedings under this Act. Chapter 5, Article 13 reads,

No suit, prosecution or other legal proceedings shall lie against the Central Government or the State Government, or any officer of the Central Government or the State Government or any other person in respect of anything which is in good faith done or intended to be done under this Act or of any rules or orders made thereunder.

In the end of the bill text, government has inserted its objectives. Here they are,

to provide for the creation of an ecosystem where the farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce which facilitates remunerative prices through competitive alternative trading channels; to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce of farmers’ produce outside the physical premises of markets or deemed markets notified under various State agricultural produce market legislations; to provide a facilitative framework for electronic trading and for matters connected therewith or incidental thereto.

This is just a lip service as there won’t be any real freedom of choice in front of farmers. Trading areas will mostly be run by government appointed corporations or politically well connected people and central government will have a firm grip over all these proceedings. In Socialist India meaning of ‘competitive trading channels’ mostly means politically well connected licensed monopolies exploiting consumers. The real freedom of choice is when government completely gets out of the economy and society. Any positive legislation like these bills providing any free market is just an illusion. Any government legislation making economy efficient or things transparent and barrier free is also a myth. Believing in these things is like believing in unicorns.

And lastly, farmers in various states are agitating against this bill fearing they will lose the facility of minimum support price (MSP) provided by the central and state governments. Prime minster Modi has assured farmers that this will not happen, and he has gone as far as to announce new higher minimum support prices for six Rabi crops. All these contradictory actions of the government just doesn’t make any sense. Why? Because if minimum support prices will continue, as promised by the prime minister, then why would any farmer sell their products outside APMC mechanism in those newly created trading areas? And if minimum support prices will be less than prices available in those trading areas, then only farmers will sell their products in those areas, then that effectively means government abolishing minimum support prices. In the first case, the objective of this bill to supposedly provide alternatives to farmers will get defeated because farmers will continue to sell their products to the government where they will get higher minimum support prices. Those newly created trading areas then become irrelevant. And, if the second scenario becomes a reality then farmer’s apprehension about government abolishing minimum support prices turns out to be correct. Central government cannot have their cake and eat it too! Whether minimum support prices should be given or not is a different question altogether and it is not relevant for our ongoing discussion.

Overall, these bills are yet another move by the Modi government to centralize powers in Delhi weakening the state governments. This heavy centralization of powers poses a big danger to Indians. If state governments become weaker then we will have no choice but to follow the diktats of Delhi. Instead of enlarging choices, this will totally restrict our choices. There are ample reasons to fear corporatist tycoons taking over farming sector of India making farmers their employed workers. They will be the new middlemen. Last six years history and nature of functioning of the central government should make farmers and consumers worry for good reasons.

In the end, we all must remember that no positive legislation like these bills can establish any free market regime anywhere in the world. The solution of farmers’ problems is neither in the left wing policies of Congress or AAP nor in the right wing fascist policies of BJP. The solution lies somewhere else beyond the political parties like BJP or Congress or AAP etc. Only when the state, with its all political parties, stops existing, we can taste real freedom. Until then it is just an illusion of freedom.