REPEAL OF FARM LAWS

What does it mean for the Indian Economy?

- Penned by Sakshi Sharma

INTRODUCTION

Prime Minister Narendra Modi startled the entire nation last Friday by announcing the repeal of the 3 farm laws. The
laws introduced in September 2020 were withdrawn, in a shocking turn of events, after almost a year long struggle
with the farming bodies. Why did this move come about so suddenly? Does it have anything to do with the upcoming
elections in U.P., Punjab? Is it to keep the rising popularity of Rakesh Tikait in check? Is it a move to win support and
forge an alliance with the Akali Dal? Is it simply a tactical retreat? Well, the intent behind the move remains largely
unclear. The decision, however, is sure to have enormous implications for the Indian economy.

ECONOMIC IMPLICATIONS

To understand what the repeal means w.r.t each bill, it is worthwhile to look at how the laws could have
revolutionized the agricultural sector as well as the Indian economy.

1.) The Farmers Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020
This bill aimed to liberate the farmers by providing them the opportunity to sell their produce beyond the
physical premises of the APMC markets. Additionally, the provision of alternative trading channels,
electronic trading and abolition of market fee (like cess) gave greater autonomy and (possibly) ensured an
increased income for the farmers. Moreover, the reform would have reduced the monopoly of the traders
and ensured movement of produce from surplus to deficit regions, thereby ensuring greater food availability.

The repeal inhibits the growth of the agricultural sector as the status quo remains unchanged. Farmers
would still be restricted to the APMC mandis, subject to the mercy of the middlemen. The paltry rural income
of Rs 13000 (roughly) would remain constant unless some other reform which propels high-value agriculture
is put in place. More so, it would become increasingly difficult to implement such a high-value scheme as
these schemes typically require huge investments in logistics, storage, processing etc. Under the bill, these
investments could have been made with relative ease by the private sector.
2.) The Farmers (Empowerment and Protection) Agreement on Price Assurance & Farm Services Bill, 2020
This bill facilitated the creation of a farming agreement between a farmer and a buyer prior to the production
or rearing of a farm produce. The bill specified the pricing mechanism, minimum and maximum period of
contract, and a dispute resolution mechanism. This would have helped reshape the farming sector by
transferring the risk from farmers to sponsors, providing farmers access to high quality seeds, pesticides
etc., and linking the farms to global markets (through contractual agreements between farmers and MNCs,
increased investment from the private sector). The bill also had the potential of turning simple farm produce
into potential billion dollar brands. Rajgira, amaranth, and other high-protein Indian grains, for instance,
could have been introduced on the global forum. Given the world’s current obsession with keto-diet/ protein-
rich foods, the grains could have been a tremendous hit. Just like Peru marketed quinoa on the global
forum, the bill would have provided an avenue to the Indian producers to do the same with these grains.

The main cause of worry, though, was that the govt. would lose control over the prices and MSP (Minimum
Support Price) would become obsolete. This in turn would lead to greater exploitation as their bargaining
power would reduce and they would be exposed to inequitable contracts.

So, what essentially does the repeal do? The effect seems to be obscure. While it hinders the opportunities
available, on one hand; it also protects the farmers by not exposing them to increased competition, unfair
contracts etc. Moreover, all the positives listed above were mere anticipations; things could have taken a
turn for the worse as well. The ambiguous dispute resolution mechanism, for instance, could have fuelled
greater private sector exploitation; thereby worsening income inequality and poverty. Furthermore, with the
demand for a remunerative MSP still looming, the net effect seems to be dubitable.
 3.) The Essential Commodities (Amendment) Bill, 2020
This amendment deregulated the production, storage, movement, and sale of several commodities, like
cereals, pulses, edible oils etc. except in the case of unusual circumstances like war, famine etc. The
imposition of stocking limits was also removed under this bill. This would have helped improve the cold
storage, warehouses, processing facilities, which consequently would have facilitated wastage reduction
during storage. Additionally, the issue of harassment of businessmen and traders on account of produce
spoilage, quality problems would be reduced with this bill in place.

The bill also had a few ramifications associated with it. The removal of stocking limits, for example, could
have led to increased hoarding, which would have led to artificial price fluctuations and lower prices for
farmers after the process. This would have defeated one of the core purposes of the reforms, which was to
improve the income of the farmers.

CONCLUSION

Did the government do the right thing by repealing the laws? The consensus appears to be mixed. On one hand,
there are people who feel that the agricultural reforms were long overdue and detrimental to the economic growth of
the country. Repealing of the laws, they argue, has derailed the government from its reformist path. On the other
hand, there are people who feel that the laws were vague and wouldn’t have led to a substantial change for the
farmers as well as the economy. This group is, though, insistent on getting the MSP legislated. Will the government
accede to the demands? The future of the legislation seems to be indefinite but the repeal has surely provided a
boost to the farming bodies, which would now vouch even strongly for the MSP issue.

While opinion seems to be divided over the repeal, there is an unopposed belief that the agricultural sector does
need a structural transformation (since it employs 44% of the workforce but only contributes to 16% of the GDP).
How the government plans to drive change in the farming sector, in the face of increasing protests, unrelenting
bodies is something we would have to wait and see.
REFERENCES

 https://indianexpress.com/article/opinion/columns/farm-laws-repeal-farmers-agitation-7631937/
 https://timesofindia.indiatimes.com/blogs/The-underage-optimist/power-of-the-status-quo-on-the-new-
farming-laws-why-change-is-scary-but-we-must-still-do-it/
 https://www.firstpost.com/india/five-reasons-why-pm-modis-rollback-of-farms-is-politcally-noxious-and-
logically-unjustifiable-10151161.html
 https://timesofindia.indiatimes.com/blogs/The-underage-optimist/global-brands-indian-farms-listen-to-those-
who-actually-work-on-farm-reforms-not-just-twerk/
 https://www.jagranjosh.com/general-knowledge/farm-bills-indian-farm-reforms-2020-1606901455-1
 https://economictimes.indiatimes.com/news/economy/agriculture/agricultural-reforms-heres-a-look-at-key-
measures-in-the-legislation-passed-in-lok-sabha/the-essential-commodities-amendment-bill-2020/

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