The German obsession with sound currency has been conditioned by the collective memory of the Great Hyperinflation of 1922-23, just as American intolerance to double-digit unemployment and stock market crashes is traceable to the experience of the Great Depression of the 1930s. One can, likewise, view restrictions in agricultural commodities trade in India as mainly a legacy of the Great Famines of Bengal and Travancore in 1943. The war-induced shortages of that period, and the fear of their recurrence led to the framing of the Essential Commodities Act (ECA), 1955. It provides for the control of production, supply, distribution, trade and commerce in any farm good deemed “essential” and “in the interest of the general public”.
For governments, the “general public” has always been urban consumers. The proclivity for putting their interest above everybody else has been seen even more so under the present regime. One of the Narendra Modi government’s first decisions, in July 2014, was to bring potatoes and onions under the ECA’s purview, empowering states to impose limits on stocks held by individual traders. Besides, restrictions on exports — via fixing a minimum price below which shipments couldn’t take place — were clamped from time to time. In pulses, the government not only banned exports while allowing imports at zero duty, but extended stockholding limits even to dal millers and large retailers. In mid-2016, the Intelligence Bureau and Directorate of Revenue Intelligence, too, were drafted in a “coordinated” action against purported cartelisation and black-marketing in pulses.
The above pro-consumer bias built into official policy-making has, however, been seriously called into question by the spectacle of farm distress unfolding over the last two years or so. The best indicator of it is prices, with annual wholesale inflation in 2017 and 2018 for both “food” (2.2 per cent and minus 0.3 per cent respectively) and “non-food” agricultural articles (minus 1 per cent and 1.9 per cent) averaging lower than the corresponding rates of 3.4 per cent and 4.3 per cent for “all commodities”. Equally telling is consumer food price inflation: It has been ruling below general retail inflation for 30 months running since September 2016.
This new reality — of farmers, not consumers, at the receiving end — has taken some time to dawn upon policymakers brought up in the era of ECA and shortages. The inability to adjust is reflected in stockholding limits on pulses remaining in place till mid-May 2017 (despite record domestic production and imports in 2016-17) and income tax officials raiding onion traders in Maharashtra for “hoarding and artificial manipulation of prices” even in September that year.
With widespread agrarian distress, though, a political window has opened to correct the entrenched pro-consumer policy bias. Every party wants to be seen now as pro-farmer. Going by the response to the Kisan Long March rallies in Mumbai and Delhi, “public opinion” is geared towards understanding things from a farmer’s — rather than the consumer’s — perspective. A simple illustration would suffice: For an average family consuming five kg of sugar per month, a Rs 5/kg price increase hardly pinches. But for the cane farmer in Bijnor who has an hectare of land and harvests 80 tonnes, that increase — assuming 11 per cent sugar recovery and the mill sharing three-fourths of the sale realisation — would translate into an extra income of Rs 33,000. The same logic applies to onions, potatoes or chana, where the gains to individual producers who sell in tonnes/quintals far outweigh any losses to consumers buying in kilos.
The present moment affords an opportunity, for whichever government assumes office after the General Elections, to enact a Freedom to the Kisan law, giving farmers unfettered rights to sell any quantity of their produce to anybody, anywhere and at any time. This omnibus legislation will, at one stroke, dismantle all provisions, whether under the ECA or state-level Agriculture Produce Market Committee acts, that enable restrictions on sale, stocking, movement and export of farm produce.
What would such an explicit legislative commitment — that there shall be no ban on export of onion, potato, pulses, sugar or milk powder and no limits on how much quantity of produce a trader or processor can buy and stock — do? It will take away the powers of the department of consumer affairs or director-general of foreign trade to impose such curbs on any agricultural commodity at the slightest instance of price rise. That power shall, instead, devolve on Parliament, which may approve these only under the exceptional circumstances of war or nationwide calamity — as opposed to executive orders and departmental notifications issued in “public interest”.
But what the Freedom to the Kisan law will do, above all, is bring back sentiment and liquidity into produce markets. These were hit first by the ECA and export ban measures, bestowed legitimacy by the Reserve Bank of India’s new “inflation-targeting” framework, and dealt a body blow by demonetisation. Indian agriculture is today crying for investment in processing as well as backend procurement, grading, warehousing, cold storage and transport infrastructure. That cannot happen if farmers and agri-businesses continue to operate in an environment of uncertainty about the government’s next “supply-side management” action. This is the time to lay the ghost of the Bengal Famine to rest. The party that does so shall reap the political rewards.
But what becomes of the consumer? Nothing stops the government from building a buffer stock of any “essential” commodity, whether for the public distribution system or for market intervention operations. The government can procure, stock, and distribute grains in the interest of consumers, so long as this does not infringe upon the commercial freedom of farmers and agri-businesses.
However, consumer interest can be better secured by learning to trust the supply response of Indian farmers. In an earlier piece (‘The age of surplus’, IE, June 12, 2018), I argued that their ability to increase production when prices go up has vastly improved compared to even 20 years ago. Better seeds, agronomic practices, crop protection chemicals, machinery, and also rural roads, electricity, irrigation and communication infrastructure have reduced the supply response time to just the next season in most crops.
The policy take-way is clear: Price matters more to the person who sells in quintals than who buys in kilos. If onion prices are high, let the farmer make money; the consumer won’t have to shed tears too long.
Swaraj is the kisan’s birthright and he should have it.
This article first appeared in the print edition on March 14, 2019, with the title ‘Swaraj to the kisan’. Write to the columnist at email@example.com.